Six Innovative Ways to Fund Your Ag Startup or Farm
August 7, 2014 | Nicola Kerslake
Finding funding is one of the tougher parts of setting up a sustainable agriculture startup or farm. The good news is that the range of options are no longer just bank loans, angel investors or venture capital as a plethora of new approaches have flourished over the past few years. Here are some of the more interesting ones:
Historically, microloans – broadly defined as loans under $35,000 made to individuals who couldn’t usually borrow from a traditional bank – have been an emerging market phenomenon, with the work of Nobel prize winner Muhammad Yunus of Grameen Bank seen as leading the way. Since the economic downturn, it’s become a more popular approach in the US, and the Centre for the Study of Financial Innovation estimates that there are now 400 or so microlenders in the nation.
Among the best known of these is Kiva, which initially focused on allowing individuals to lend to overseas borrowers, but now allows US entrepreneurs to participate. Kiva Zip is a pilot program, through which farmers can raise interest free loans; there are 14 US farmers in the process of raising $10,000 loans through the site at present, ranging from a second generation apple farmer in Rochester, NY to a seed bank in Hudson Valley, NY. To date, the program has lent just under $4 million to around 3,900 borrowers.
While general crowdfunding sites, such as IndieGoGo and Kickstarter, remain a go-to resource for ag startups – hydroponic greenhouse farmer BrightFarms is raising on IndieGoGo at present – agriculture-specific platforms are beginning to pop up thanks to some changes in financial regulations over recent years.
One is AgFunder, founded by a Yale-educated PhD – Rob Leclerc – to facilitate equity investments in agriculture startups. The platform allows certain investors to see information on startups and decide whether to invest in them. To date, it’s completed fundraises for three companies, including superfood startup Kuli Kuli, and has three other campaigns live.
Whole Foods Market’s Producer Loan Program
Long known for championing local farmers, Whole Foods Market extends this support to finance through its producer loan program, which allows farmers to borrow for capital and equipment, though not for operations. Loans range from $1,000-$100,000 and are at 5-9% fixed interest rates right now, you can sometimes borrow more after a year, and the company accepts applications online. Borrowers include sustainable bee rescue firm Guerilla Beekeepers, which rescues honeybees and swarms as an alternative to extermination and relocates them to apiaries in Orange and San Diego counties.
Accelerator programs offer a combination of investment (anywhere from $5,000 to $150,000) and mentoring to participants. Examples of food and agriculture-focused programs include Washington, DC-based Cultivate Ventures (founded by the entrepreneur behind sustainable delivery service Relay Foods) and New York, NY-based AccelFoods, for which applications are open through September 30th.
Mainstream accelerators are also interested in the sustainable agriculture space. For instance, if you make it through the notoriously-tough application process, Y Combinator – the accelerator that spawned Dropbox, AirBnB and Stripe – invests $120,000 in seed funding and, more importantly, works with you to develop your idea for three months. The Bay Area based group is best known for its expertise in mobile and web applications, but is industry-agnostic. One program graduate – dairy herd management software Farmeron – went on to raise just over $4 million from traditional venture capitalists.
The most recent Farm Bill – finally passed in February 2014 – includes increased funding to two grant programs that are especially helpful to beginning farmers. Managed by individual states, the Specialty Crop Block Grant aids a diverse range of local food system projects, from establishing food hubs to farm to school initiatives. The Value-Added Producer Grant Program has a particular focus on locally grown food, and offers grants up to $75,000 for planning and $200,000 for working capital.
Community Supported Agriculture
Community supported agriculture (CSA) is one of the more common methods of supporting a small farm, especially in areas where there’s a supportive local community educated in the benefits of sustainable agriculture. 12,617 US farms offer CSAs according to a 2012 USDA Census of Agriculture, receiving payment at the beginning of each season for either weekly boxes of produce or a share of the farm’s output. Though it can be demanding to put together a CSA from scratch, there’s an increasing range of software to help (such as, LocalHarvest’s CSAWare), and established CSAs will sometimes aid beginning farmers by including them in their own program.
Sierra Nevadas-based GirlFarm is one farm that uses this approach; families sign up for its Personal Farmer Program at the beginning of each season and receive sufficient humanely raised meat and produce for a family of four. In addition to a financial contribution, families commit to helping out on the farm regularly, with tasks such as weeding. In effect, each family has a stake in the farm’s success, and the approach is so popular that it has a lengthy waiting list.
Nicola Kerslake is the co-host of Indoor Ag-Con, an annual event that unites farmers, entrepreneurs, tech geeks and investors in a discussion of the future of indoor agriculture. Her day job is in venture capital. The above post is solely for information purposes; it does not represent any offer of securities for sale, nor investment or legal advice to any company or individual.