Finance startup “Fractal” has launched what it says is a first-of-its-kind farmland equity financing platform that can help farmers secure needed capital to expand and improve their operations. The Minneapolis-based company invests alongside farmers by taking a passive stake in their current farmland. The farmers in turn receive the needed capital – which they can use as they see fit – while also maintaining full control of their land.
Co-founder and CEO Ben Gordon says the motivation behind Fractal is to help solve a key gap in farm financing. Gordon has some first-hand experience too, hailing from North Dakota and a one-time employee of agtech firm “Granular.” At Granular, which is now owned by Corteva, Gordon recalls “all this great software that really helped [farmers] manage their business” but couldn’t overlook what he saw as a bigger underlying problem – that farmers struggle with access to capital for land. Gordon notes the issue has become more dire as institutional investors have swooped into the market.
“We strongly believe farmland investment can be a force for good by aligning farmers with capital,” says Gordon. “We believe farmers are best positioned to manage the land and that investors can drive the greatest impact and returns by supporting strong farm businesses.” Gordon adds that by aligning with farmers, “there are nearly 25 times more deals available on the market versus traditional models.”
Gordon also points out the massive generational land transfer that is underway with an estimated 370 million acres of land — a $3 trillion asset class, he says — expected to change hands by 2030. Gordon says it puts tremendous pressure on farmers to access the capital needed to secure their rented acres and expand their operations.
For farmers that want to access financing through Fractal, the company will first value the land and make an offer based off of a combination of market comparable land sales and the underlying land productivity. For underwriting purposes, farmers are asked to provide historical yields, management practices, soil tests, and financial statements. While Fractal does offer a discount to farmers who choose to enact approved conservation practices, the company does not mandate any specific farming practices. Fractal says it believes farmers know best how to farm their land and can do so “much better than an investor ever could.”
Fractal also does not take possession of the land title. Fractal puts a secondary position on a minority portion of the field which gives the company the rights to the future appraised value of that portion of the field. At the end of the term, the farmer can choose to buy out the Fractal position, sell the field, or extend into another Fractal 10-year contract. The farmer can also exit the contract at any point after two years buy either buying out Fractal or taking the field to an open-market sale.
Fractal completed its first deals over the last couple months and Gordon says they’re now ready for a wider breadth of farmers to adopt the platform. The company at the end of August launched its equity financing platform to serve US row crop farmers, which you can learn more about HERE. There is also a video explaining how their financing works HERE.
Fractal is backed by Trailhead Capital, Serra Ventures, LLC, Groove Capital, and Virta Ventures. The startup is also supported by UnCommon Farms, a group that helps producers across North America take control of their legacy by helping them build operations that are positioned for multi-generational success. (Sources: Twin Cities Biz Journal, Insider, Fractal)