When Kate Collins got the idea to transition her farm from market vegetables to medicinal herbs, she learned she’d need new infrastructure to dry, process and store bulk herbs, teas, seasonings and skin care products.
The project was bigger than you might think. It would cost Foggy River Farm at Uxbridge, Ont., $45,000 to convert an existing shed into an herbarium, which was more than Collins wanted to borrow from the bank.
“We looked at our options of taking out a bank loan and decided to go ahead with crowdfunding,” Collins explains. Besides, there were more upsides than just financing.
“Even if we only raised a portion of the funds, we saw it as an opportunity to get the word out about our farm and our products and hopefully get some publicity and new customers. We didn’t have anything to lose.”
In 2019, Collins launched a crowdfunding campaign on Kickstarter with a goal of raising $15,000 to offset some of her building costs, with the rest to be covered by the bank. A total of 138 backers contributed to the 45-day campaign, helping Foggy River Farm raise $18,972. Construction of the herbarium is currently underway.
The global value of crowdfunding campaigns has exceeded $45 billion. The options include reward- and donation-based sites such as Kickstarter, Indiegogo and the Canadian site FundRazr, as well as raising capital from investors via interest-bearing loans or in exchange for shares of the farm operation.
For farmers, crowdfunding is more popular than ever. Kickstarter lists more than 2,700 campaigns related to farming on its site, ranging from a grass-fed beef subscription box that raised $300,000 in 30 days to a 2019 project that generated $19,280 for City Beet Farm to build a mobile pop-up urban produce market in Vancouver, B.C.
Harvest Returns, a U.S.-based platform that secures investments through peer-to-peer lending, has helped raise $2 million to help farmers growing crops ranging from hemp to hydroponic vegetables to expand their operations.
“Banks by their very nature are conservative institutions,” says Chris Rawley, CEO of Harvest Returns. “We’re seeing that there is a class of farmers that are doing unique and innovative things and they are looking for (a funding model) that is a little bit more flexible and tailored to their financial needs.”
As crowdfunding has grown more popular, so too have the options available to farmers, according to Cato Pastoll, advisor to the Canadian National Crowdfunding and Fintech Association, and CEO of the Canadian peer-to-peer platform, Lending Loop.
Pastoll cites four main kinds of crowdfunding:
- Donation-based crowdfunding on sites like GoFundMe that prioritize fundraising for a good cause such as farm-to-school programs or job opportunities for workers with disabilities.
- Rewards-based crowdfunding through sites like Kickstarter and Indiegogo that offer a product to backers in exchange for their financial support.
- Equity crowdfunding that provides investors with a share of the operation in the form of securities such as a revenue share or convertible note.
- Debt crowdfunding, also known as peer-to-peer lending, that allows borrowers to take loans from individual investors. The loans are offered in exchange for an agreed interest rate and repayment plan.
Farmers can raise larger amounts of capital via debt and equity crowdfunding models. Investors contributed $510,000 to a grass-fed cattle operation in Georgia via Harvest Returns while the most-funded farm campaign on Kickstarter raised less than half of that amount — and some campaigns on rewards-based platforms raise just a few hundred dollars in support of farm projects.
It can also be harder for farms without strong production histories to capture the attention of accredited investors on peer-to-peer lending platforms, which can make donation or rewards-based crowdfunding more popular with newer farms.
“(Debt crowdfunding) is not a model that works well for a startup or a new idea, but it is ideal for an existing operating farm that needs growth capital,” Pastoll says. “The other models where backers are investing in an idea are better for startups.”
More than 650 farmers have approached Harvest Returns about potential crowdfunding campaigns and the platform has completed $4 million in deals since launching in 2016. Rawley anticipated the numbers will continue growing.
“Banks are tightening credit and farmers are looking for other options,” he says. “As farmers realize the potential of crowdfunding, more will continue to seek money through the platforms.”
Investing in success
While securing financing via debt or equity crowdfunding models often requires little more than submitting an online application and supporting financial documentation, running a rewards-based crowdfunding campaign takes a lot more effort.
“With rewards-based crowdfunding, you need to put in a lot of time and effort to drive people to the campaign and generate awareness,” Pastoll says. “With debt (crowdfunding) you don’t have to worry about raising the money but you do need a demonstrated ability to take on debt.”
Before Cathy Munro launched a 2017 crowdfunding campaign on Kickstarter, she researched other successful campaigns and contributed small amounts to several projects to better understand the process. The preparation helped Munro formulate a campaign to raise $5,000 to help build a winter greenhouse and expand the market garden at Bramble Hill Farm in Greenhill, N.S.
In addition to writing a detailed description of Bramble Hill Farm and its current operations, Munro shared her plans to expand and explained how a heated greenhouse would allow her to grow, harvest, pack and refrigerate microgreens and salad vegetables all year long.
The campaign included photos and a video as well as a curated set of rewards such as recipes, a reusable tote bag, farm tours and gift cards for fresh produce for backers contributing between $5 and $500 to the campaign.
Munro, who distributed flyers at the farmers market, promoted the Kickstarter campaign on social media and posted regular updates on the website to encourage additional contributions, was also clear on her plans for the cash. When the campaign was just $1,000 from its goal, Munro explained that the funds would be used to purchase a harvester; backers jumped on the goal because it was a tangible explanation of how their contributions would be used.
“You need to have a good story because that’s what people are supporting,” Munro says. “You have to be really clear on why you are asking someone to fund you; if you… can explain the reasons something is going to change your life, it will help make that connection to your story.”
The effort paid off. Over the 40-day campaign, 61 backers pledged $6,015 toward the construction of the greenhouse at Bramble Hill Farm. It was built in the summer of 2017 and the increased production has allowed Munro to expand into the wholesale market, hire two part-time workers and significantly boost gross sales. Munro plans to launch another crowdfunding campaign for Bramble Hill Farm this fall.
Cultivating new customers
Collins admits that developing a crowdfunding campaign took longer than she expected. Developing the rewards was the hardest part.
“There are two approaches to rewards,” she explains. “You can sell an existing product at a discount so people are incentivized to buy it through the campaign, or you can create exclusive rewards that are only available to backers.”
Those who contributed $10 to the Foggy River Farm campaign were promised heartfelt thanks and access to an online photo collection showcasing the 2019 farming season. Larger contributions warranted larger rewards, leading Collins to create two new small-batch tea blends exclusive to backers: “Kickstart,” a mix of wild berries and berry leaves and a lemon verbena and calendula blend called “Positivitea.”
The decision paid off and, in addition to providing essential funding for the farm, the crowdfunding campaign delivered a separate and even more important reward.
“We reached new customers and had some of our existing customers try new products that they have continued purchasing; it delivered benefits beyond the $18,000,” Collins says. “On the warm and fuzzy side, we felt really supported by our community and that is not something you get with a bank loan.”