Why it matters:
Traditional agriculture is designed to provide farmers with some financial safety net, even when a harvest fails. That’s not the case for those switching to organic and/or regenerative practices. For them, it takes around three years to produce a consistent yield, and most farms can’t afford to shoulder the financial burden of this period themselves.
Meanwhile, traditional banks, are ill-equipped to provide transition financing.
“They may not have the farmer pipeline, responsive underwriting and servicing, values alignment or the creative terms to be able to fund those farmers’ needs,” Mad Capital co-founder Brandon Welch tells AFN.
Mad Capital partners with these banks, as well as non-bank lenders, with pools of capital they want to direct to such farmers. It then blends this financing with what it calls “innovative capital,” or long-term flexible financing from private funds Mad Capital goes out and raises.
The mix creates “a unique capital structure for farmers,” says Welch. Mad Capital can offer farmers longer loans than traditional community banks, and faster.
“From a flexibility standpoint, we are able to offer long-term bridge financing,” explains Welch. “For a farmer that needs upfront cash in order to invest in new practices, new equipment, etc., we’re able to provide a reduced payment schedule during those transition years, before they start seeing those positive benefits from regeneration.”
Mad Capital at a glance:
Boulder, Colorado-based Mad Capital recently finished deploying its inaugural $10 million Perennial Fund.
Mad Capital is currently financing 44,000 acres; it aims to be working with 10 million by 2032.
Welch says his company works primarily with “mid-sized to larger family farms,” usually around 2,000 acres. These farms grow commodities in addition to some speciality crops. A few raise livestock.
It’s largest farm is 12,000 acres and the smallest farm it works with is 40 acres.
In the next year, the company will launch a second Perennial Fund, this time for $25 million. The goal is to finance 100,000 acres of farmland in 2023.
The bigger picture:
Nowadays, regenerative ag is a buzzy phrase that’s discussed everywhere from the farm to the Silicon Valley board room. It comes with promises to restore soil and biodiversity, trap carbon, and make our plates healthier.
It’s also going to be wildly expensive to do at scale, which the only level at which it will make a meaningful impact.
Welch is keenly aware of this, and of the amount of capital it will take to, for example, farm 10 million acres regeneratively by 2032.
“To truly facilitate the transition of hundreds of millions of acres of farmland is going to take large capital markets,” he says.
“We have to focus on building the types of capital stacks that the broader market can understand, rather than creating specialty financing that’s so boutique it won’t be applicable to the institutional capital market.”
It will also require the incumbents.
“It’s going to take players like Blackstone and BlackRock, JP Morgan and Wells Fargo. We’re going to need the support of all of the traditional actors that have been around for the last 50 or 100 years. And we’re going to have to speak their language to unlock large pools of capital,” says Welch.
What’s next:
For its part, Mad Capital will eventually expand internationally in order to achieve its million-acre ambitions.
Welch says the expansion will start in Canada and Mexico before moving towards places like Australia.
“To be able to regenerate landscapes at scale is key, and that’s going to mean that we are going to be moving into working with larger and larger farms,” he says. “So long as those those farms are in line with the types of regenerative principles that we support, being chemical free agriculture using regenerative practices.”
In the very near term, the company will grow its team.
The seed round will fuel more hiring. Mad Capital has increased its team from three to eight over the last six months. Funding will enable the company to invest in “marketing sales, pipeline development, and really just increasing throughput of the organization,” says Welch.
