Magazine September 2019

Betting On The Farm

betting

by Tyler Hale

Charu Thomas, founder and CEO of Oculogx, and Carter Malloy, AcreTrader CEO

Carter Malloy is connecting farmers and investors with AcreTrader   

Set high above Dickson Street in Fayetteville, AcreTrader’s offices, at first glance, look like any other startup space with tasteful but functional furniture, computer screens on the wall tracking website traffic, an open floor plan of computers and the requisite refrigerator with multiple flavors of sparkling water.

It’s the 5-gallon buckets and bags filled with soil that set it apart.

That dirt, though, is a vital part of AcreTrader — just as important as the computers and Excel spreadsheets that the company uses. Dirt is one of the key foundations of AcreTrader’s business — farmland. Founded in 2018 and launched in March 2019, AcreTrader is an online platform designed to increase investor access to farmland.

According to AcreTrader CEO Carter Malloy, upward of $30 billion in private equity could be invested in the trillions of dollars worth of farmland if there was an easy way for people to invest. That’s where AcreTrader comes in.

The website, AcreTrader.com, is the brainchild of Malloy, an Arkansas native with a background in financial services and research who is putting the skills he’s acquired over the course of his career to work in the startup realm. Don’t mistake him for a mere city slicker, though.

While he grew up in Little Rock and attended Central High School, he maintains strong ties to the Delta region. His father, Dr. Mark Malloy, is an internist in south Arkansas, while his stepfather, Jay McEntire III, is from Stuttgart, where he continues to manage farmland. His stepbrother, Jay McEntire IV is also the CEO and co-founder of farming startup Arva Intelligence Corp.  Growing up, Malloy frequently heard about the importance of water and groundwater from McEntire, who studied geology in college. This knowledge would serve him well later on.

Malloy headed to Fayetteville to attend the University of Arkansas after graduating from high school, picking up a “useless” degree in physics. However, he learned something important about himself — he loved the process of problem-solving. “I think that’s what it boils down to is all about problem solving. And I think that that application of decisioning and logic applies to the problem solving necessary for physics, which is not unlike that in business. It’s just different types of math,” he says.

After a few years as a musician touring and running a small business working on cars, he landed an interview at Stephens Inc. He got the job and spent seven years there.

His work at Stephens prepared him for the intense research he and his team do on every single property they consider for AcreTrader. At Stephens, Malloy would spend an average of one month intensely researching any given business before the company considered investing in it.

AcreTrader’s platform helps connect farmers and investors.

“It provided me the opportunity to learn every day,” he says of the experience. “That’s the most rewarding thing about any job is when you can go in every morning and know you’re going to learn something new. The ask of the employees in the world of finance is very high, right? The amount of hours committed is very high. So to be able to take something away every day and feel like you’re developing is incredibly rewarding.

“I love the dig. I love to read and research and understand things more.”

In 2013, he headed west to join an equity investment firm in San Francisco. The seeds for AcreTrader began taking root in the Bay Area — his neighbor in San Francisco knew Malloy was from Arkansas and him how to get started investing in farmland. When he began digging into the issue, Malloy asked himself if there was a way to allow other people to start investing in farmland. 

Both Malloy and his stepfather had already been buying and selling farmland for years at that point. The draw of investing farmland is that it’s a stable commodity with “attractive historical returns” of up to 12 percent annually, Malloy says.

But while there are trillions of dollars in land potentially available, there’s a gap in the market. Malloy believes that as it currently exists, the system for investing in farmland is inefficient and ripe for disruption. Many farmland transactions occur off-market, according to Malloy, in some cases between neighbors, which limits the opportunities for investment. He intends  for this disruption to benefit both the farmers and the investors.

“For the farmers working with us, being able to have their farm be seen by all the major funds, family offices and thousands of investors in our database, I think is a highly attractive proposition,” he says. “The big opportunity is just to bring transparency and liquidity to this marketplace. For most people selling farmland and for many of them buying, it’s a once-in-a-lifetime transaction.”

With the idea for AcreTrader largely developed, Malloy began looking to strike out on his own. After five years in San Francisco, Malloy and his family moved back to Arkansas as he began building up the company.

Moving to Fayetteville was a homecoming of sorts for Malloy — he met his wife, Jenny, on the first night of college at the University of Arkansas. Fayetteville’s small-town feel, he says, makes it a “special place” to the couple and an ideal place to raise two young daughters.

But for AcreTrader, Fayetteville offers a vast entrepreneurial ecosystem with resources ranging from Startup Junkie and Endeavor NWA to fellow startup founders like Engine E-Commerce’s John James.

“There’s a lot of resources here locally for startups…[that] have been really helpful to me and to us as a company in our development,” Malloy says. “We’ve been really lucky to have the engagement guidance of some of the local entrepreneurs.”

Carter Malloy. Photo by Philip Thomas.

Malloy set to work, building a core team and a set of processes that govern the platform and its approach to investment. Making sure that the team and processes were experienced was crucial given the stakes they are dealing with. For Malloy, there can be no mistakes.

“If you’re not highly process oriented, with a lot of very real software and database tools, then you can make mistakes, and we don’t have any mistakes. When it comes to dealing with people’s capital or dealing with people’s land, the margin for error is nil,” he says. “The team behind AcreTrader…we’ve got experience in billions of dollars of revenues and investments and decades of experience in financial services and agriculture.”

The team is highly selective about the farmland that they choose to feature on the platform. Less than 5 percent of the land that they view ultimately ends up on the site. AcreTrader features land in multiple states including Arkansas. Choosing the right farmland for AcreTrader boils down to three factors: water, dirt and financial profile.

“The geography and the crop type, we tend to be agnostic toward,” Malloy says. “What we want is good soil, good water and good financial returns. And that’s probably the three things that are highly necessary.”

The team uses a three-step due diligence process to determine whether a given property fits its financial model. The first step is a feasibility study that can be done at the AcreTrader office with a few phone calls, some software and databases. This step weeds out most of the farms. Phase 2 is more intensive, as the team performs software analysis on the property, maps it and builds financial models.

If a property makes it to phase 3, that’s when AcreTrader really begins putting boots on the ground. Team members, usually Farm Operations Vice President Garrott McClintock, head to the property, collect soil and water samples (that’s what the buckets and bags of dirt are for), and talk to the farm managers and farmers in the surrounding area.

Properties that are chosen are then placed into a unique entity, such as an LLC, and once the property is listed on the AcreTrader website, investors can purchase shares in the entity that owns the farm. For all of the properties, each share represents one-tenth of an acre. After that, the investor is finished — AcreTrader handles all the property management — from accounting to sustainability. However, each December, the company expects to pay out cash distributions for investors.

AcreTrader’s profile is growing every day, Malloy says, with the team working on a pipeline of roughly $300 million in farmland — a number that continues to grow. In Arkansas alone, AcreTrader is working on $35 million in farmland. Currently, the company handles farmland in the range of $100,000 to $3 million.

When Malloy started out, he figured that he would be leveraging relationships with his existing network, from brokers to farmland managers to investment funds.  He has been putting his connections to work to build the farmland pipeline. 

“It is certainly a relationship-based industry. I think what we have been incredibly surprised by is the amount of traffic coming to us that we weren’t looking for,” he says. “We’ve got people calling in from Idaho, Georgia, California, Illinois, Indiana, Kansas. …”

Even if those properties are never featured on AcreTrader, Malloy intends to help them. He wants to help farmers understand the true value of their farmland and by making introductions to farmland brokers.

“We still help them, help them understand their asset, help them understand the value of it. To the extent they don’t, right? They know their dirt more than we ever will, and they know every corner of that farm and we never will. But we have some really great software and tools and technology that we’re happy to share with them for free,” he says.

Larger farms in the $5 million to $50 million range are more of a challenge financially for the platform. Malloy works with these larger properties to land an institutional buyer, such as an investment firm, an endowment or a family office.

  For Malloy, AcreTrader is all about one thing — the land. “For me personally, it’s in my bones,” he says. “It’s an opportunity, it seems like one of the biggest ones out there because it’s a relatively non-modernized asset class.” 

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