Hi,
I've been managing dairy farm business's for over 10 years. I have looked at available farms for sale at the moment and can see after doing a comprehensive financial analysis some of these farm business's are capable of returning good returns on total capital invested. For example looking forward at the 2013/2014 year a 20% ROC is very obtainable provided the right management systems are in place. Looking backwards over the last 5 years which have been full of volatility 10% ROC would be the minimum ROC averaging closer to %15 over time period. Also their is long term capital appreciation of real estate to be applied as well
I've been thinking about ways of raising capital to take advantage of these opportunities.
I guess the issue is ASIC etc.
I understand the need to protect uneducated investors however I also point towards all the "regulated" business's that have lost people money since 2008. This leads me to realize that despite all this regulation that really investors aren't really very well protected at all.
Which leads me to think that if as a business with multiple investors/owners, a new transparent approach could be taken in which silent stakeholders can keep track monthly how the business is running by way of internet/email communications. The information would contain report from an independent farm business consultant backed up with the Key business performance indicators for the operation with actual cashflows verse's budgeted cashflows. Looking at monthly and year to date. This concept allows the stakeholders to be current with how the business is running. This hopefully avoids stakeholders from getting the letter that they have lost money with no possibility of recovering it.
So my idea is inspired by the crowd funding models that have become popular on the internet. i.e lots of stakeholders investing a small amount of money. The issue of course are regulations and doing it in such away that I don't get fined etc.
So to start the first self contained business lets say $1,800,000 of capital is required (no leverage). I would require 500 people to put in $3600 each. Now as I understand it asic would take a dim view of me trying to solicit people in to my private share scheme.
Now I've been thinking what if people purchase a cow for say $6000 then they rent the cow back to the business for say $300 (%5) then they get a bonus rent to the equivalent of the value of operating surplus which the cow generates for the year once the accounts are finalized?(between $300 – $600 on ave.) Doing it this way allows people to invest in a small business, without the business bearing the cost of regulation. ( WHICH IS HUGE BTW)
Does anyone have any better ideas on how to make it work? With out it being too scammy?
Regards
Grant
The above returns quoted are very dependent on good management.
I looked into something like this many years ago and what my client wanted to do would have been caught under the legislation. Instead of 500 investors maybe you need 20. Australian Property Investment magazine has had a couple of articles on syndicates -August 2005 or thereabouts I think was one article
Ok I found this http://www.apimagazine.com.au/api-online/web-specials/2010/diy-syndicates
from that article
Small-scale offerings. Small-scale offerings are where there are 20 or fewer investors in the property fund, with no more than $2 million being raised in any rolling 12-month period. Under this exemption, the 20 investors don't need to be 'wholesale clients'. This exemption is sometimes referred to as the "20/12/2 rule" and Ivers warns that a lot people trip up on this rule because while it seems simple, it can be deceptive because of the various elements involved, the interaction of those elements and ASIC's very broad aggregation and anti-avoidance powers. He also explains that all offers made under the small-scale offerings exemptions need to be "personal offers", which means you can't advertise or mass market the property fund under this exemption.
I guess finding the people would be hard given your not suppose to advertise. One way would be advertise something different (but still based on) to attract attention….then have a "although we can't advertise for private investors we can't stop you from contacting us" type of thing. For example a advertising push explaining what we are doing and looking for support with no offer of financial return. Perhaps the enterprise could be focused on a certain outcome as well as making money. environment, animal welfare, low carbon farming, etc.
Perhaps it could be structured with a "parent unit trust" and other entities/trusts could hold the units. i.e. investors under the "20/12/2" rule , then another outside the square funding from crowd sourcing etc who's profits could go to charity, etc.
regards
Grant
Quote:This leads me to realize that despite all this regulation that really investors aren't really very well protected at all.The regulation is simply a structure that ensures investors have a minimum of information which meets minimum standards. It also provides a structure for participating in an investment and underpins the fiduciary responsibility attached to that investment. What is doesn't do is guarantee an investment would be successful.
The more you try to skirt the regulation the less protection an investor has under the law to some extent. That would lead anyone with any savy to suspect there are reasons to suspect the business is either high risk or the operators are dodgy or both.
Your idea is not unique and well run dairy operations along business lines tend to do alright. If I was you I would look to attract sophisticated investor partners with a stake in the industry. They could for example be operators within the supply chain somewhere. That could range anywhere from breeders to equipment suppliers to processing plants (butter, cheese etc).
The value is in the business plan and management team. If your idea has legs you should be able to secure sophisticated investors that will value add and lower the start up risk.
Its an interesting field. I see Fonterra are expanding big time in China with 300 cow fully automated enclosed sheds configured on a hub basis. I think 5 sheds to a hub. Their IP is in their genetics. They claim they're getting on average 32ltr/day from 3 milkings where the industry average is 17 in conventional setups. They've bee fine tuning their setup for something the last 5 years and reckon they're close to the ideal configuration now.
Yes it is all possible. You must seek proper legal advice to set up, as without it you will be in danger of breaching various provisions in the Corporations Act.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terryw wrote:Yes it is all possible. You must seek proper legal advice to set up, as without it you will be in danger of breaching various provisions in the Corporations Act.Also needs to talk to investment brokers/merchant banks who are experienced in capital raising for startups and SME's.
This is what I would do. Forget all the complicated BS and stick to mainstream structures and setups.
Develop a detailed business plan and then take it to an angel or angel investor group. You'll find there are plenty of high net worth individuals around looking for sound business proposals in this climate. Your startup should initially be setup as a model to prove the idea, planning and management style. Once that's been proved that should then enable the business proposal to go to the next level.
If your plan is too grandiose it has little chance of success. A small startup to prove the model lowers investor risk and consequently it's easier and less complicated to secure 1 – 3 core investors. They'll look to dilute their initial holdings as the business is grown to subsequent levels. They get a good ROI on the initial high risk startup phase and the diluted holding at the next and subsequent levels provides above market returns until the business goes fully public if that's the goal. Usually foundation investors look for an exit option somewhere. They'll take the initial risk for a high ROI, usually 50 – 100%pa, but want out as the equity dilution starts to diminish the return. You then attract more conservative investors and perhaps you look at an IPO type of deal.
There's a 100 ways you can skin this cat but that's the general direction I would head in.
PS: You might find retired farmers or the large corporate ag firms willing to place a bet on you. They tend to have an emotional and philosophical attachment to the sector as well as a good understanding of its potential.
PPS Failing that you could set up a management company and invite dairy farm owners to join a syndicated corporate type setup.
Thank you Freckle very helpful ideas. You're thoughts are similar to mine in terms of a small startup which is what this initial operation is about. To prove the Model of management. an IPO wasn't my endpoint more leaning towards a fully fledged fund that perhaps super companies might be interested in investing in. Some of the management values and processes are one's I've used myself and are proven by a few profitable Dairy managers. The thing with dairy farms are that most have a high cost of production. I've heard on the radio that only %25 of dairy businesses turned a profit last financial year. So a good part of being profitable is about having someone with the skill to identify the properties that represent value and will facilitate the business objectives of
• Minimize Risk
• Maximum profitability in times of low milk price or high input costs or both.
• Be able to take advantage of times of High milk price or low input price or both.
• Focus on labour efficiency with emphasis on keeping it simple.
• Be a sustainable stable business that provides positive long term returns.
Some of the issues with investing in dairy farms are that only a bit more than half the capital is tied up in land. So a large amount of capital is required for cows , machinery and startup/first year cashflow / setup cost. Those items aren't very easy to leverage.
So at the moment I'm investigating how to find the people with the capital to achieve this. The risk of capital loss I believe is quite low but it is still their.
my thoughts for now
Grant
nvic wrote:Thank you Freckle very helpful ideas. You're thoughts are similar to mine in terms of a small startup which is what this initial operation is about. To prove the Model of management. an IPO wasn't my endpoint more leaning towards a fully fledged fund that perhaps super companies might be interested in investing in. Some of the management values and processes are one's I've used myself and are proven by a few profitable Dairy managers. The thing with dairy farms are that most have a high cost of production. I've heard on the radio that only %25 of dairy businesses turned a profit last financial year. So a good part of being profitable is about having someone with the skill to identify the properties that represent value and will facilitate the business objectives ofSounds like you're still in the "idea" phase with little real research done. I think the buy existing farms and turn them around has little merit in the investing world. ROI's just don't pan out statistically and the ultimate return of 15 – 20% definitely won't interest angel or seed investors. If you had a history of turning around loss making farms into profitable farms you might be able to sell that idea as a management company but not as a buy fix and sell proposition.
Quote:• Minimize Risk
• Maximum profitability in times of low milk price or high input costs or both.
• Be able to take advantage of times of High milk price or low input price or both.
• Focus on labour efficiency with emphasis on keeping it simple.
• Be a sustainable stable business that provides positive long term returns.
These points are what any business would expect as minimums. They are not points of difference (PODs). You need PODs as attractants for investors.
- 100% controlled environment that enhances animal welfare, productivity and waste management
- superior genetics that provide volumes that exceed industry standards by 30%
- scientifically advanced dietary program with computer managed feeding to control quality and output
- partnered with a leading company in automated shed handling systems
- IP development through technology innovation and genetic selection will add value going forward
This is the way you should be thinking.
Quote:Some of the issues with investing in dairy farms are that only a bit more than half the capital is tied up in land. So a large amount of capital is required for cows , machinery and startup/first year cashflow / setup cost. Those items aren't very easy to leverage.It's a total package that can be segmented. Land can be an investment in itself. The herd is both a production asset and IP asset. Equipment will be a capex but the software side could be a resalable asset (IP)
Quote:So at the moment I'm investigating how to find the people with the capital to achieve this. The risk of capital loss I believe is quite low but it is still their.Most entrepreneurs rate risk lower than what it actually is. As it stands the risk is relatively high from an investor viewpoint.
I would be looking at the likes of Fonterra and how they are setting up with business models, genetics and herd development, technology, automation, enclosed shed systems etc.
There's massive demand building in SE Asia and especially China. Get your business modeling right and your investor base could look asian or Chinese. Plenty of money there. You might also want to look at offshore opportunities to partner with new dairy companies there looking to tap into expertise.
Something else to consider is setting up a consultancy. You can tie that into the plan as well
"Sounds like you're still in the "idea" phase with little real research done. I think the buy existing farms and turn them around has little merit in the investing world. ROI's just don't pan out statistically and the ultimate return of 15 – 20% definitely won't interest angel or seed investors. If you had a history of turning around loss making farms into profitable farms you might be able to sell that idea as a management company but not as a buy fix and sell proposition."
I suppose we are coming at it from 2 different angles. Your from an angel investor high risk high return outside the dairy industry view and I'm from a within the dairy industry and what I've seen work and not work real world. I would much prefer to have a target which is easy to obtain and over shoot the %15 than simply say what I think will sell an proposition then under deliver. The dairy industry has been established for years and isn't a new fangled make people hyper rich in minutes rather perhaps a medium risk medium return industry similar to other agricultural industries. A group which is currently running farms for super funds aims for 5% return plus %5 capital appreciation per year. As i understand it they perhaps don't always hit that target. At no stage is this and is dairy farming a buy fix and sell type of proposition but rather a long term investment of returns of 10% plus for people with the right management in place. Given the recent volatility in financial and property markets that would be an attractive investment for people who would like to do better than long term bank deposits. Within the above frame work this "idea" is ready to go. However if the need is to reshape the proposition to make it appealing then more work is needed.
"These points are what any business would expect as minimums. They are not points of difference (PODs). You need PODs as attractants for investors.
100% controlled environment that enhances animal welfare, productivity and waste management
superior genetics that provide volumes that exceed industry standards by 30%
scientifically advanced dietary program with computer managed feeding to control quality and output
partnered with a leading company in automated shed handling systems
IP development through technology innovation and genetic selection will add value going forward
This is the way you should be thinking."
So long as the above points meet the business objectives then why not? some of those points are already part of the business plan. I don't believe in putting money at risk on unproven ideas and concepts. As someone who is within the dairy industry we are bombarded with commercialized ideas which are in the best interest of the people selling the product rather than person purchasing. With out clear and concise research with trials and objective information how can i safely incorporate a concept in to the business plan with out knowing how it will effect that farm business. The priority should be safe returns to the investor not chasing high risk high returns.
Now having said all of that, by remarketing the business plan to be appealing to investors without changing the business plan to increase risk then that is ok. Their is plenty in the current business that could be dressed up to appeal along the thinking of the above.
"Most entrepreneurs rate risk lower than what it actually is. As it stands the risk is relatively high from an investor viewpoint.
I would be looking at the likes of Fonterra and how they are setting up with business models, genetics and herd development, technology, automation, enclosed shed systems etc."
absolutely let Fronterra spend money on those concepts of closed shed etc, as they have the money to do that. However here in Northern Victoria your plan should be to utilize the concept of using irrigation to grow the feed when the herd requires it and then utilize the cows to then harvest and convert the feed to milk. It's a simple system that can be and is proven to work. Closed shed feedlot systems in victoria simply add layers of complexity which in term adds cost to the system which has been proven NOT to work year in year out in victoria. Some years yes but other years the business falls over. Its about knowing your system. Perhaps in other environments like china that is the best system with the given resources. Don't get me wrong I'm open new ideas and technology but with proper analysis.
My business plans include plenty of technology perhaps its about making the business plan sexy to investors. To do this I perhaps need to know who the investors are I'm going to target? About working out who and what type of investors would be best to target? which is why I'm posing the questions on here.
"There's massive demand building in SE Asia and especially China. Get your business modeling right and your investor base could look asian or Chinese. Plenty of money there. You might also want to look at offshore opportunities to partner with new dairy companies there looking to tap into expertise.
Something else to consider is setting up a consultancy. You can tie that into the plan as well"
That's a start. What does the business modeling need to look like to attract investors from Asia? How do I make contact with those investors?
I have managed farms for years and know the difference management formula makes to profitability, however I don't have from those farms comprehensive financial data over many years to prove the difference to those business's.
Their are plenty of consultancy business's in the dairy industry already, trust me.
I'm asking what is possible? what are the options? in terms of financing? I was thinking the other day I advertise agricultural dairy business for sale $1,800,000 WIWO %15 return, full management in place. Available to purchase smaller share if necessary etc.
Great to throw around thoughts and to gain an understanding of how people think outside of the dairy industry and my world.
regards
Grant
Agree with everything you say for the most part. You're probably looking at a blend of old and new. Old for proven reliable systems and new for that sexy bit plus it adds the IP dimension to the revenue stream. I think in todays world you need to be around 80% traditional 20% new.
Be aware that 5% ROI's may attract some Super Funds (if the investment is big enough) but keeping investors at that level might prove difficult over the long term. You can do that with an existing business with a track record but it's virtually impossible to attract investors with those returns for a start up.
Quote:What does the business modeling need to look like to attract investors from Asia? How do I make contact with those investors?Not just Asia but the Middle East as well. This is where a consultancy can make it easier to open doors.
I was watching Landline last night and one segment was on water in Tasmania. A merchant banker was buying up water rights to the new water scheme because farmers didn't see the value yet. Dairy is expanding down there apparently and he was saying there is literally billions of dollars looking for innovative investment opportunities.
You can watch the segment here Starts at about 13.00
http://www.abc.net.au/landline/content/2013/s3777902.htm
I would talk to the big money guys especially those in Ag. Many have access to clients and funds looking for opportunities. Start at Rural Bank and look for leads there. They'll point you in the right direction as to who and how you might go about it. Meetings with these guys I have found to be educational and informative. Most are quite willing to help.
http://www.private-equity-australia.com/
You must be logged in to reply to this topic. If you don't have an account, you can register here.
