Venture Capitalists Drive Tractors Too

By Des Keller
Progressive Farmer Contributing Editor

A Boston-based start-up company, BillAway, got an infusion of nearly $1 million cash recently from an investment group out of Sioux Falls, S.D. What makes that unique is that the members of this investment group are the type who would normally be plowing their money back into their farm operations. But they're part of a group looking for diversification that goes beyond the farm gate.

DIVERSIFY THE PORTFOLIO

BillAway is just the type of investment this group of 200 farmers likes. It is a start-up business that allows other firms to give rewards to customers who shop at more than 25,000 stores or online sites. Using a sophisticated targeting and tracking technology, BillAway clients use these rewards to reduce customers' bills or help them donate to charity.

Until about 18 months ago, BillAway had no connection to agriculture. Then a business-development and investment firm -- made up mostly of farmers experienced with ethanol and biodiesel plants -- decided to invest. Called The Funding Farm, LLC, members are mostly from eastern South Dakota and southwest Minnesota.

The Funding Farm (www.thefundingfarm.com) was founded by Minnesota farmer Dave Kolsrud. Not new to investing, he helped organize the fund-raising, building and management of the ethanol cooperative Agri-Energy, LLC, in Luverne, Minn. Kolsrud also helped lead efforts by producer groups to create or invest in ethanol plants elsewhere, along with wind energy and soy/diesel operations.

While not all of their efforts were successful (soy/diesel), many of the ethanol investments performed well. Eventually, Kolsrud came to believe some of the wealth being amassed by farmers could help businesses not necessarily related to agriculture.

"As farmers, we generally keep investing in ourselves by either buying farmland or machinery," Kolsrud says. "Meanwhile, the rest of the economy had gone through a downturn, so why not look to other areas where the growth potential would possibly be significant?"

LOOKING FOR POTENTIAL

Kolsrud helped create The Funding Farm as a more formal, permanent entity through which to funnel investment opportunities. Members of The Funding Farm pay $150 for three years of involvement and are presented with a packet of information on potential investments.

Kolsrud, along with The Funding Farm cofounder Matthew Willard, perform due diligence on the companies presented to members.

"What I like about The Funding Farm is the structure," says Harold Tillstra, a Minnesota farmer and veterinarian who has known and worked with Kolsrud for years. "All of the members receive each and every proposal brought to the table, and each individual decides whether they want to be involved or not."

The minimum investment on a particular proposal is $5,000. "This offers me a chance to participate in something that's much different than you would get through a normal publicly traded venue," Tillstra says.

MONEY AND ADVICE

What makes The Funding Farm unique is that it doesn't just invest dollars; members also offer input on an ongoing basis to the companies with which they choose to become involved. This allows investors to keep tabs on how their money is being used and puts them in a position to provide new companies with experienced management advice.

Often, much of that advice comes from or through Willard, The Funding Farm's full-time managing partner. A business professor with experience in precision ag technology and management, Willard was most recently with Raven Industries. Since the group's investment in BillAway, he has been helping to shepherd the company through the pains of new growth.

"Matthew Willard is helping BillAway more than I expected, as much as anyone inside this company," says Paul Harkins, CEO of BillAway. "Matthew not only helps us with business development by bringing large customers to us, he is helping with the current funding round by introducing us to other groups who may be investors."

"We are not hands-off," Willard says. "We can help provide management, capital, technology and expertise for start-ups and companies growing quickly. Our investment base [of The Funding Farm] expects us to work on the investments and make them succeed."

A HEDGE FUND OF PEOPLE

The Funding Farm's members have invested in four companies so far with another two under consideration. The investments have not been huge, only about $2 million total. "These are not ethanol plant-sized projects," Willard says. "We will do bigger projects when they come and we need them."

While The Funding Farm would like to make all investments in the Midwest (two of the four companies they've invested in so far are Midwestern), the group pursues opportunities where they find them. They don't have tens of millions of dollars at their disposal, so they look for young companies that need expertise as much as money.

"One guy we worked with said, 'You aren't a hedge fund of money, you are a hedge fund of people,'" Willard says. "I thought that was pretty apt."

The investment connections have been made in various ways. In one case, local economic-development officials told Willard about a promising company, STEM Fuse, LLC. This Sioux Falls-based firm helps teach science, technology, engineering and math. Their curriculum is already used in 2,500 schools in all 50 states.

And how did The Funding Farm end up doing business with BillAway in Boston?

A friend and adviser to BillAway's Harkins met Kolsrud while on a trip to Washington, D.C. As a result, Harkins and Kolsrud got together for about 15 minutes at Chicago's O'Hare Airport while en route to other destinations.

"We were beginning the fund-raising process," Harkins says, "but hadn't really started yet. So here's Kolsrud asking me if it is possible he and his investors get involved." Harkins was taken aback by the offer.

"So 75 to 80 Midwest farmers are going to do what, invest in our company?" Harkins says. "I thought, 'That is so intriguing to me.' But they understand what it is like to create something as they create a new business every growing cycle."

For their part, the investors want to diversify holdings, Kolsrud explains. They require the founders of the companies they invest in also have "skin in the game."

"We want a lot of people investing smaller amounts in these industries so that if something does go wrong," Kolsrud says, "it won't affect any one of us in a major way."

THE FUNDING FARM'S INVESTMENTS

The Funding Farm invests anywhere from $500,000 to $1 million in young or start-up companies. The group is involved in offering management and marketing advice, and expertise to these firms. So far their investments include:

-- STEM Fuse, LLC. STEM Fuse is technology-based curriculum to help children (K through 12) learn math, science, technology and engineering skills in school. The program includes classes in video game design and development, mobile apps, health technology and business technology. Visit www.stemfuse.com.

-- BillAway, LLC. BillAway and LyfePoints are customer loyalty and rewards programs that allow customers of partner companies and web sites to reduce the amount of a customer's utility, grocery or gas bill, for example, by shopping at stores they already frequent. Visit www.billaway.com.

-- High Country Guest Ranch. This Black Hills, S.D., ranch offers a complete package of lodging and activities, including the No. 1 Native American band in the country, Brule. Visit www.highcountryranch.com.

-- FWS Technologies. This Canadian company holds the patents and development rights to corn fractionation technology. This system breaks down the corn kernel into its basic parts and allows for the generation of value-added products. Visit www.fwstl.com.

(AG)

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