Not banking on farm finance

Convincing a bank to invest in farm growth on reasonable terms has always been problematic and risk aversion and regulation has only increased after the Global Financial Crisis in 2008.

But Sydney-based start-up Neu.Capital, an independently run online marketplace that lists companies seeking $5 to $100 million outside the banks, is in the business of putting mid-tier enterprises seeking investment in front of non-bank sector capital.

Founding member Edward Jones left his job at RBS (Royal Bank of Scotland) to found Neu.Capital, with co-founders Josh Khoddami and Cyrus Church. Their plan was to build the business on the back of the technology sector, but farmers and agribusiness surprised them with their level of inquiries since the business started their marketing three months ago.

Mr Jones launched the platform following five years in investment banking, after repeatedly tackling “the painful and time consuming process of setting up competitive deal processes through the use of private networks”.

The Neu.Cpaital concept itself is not new, but its offering is unique.

There are dozens of online platform offering up to $1m for small start up enterprises. But to date, mid-tier companies seeking more substantial backing had to rely on corporate advisers to assemble a list of potential investors and broker a deal.

“Before Neu.Capital there were no platforms for good, established mid-market companies that have been rejected for funding because they are outside the banks risk appetite,” Mr Jones said.

The platform allows investors to anonymously view a pitch for finance and declare an interest. The company can make a shortlist of investors and allow them access to company information. A “dealroom” appears on the platform, where bidders compete.

On the other side of the coin, potential investors registered with Neu.Capital can asses an opportunity and determine its level of interest.

Farm enterprises in particular have begun to list on the platform, spurred by potential opportunities offered by private equity in succession planning, Mr Jones said.

“In traditional funding they would probably be forced to sell a portion of their land in order to receive funding for succession or growth,” he said.

“But due to the diversity of our investor base they have a higher chance of being offered alternative structures that could allow them to retain all their land.”

Another benefit of Neu.Capital’s pitch is it creates competitive tension, where a company seeking investment can assess multiple offers at the one time and choose the best deal.

Mr Jones said Neu.Capital’s online process “can place that investment in front of an Australian and global set of investors,” where a corporate advisory relied on the quality of its own networks to deliver a deal.

Without a common marketplace such as Neu.Capital companies that were able to identify potential investors would have had to run a series of individual negotiations, he said.

It costs $5000 for companies to sign up to the platform and Neu.Capital takes 1 per cent of the value of a successful deal. 

All companies listed on the platform have had initial due diligence completed by an accounting firm on Neu.Capital’s approved panel for entities listing on its platform and sends a film crew to visit the farm or business to develop a video package showcasing the business and its background.

Mr Khoddami said the 1pc fee was relatively low compared to corporate advisors, who typically charge between 3 to 5pc as Neu.Capital wants to promote farm businesses to invest in professional advisory services who can assist with business planning and investment strategy.

Neu.Capital is targeting family offices, private equity, credit/mezzanine funds and second tier banks to list as investors. 

It has identified about 200 potential investors in Australia and signed about 60 to date. The coming months will see the a public launch of Neu.Capital’s platform, followed by a national roadshow.