Agriculture is a broad, ever-changing field that is rapidly advancing to keep up with global consumers and increase yields and profits. A more slowly-evolving sector has been access to financing. Equity crowdfunding is an emerging option to help farmers obtain capital.
Choosing the Best Crowdfunding Option
Small scale or hobby farmers looking to raise smaller amounts of money might investigate donation-based crowdfunding. In donation-based crowdfunding, people who wish to support farm projects contribute money without much of a reward expectation besides the gratitude of the beneficiary or project creator. Farmers who need to raise more significant amounts of money to fund the launch or growth of their project may choose to pursue equity crowdfunding. Generally, the investors in a crowdfunding project are passive, limited partners while the landowner is the active partner, making all the decisions to include what to grow, when to plant, and where to sell the harvest, or pay a manager to do these things.
Crowdfunding as an Alternative to Traditional Banking
Now, why wouldn’t landowners just go to the bank and get a traditional loan to start up their business? There are many factors that go into this decision, including the landowner’s financial status, the desired mix of debt and equity, and the potential profitability of their farm or ranch.
Fortunately, farms aren’t nearly leveraged as they were during the 1980s farm crisis, which saw many people lose their land. But leverage always adds an element of risk, along with the potential for increased returns. Bringing in equity investors via crowdfunding enables a landowner or producer to realize economies of scale and reduces the risk of foreclosure during commodity downturns.
Crowdfunding can be particularly attractive for beginning farmers who are growing products that take several years to produce revenue; for example, tree crops. These farmers won’t see a profit from their investment for years. Imagine using your life savings in addition to a huge loan to open a restaurant, only to have to keep the place dust free and running smoothly with no customers for 5 or 6 years before you can open the doors and see a profit from your hard work. That’s similar to the reality new orchard growers face for years.
Raising Money Takes Money
Private equity firms and farmland real estate investment trusts commonly pool money from outside investors to purchase large portfolios of income producing agricultural assets. These capital raises typically involve hundreds of millions of dollars and require a thorough knowledge of Securities and Exchange Commission regulations along with significant upfront legal costs. Crowdfunding uses the same basic model, but on a smaller scale.
The Harvest Returns platform draws together investors interested in agriculture with a wide assortment of investment agriculture products. With as little as $5,000, these investors are able to own interests in farms, timberland, or orchards in different parts of the world, each with their own risk/return profile. Landowners and sophisticated investors are familiar with the benefits of investing in agriculture. Now there are ways for the average American to put a portion of their investment portfolio towards agriculture, arguably, the world’s most important industry.