What do Jeremy Grantham and Jim Rogers have in common with Silicon Valley's Vinod Khosla? They are hot on agriculture—a space that has not been particularly accessible to non-institutional investors.
But Agfunder, an equity-based, crowd-funding platform launched in February and backed by $365,000 in angel capital, hopes to change that by linking accredited investors with opportunities in agriculture, ag tech and food processing. Although it initially looked for deals ranging from $500,000 to $2 million, one company on the platform is currently raising $4 million, and Agfunder has over $1 billion of deals in its pipeline—some as large as $100 million.
"We are trying to create the financial infrastructure for agriculture," says Rob Leclerc, co-founder of the New York-based firm. This spring, Agfunder raised $800,000 in 35 days for OnFarm, a Fresno, Calif.-based provider of data and analytics software for farmers. The minimum investment was $15,000.
And late last month, it closed its second campaign, a $350,000 financing for Oakland, Calif.-based Kuli Kuli, a food startup that sources its herb moringa oleifera from women's cooperatives in West Africa. The company, whose minimum investment was also $15,000, ended up raising funds from notable investors such as angel and venture capitalist Brad Feld (co-founder of Mobius Venture Capital and Tech-Stars, among other things), venture capitalist and five-time CEO Derek Proudian (who ran one of Elon Musk's companies), and Mary's Gone Crackers co-founder and Chairman Mary Waldner, who last year sold her gluten-free cracker company to a Japanese firm.
The idea for Agfunder came about when, while working at SeedRock Capital Group, a venture capital firm focused on natural resources and agriculture, Leclerc failed to raise a second round of financing for an investment in a West African agricultural project. Although he realized the problem was not the project itself but the lack of communication about the project and a grossly inefficient market, it was not possible to use the Internet due to the SEC's bedrock regulation banning general advertising and soliciting for private investments. But that changed in September 2012 with the JOBS Act.
Many start-ups in the Ag space, however, are not ready to raise funds, according to Leclerc. Agfunder serves as a low-pass filter to assess that readiness. It does legal due diligence and vets the strengths of a company's team and experience, preferring companies that have been able to raise capital in a previous round or that already have a credible investor or media attention. It charges no fees for the time being to either investors or companies so as to build a critical mass of investments; companies rather than the platform set the minimum investment. All investments are made directly into the companies.
"Our job is to create a market, but not necessarily to pick the winners," he says. "We want to maximize liquidity on the platform. We want a place where there are lots of companies, lots of investments and lots of activity. We're taking the Facebook approach: Scale it first."
Of course, Agfunder will eventually charge fees. Leclerc plans to syndicate deals for each company raising funds into a separate LLC, where the platform's fee would be based on the typical venture capital (VC) or private equity (PE) model of 20 percent of the investors' potential profits. Right now, though, many of the platform's early adopters are VC and PE funds that would not invest in yet another fund structure.
"We will put that aside until we are dealing with a large number of small investors rather than a small number of large investors," he says, noting that the fund structure will also make it easier for companies to set lower amounts for minimum investment because Agfunder as general partner could take care of the investor relations responsibilities that early stage companies don’t have the capacity to fulfill.
In fact, Leclerc has been surprised to see so much interest from institutional capital. But, he says, many of these groups have told him that they spend a lot of time sourcing deals—something that is not their core competency.
"If we facilitate and specialize in sourcing, it allows them to focus on what they do best," he says.
The other element, of course, is education about a new asset class—something that many PE funds and wealthy individuals are looking to add to their portfolios. Since Agfunder has elected to make 506(c) offerings, investors only have to be verified as accredited when their investment is actually consummated. That means a broader audience can partake in webinars about each offering provided by the platform—something that Leclerc says is good because it creates more transparency.
"There are at least a dozen or two people that have been at every single webinar that are not investors," he says. "People are educating themselves in a field they find interesting but in which they know they are not ready to invest in yet. I think that's great. A farmer in the Midwest who knows a lot may have something important to say even though he's not investing. The more eyes on an opportunity, the better."
