Contain is a Fintech platform for indoor agriculture. Founded on the observation that 75% of indoor growers are looking for funding, and that many won’t receive it from traditional agriculture banks and traditional business banks. “The question for us is: ‘how do we help indoor farmers find the best funding options?’ We have an automated leasing platform where indoor farmers can come in and begin their application. Our algorithms match them to a pool of, currently, 18 lenders. This ranges from small two-person shops to some of the largest banks in the world”, Nicola Kerslake, Founder and CEO of Contain says.
The company aims to work with anyone on the indoor farming side and want farmers to understand their odds. “We are aiming to build long term relationships with growers so we can maintain that relationship. We’re always by the client’s side during the whole process.”
Nicola Kerslake (Source: Larta Institute)
A 60-pages business plan
Most investors live in a rule-based world so they have to fulfill a series of criteria in order to sign a lease. A lot of indoor farmers don’t look like what they’ve seen before. On the other side, the company sees a lot of people who are not accustomed to dealing with commercial lenders. They don’t understand the criteria.
“We’re trying to help farmers become familiar with, what position they need to be in before they sign a lease. We have a calculator on our website that figures out the odds of getting a lease through us. Next to that, there’s a medium blog that walks through the criteria. A common thing we see is that farmers think they don’t need much deposit, which is not true within commercial leasing. You typically need at least 20% down. Another thing we see is that farmers approach it as an equity investment. Lenders are mostly not interested in a 60-page business plan. Their rules are around different things. Such as, knowing that there’s enough equity so the farm will make it through the scale-up period, and opening period.”
Attract lenders’ attention
Kerslake continues: “We encourage new growers to start small, which is a lot more interesting for a lender. Rather than a grower aiming to build a five-million-dollar greenhouse with no track record of farming. Coming back to the 60-page business plan, it’s too complicated for a lender to get a business plan. Many growers haven’t grown before. Prove to lenders that you can have a reliable product shipping. Later on, you can enhance your business with solar, retail and various other features.”
Preferences and financing needs
At this point, Contain has been in touch with around 400 growers in the region. The company learned a fair amount about their financing needs and preferences. The relationship between the grower and the lender is defined through algorithms. That definitely helped with lenders. Kerslake adds: “The other piece we learned through pattern recognition is, what it takes to get a lender comfortable with the industry. Part of in the way leases are priced, depends on the novelty of the industry. Particularly, with regards to equipment and farmers on the lenders’ part. More established equipment and farmers typically get offered better rates.”
“We are very upfront with lenders on what the industry is and isn’t, as a part of the educating piece. Indoor ag has become much more interesting to lenders recently since COVID-19. There’s not much discussion in the media about funding outside venture capital investing and private equity investing. There are a lot of farms on the flip side that establish new farms quickly using all manner of other funding sources, from lending to grants. Many indoor farmers will never engage with VC’s, but we see people spending lots of time and energy chasing investors. Which for many of them is not the optimal route”, Kerslake affirms.
Connecting farmers and lenders
The company works closely with container farmers through to greenhouse majors, LED suppliers and any kind of capital equipment that would be used in a farm. “We help to educate the lenders around the breadth and scale of indoor ag. The challenge that most of them have is the perception of the industry. They think of two cute millennials with a container farm. Which is obviously not always the case, particularly in the commercial industry.”
“On the other hand, there’s the big indoor farms investors see in their conference rooms and small farms they see in their communities, but for them, there’s nothing in between. We always say we focus on the 99% that are never going to get near to a VC fund. The fact that there’s not the depth of media coverage within the industry, is a real issue when it comes to financing. Investors are coming away with ”Softbank already owns the industry”. But that’s not the case”, Kerslake notes.