S9E114: Chris Rawley / Harvest Returns - Sustainability, Risk Management, & Investor Education in Vertical Farming

[00:00:00] Definitely change perspectives.

[00:00:01] You know, as I mentioned, all that travel, if you want to broaden your perspective of

[00:00:04] your kind of a young person, maybe you grew up in a city, maybe you grew up in a country,

[00:00:08] or wherever you grew up or suburbs, and you've had kind of a vanilla life.

[00:00:11] If you want to broaden your experience, best thing to do is go travel.

[00:00:15] Just see the world.

[00:00:16] You will meet some very interesting people from different cultures and learn that the way you

[00:00:21] grew up is not necessarily the way, in fact, it's not the way that most people are going to live.

[00:00:25] Most people have very different experiences and it's good to learn from them. 2014 with my first show, Podcast Junkies, and founder of Full Cast of Full Service, interview podcast agency. In case you missed last week's episode, we had a great conversation with Tynia Pina of Renewable, Tina connected at Indoor AgCon. Way back, I feel like way back, months ago, months ago in Las Vegas. And she was in one of the booths in the corner.

[00:01:41] And then I noticed that she was doing something interesting in the space.

[00:01:45] And I reached out to her and we necessity of building trust in the industry. With the team at Harvest Returns, Chris has developed different financing structures and also stresses the importance of building relationships, which is something that he learned from his travels.

[00:03:02] Chris also emphasizes the importance of sustainability, and something I'm appreciative of. So shout out to all the new folks I met at the conference, new relationships built, new partnerships formed and deepening relationships that were

[00:04:21] already strong but are getting stronger. So I highly encourage you to check out a future

[00:04:25] indoor farming event. I think that maybe it for me this year, but I'll definitely be the amazing partners that support this show. This episode is brought to you by Horty Agree Next, November 20th to the 22nd. In this first edition of the conference, you can expect a vibrant show that will bring together a portfolio of high-level horticulture technology to the Emirates, with the goal of aiding the Emirates to take the next step in becoming more self-sufficient in their food production, aligning with their 2051 goals.

[00:05:42] The show is expecting 8 to 10,000the-art container farms and complementary agricultural equipment, which guarantees a robust start to your indoor farming venture. Even better, Farm Anywhere is providing a discount exclusively to listeners of this show, a $5,000 reduction in delivery fees, no monthly subscription charges, and many other benefits.

[00:07:00] To take advantage of this special offer, visit farm Anywhere.ag forward slash VFP. culture country. So if you go just not too far outside of dollars of four words, you're going to find ranches and farms and things like that. And in the city, we do have some urban farms. And it's a great sports team for sure. But it was a great place to have a business. Yeah, I think it's always interesting, especially with the changes and what's happening in climate

[00:08:20] across a bunch of different areas. People are always open to new opportunities to try

[00:08:24] out, you know, the way what climate was in folks that may not know you, or just to kind of introduce you to the listener. I know you've got experience in data systems and communications and obviously a lot of the work that you were doing with some of the defense companies you were working with. So whatever feels your call to talk about and share

[00:09:42] in terms of like those experiences

[00:09:43] and how they eventually will make our way to present day,

[00:09:45] but I thought some of that would be valuable. It's reliant on a global supply chain. So you have 365 days a year of fruit and vegetables that shouldn't be ripe coming in and being imported from South American places like that, ripe. So straight to our grocery stores, our markets and farmers markets and very vast distribution

[00:11:00] system.

[00:11:01] And of course, terrific restaurant, businesses or get into new areas. And we've been doing it for quite some time now.

[00:12:20] We've raised over $30 million for a number of farmers,

[00:12:24] including vertical farms.

[00:12:26] On a vertical farm side then we also do livestock, and we do some vineyards and specialty types of farms, and then we do some technology companies that support the vertical arming industry and other aspects of farming. So we've kind of seen a bunch, but we basically help raise money for anything except for sort of a wheat farm, row crop farm, soybean farm, corn, that sort of thing, conventional crop

[00:13:44] growing just because there's other sources of capital for those folks. experience, best thing to do is go travel, just see the world. You will meet some very interesting people from different cultures and learn that the way you grew up is not necessarily the way, in fact, it's not the way that most people are going to live. Most people have very different experiences and it's good to learn from them. And then maybe specifically, I learned a lot about risk because we did some dangerous things.

[00:15:00] And, you know, looking at what the call them a Navy, we wouldn't even call them a Coast Guard, but they're just hardworking people. And those are probably the best memories I have of just, you know, seeing these foreign cultures and then interacting with them in the context of the job and sharing meals together. I can remember some great meals where we were

[00:16:21] sitting around in Africa in the middle of nowhere, essentially sitting around eating a goat and culture that are probably older than the United States as well in terms of traditions and how they carry things down. And I think seeing that and being able to honor and respect that, and then that's almost the way that you connect with people there, which is different. That's how businesses done. That's how transactions are made. They want to know that they can trust you and they feel that comfort level with you first. I think that's very important.

[00:17:41] Yeah.

[00:17:41] And that is something that's kind of universal that does tie into this business is sharing things over food and drink, right?

[00:17:48] Yeah.

[00:18:47] and people have access to so much content these days of YouTube and just movies and it's a much more that the networks bring in content that people and open people's eyes that they may not

[00:18:53] have seen previously. So that's a little bit easier, but there is sometimes hard relating to people

[00:18:59] that haven't had that same background. I think what's happening when I'm seeing a trend towards

[00:19:03] is because there's such a movement towards virtual open sea? Yeah, for sure. Yeah, that's what I have for so long. I like the ocean. What's that like? Because most people will not get past the shore when they're on the beach and they don't understand. I've done it a couple times where you travel far enough where you lose sight of the shore

[00:20:21] and it's a bit jarring the first time it happens and then just having that huge expanse

[00:20:26] of just ocean. countries, but can you talk a little bit more about personally what was happening for you? This was really something where you felt like you had to do something in this space. Yeah, a lot of it had to do with where I moved. I'd lived in urban areas and I'd done all this travel. Then several years ago, when I moved back to Texas from Florida, I moved out to a fairly

[00:21:41] rural area where I drove to work every day and passed these large ranches. by investing is the way we've decided to do that. So we put people in touch with different types of farmers. And so parts, I think that's part of the mission that we really have a passion for. How was it going in those early days when you obviously, a lot of it has to do with connections, your experience in financing other projects, maybe non-farm related, your introduction to an industry

[00:23:02] that you're new to.

[00:23:03] So, you know, I'm being an entrepreneur myself.

[00:23:07] I know that there was a lot to learn, especially on the Ag side and going to conferences. And obviously a lot of reading and talking to people and meeting people. And the first deal is always the hardest deal. And we had some stumbles and some mistakes.

[00:24:22] And we still make mistakes,

[00:24:24] but fewer and fewer as we were a little more hungry for deals.

[00:25:44] So we began developing some creative financing structures, both on the debt side with law versus just going to a bank or small business administration or something like that. Something that just came to mind as you were sharing your earlier experiences, brick and bread with some of these different cultures and that being the basis for developing relationships, did you find as you started to have conversations with farmers, there's a trust factor involved, especially with banks, I imagine there's a long history of farmers not

[00:27:01] trusting banks and banks not really being confident in farmers ability to pay back loans and things regenerative agriculture or vertical farming. So that's good for our business. When you look at a deal, you know, part of the challenges with farms is obviously they can promise. And in the beginning, you're doing with Open Field, right? So there's the challenges of being able to produce or say that you're gonna be able to produce what you can do.

[00:28:20] So what were some of the early needs of the first deals?

[00:28:23] What were they looking for?

[00:28:25] They're looking to expand operations.

[00:28:26] Is it equipment or, you know, I grow things. And so, you know, as we've kind of seen some of these, and then especially, you know, electricity is crazy and those prices, inflation has driven up those prices and input cost and all those sorts of things have to be taken to account. So we've talked to a lot of the farmers that want to get into this business or have.

[00:29:42] And, you know, those early deals we did,'s not necessarily that back breaking work, but it's a lot to grow, but also to run the business side of the things, including the distribution of sales, the marketing,

[00:31:02] maybe the hard part is staining out of the closings, restructurings, bankruptcy filings of recent news, and we're seeing more of that than ever, and everyone's calling it the trough of disillusionment that we're in now when it comes to CEA or specifically vertical farms. I think a lot of what we're seeing is that people felt that they were a technology company

[00:32:22] as opposed to being without having any experience in farming.

[00:32:26] I think we're seeing how that has played out. There are a lot of companies right now, they're not sure which direction they're going to go. So they started out as a technology farming company hoping that they could do it all. Well, the two are very distinct. Growing a tech company requires generally fast growth, high levels of investment. A sooner or later, you do have to provide a product that you can sell for a profit.

[00:33:43] Whereas a farming company has to start out making people know the story of Ray Crock, you know, in McDonald's and how he created this whole fast food industry. Essentially, it was a crazy idea back when he did it. And we're looking for the Ray Crock of the kind of small urban farm where somebody figured out to do a profitability and then can scale

[00:35:03] it. Because if you want to scale a vertical farm, or especially an urban area to a suburban area and some regions, whether although these are controlled environment, whether it is huge, because if you have to pay massive heating costs or have some sort of massive heating system for your vertical farm in the winter, that's going to be a lot different where the farmers down here in Texas, where

[00:36:22] the summers are it's 109 out, it's like it is today, and they and then what you should expect in terms of energy costs as well, which is a real big consideration. So when farmers are getting started and how far along their life cycle are they before they start to consider needing some help with financing in terms of how long they've been in business?

[00:37:40] It depends.

[00:37:41] And I'll start by saying some of the early farms we did that we raised capital for it

[00:37:47] was a different fundraising environment. I'm just throwing out a number of five million dollars and you've only got two hundred thousand dollars and you come to us and you might raise the average check that we're going to ride is going to be two hundred thousand to a couple of million dollars. That's kind of the range of what our raises are. We're not doing series F rounds where we're writing a hundred fifty million dollar checks

[00:39:00] like some of the indoor farming companies got. It's because it's all about reducing the risk for us and for our investors. The more you can show that traction in ability to execute. That's a really intangible thing.

[00:40:22] It's hard in entrepreneurship to predict.

[00:40:25] It's one thing to have a good idea and we see that all the time.

[00:41:23] want to see teams that have that wide approach. Is it safe to say that you've gotten better as an organization

[00:41:26] at looking at companies who are coming to you for that funding

[00:41:31] and because of all the aspects of the business

[00:41:33] that you're now putting under the microscope,

[00:41:35] having a better idea of who's going to have a chance for success?

[00:41:39] Yeah, like I said, early on we made mistakes.

[00:41:41] Some of those mistakes included due diligence

[00:41:43] and probably selecting some farms for funding in the best light. So they know that they want to be taken seriously and given everything they've heard in this episode, you don't want to make sure that they have a positive outcome with you. There's probably some things that they could do everything you've probably talked about, but maybe there's some other due diligence on their part that would put them in the best light for you guys. Yeah, Harry, I'd say probably the stuff happen, which is great. That's kind of me. But if you don't have that accounting, you don't understand your numbers and we'll have somebody that can do that for you, then you're not going to have a successful business period. So I don't care what you're doing, you know, but farming, especially. So pay attention to your numbers and try to understand and be able to

[00:44:20] articulate your numbers before you approach anybody for capital, whether but in many cases it's higher. And so they've got some financial savvy, they've got most of them are accredited investors, which there's a definition of what that means, it's just a high net worth or high income earners. And they all have some interest in agriculture and that interest varies significantly across individual investors. So some, we have people that only wanna do livestock

[00:45:43] because they come from a,

[00:45:45] yeah, that sort of background,

[00:45:46] really like that industry. want alternative investments and they've heard farming and agriculture, there's something to it and they can make money and we have some of those too. And some, you know, venn diagram of overlap of those sort of things. So we left talking to our farmers, but we like to hear from our investors and hear what they're interested in. And the primary about and the ability to execute. So the bar is a lot higher now. Unfortunately, for companies raising capital than it was just a few years ago because investors don't want to lose money. They're trusting their money, hard-earned money to an entrepreneur and they want to see

[00:48:23] that that entrepreneur that she knows what she's doing or that he's not just going to They've had to do it. So we've tried to education the big part of what we do and get a lot of content out there, blogs and videos and I go on some podcasts like this to kind of help educate people on both sides of the business. But of course, I'll get on Zoom one on one or a phone call one on one with any investor that wants to talk to us.

[00:49:40] We provide webinars.

[00:49:41] So every time a deal comes up, we'll do a webinar and that'll be an opportunity for

[00:49:44] the farmer. investors that it's a good idea to allocate capital to do that. So that's why we're in this. Very helpful information. Thanks for sharing that. Then we'll make sure that all that information is available in the show notes. A couple of questions as we wrap up. What's the tough question that you've had to ask yourself recently? Oh, wow. I guess the question is, where's our company going?

[00:51:04] Like any company you have a business share factory. And I think we don't call ourselves have for the new of the vertical farming industry that's top of mind for you? Yeah, for us, specifically on the financing and the investment side, it's focused on profitability over growth at this stage. The days of people throwing money at your business plan without an expectation for a return with just an expectation of subsequent funding rounds and some sort of exit based

[00:52:24] on that or email. We'll answer those two. We don't have bots. We have people. Thanks again for this enlightening conversation.

[00:53:41] I really appreciate it.

[00:53:43] Well, it's awesome.

[00:53:44] Thanks a lot, Harry.

[00:53:45] Thanks again for listening.

[00:54:44] enjoyed this episode or past episodes do me a favor, leave me a rating and a review at ratethispodcast.com forward slash VFP. Nothing makes me happier than to read those out on

[00:54:49] future episodes. And don't forget to tune in next week for a conversation with yet another

[00:54:54] fascinating leader from the world of vertical farming. Until we meet again, here's to your

[00:54:57] health.

[00:54:58] Thanks for listening.

[00:54:59] To read the full show notes for this episode, which includes any links mentioned in the