Former Morgan Stanley Wall Street analyst Jason Williams recently reached out to us for an interview. Little did we know that Jason and his powerhouse advisory team would do a deep dive into our company and report back to their subscriber base of over 22,000 seasoned savvy Wall Street investors!
Below is the report Jason and his team were kind enough to allow us to share with our Wefunder crowd. If you're interested in learning about other investments like ours uncovered by Jason and his team, CLICK HERE to learn how to join his investment community, Main Street Ventures.
Deal Dispatch #2 – Viroment
Greetings Main Street Venturer! Welcome to our second official private investment.
With this investment, we’re getting very lucky. We’re going to be able to add some debt to our portfolio and spread our risk out among multiple alternative asset classes.
This is textbook private investing here. The classes of alternative investments are the venture capital equity investments you signed up to participate in, private debt instruments, and real estate.
We made our first venture investment in private equity by participating in Drop Technologies’ CF funding round. And I’m in the process of vetting some interesting real estate opportunities.
We’re knocking debt off the list with this Deal Dispatch…
Elevator Pitch
Viroment is a high-tech agriculture company. I know what you’re thinking... tech and agriculture don’t go together. But you’re incredibly wrong if that’s the case.
Most new tech makes its debut in the military or in the agricultural market. Self-driving cars are “coming soon” and have been for years. Self-driving tractors and combines are three decades old on the farm.
But it’s usually major companies like Caterpillar and Deere debuting this impressive new tech. It’s not often you get the opportunity to invest in a startup that’s already introduced new technology and processes that will change the future of agriculture.
What Viroment does is build and lease out high-tech agricultural facilities to protein producers around the globe. At these facilities, Viroment’s technology allows farmers to eliminate liquid from the manure the animals produce.
This creates a valuable dry fertilizer, practically eliminates the odors associated with manure and gives the animals a cleaner and healthier place to live. And thanks to the lower-stress environment created, the animals grow bigger and faster.
Thanks to this new technology, farmer partners are able to produce $4 million worth of extra protein for export, 42 permanent jobs are created at each facility, surrounding areas aren’t inundated by the smell of manure, and less land is used for manure treatment.
And to get started on its next project and expansion into new markets, the company is looking for investors to loan it some money — at a very high-interest rate.
I’ll get to the terms of the investment in a little bit, but first, let’s see how Viroment fits into our TAB system of startup analysis...
T — Total Addressable Market
Right now, Viroment’s customers are hog farmers. For those of you not familiar with hogs, they’re where pork, ham, and bacon come from. And while it’s not a “sexy” industry, it’s a very profitable and growing one.
You see, global demand for pork grows at a rate of about 5% per year. And supply stock simply cannot keep up with the demand. In 2017, the world consumed 117.35 metric kilotons. That’s a lot. One kiloton is equal to 1,000 metric tons. One metric ton is equal to 2,204.62 pounds.
So that means in 2017, the world ate 258,712,465 pounds of pork products. I’d call that a pretty big addressable market already. And by 2027, researchers expect that number to grow to over 131 metric kilotons (or nearly 300 million pounds).
The company leases its buildings and equipment to the world’s largest pork producers. I’m talking about companies whose products you’ll find on the shelves at Walmart, Costco, and Target; not on a bench at a farmers’ market (although the company also works with smaller family-owned farms as well).
Again, that’s a pretty incredible addressable market. Millions of pork consumers and a handful of billion-dollar farms able to pay big bucks.
A — Accurate but Not Obvious Idea
When it comes to manure treatment, it’s pretty obvious that getting the smell down would be a good idea. But it’s not as easy as it sounds. That’s why it took a completely new company with completely new technology and processes to come up with a solution.
The idea was spawned while driving around on a tractor in a field (I forgot to mention that the founder grew up on a farm in Minnesota). Paul, the founder and CEO, had recently talked with his brother about getting a source of manure and a spreader to fertilize their fields.
Paul had just ended a successful career as a real estate investor and was trying to figure out what to do next. His brother had gotten a quote from a local company to supply the manure for their spreading operation. But the investor in Paul thought, “You know, I could probably negotiate that rate down by at least 50%.”
And through the process, the idea for Viroment was born — technology that could make farming more profitable for the farmers, healthier for the animals, and more friendly to the environment and surrounding communities.
The only competition Viroment has is from older, traditional manure treatment facilities. But those are big, smelly, and expensive to build and operate. Viroment’s facilities require less space; are easily scalable if the farm wants to grow; and are much cheaper, easier, and environmentally friendlier.
B — Barriers to Entry
As for barriers to keep competition from sneaking up from behind, Viroment has one really big one and several smaller ones.
Its biggest barrier to entry is that it signs 15-year contracts with its tenants. Once a facility is built, it’s immediately leased out to a top-quality operation and Viroment starts collecting those sweet rent checks. And once the contract is signed, that customer is in for at least 15 years.
Because Viroment only works with major producers who have ownership stakes in packing plants, it’s already a favorite for the big producers. Remember that eBay wasn’t the best online auction site, it just had the best customers.
In this case, Viroment gets both distinctions: best new green farm tech AND best customers.
MSV Bottom Line
Viroment is an early-stage company that should see major growth over the next few years. It’s set up kind of like a real estate investment trust where it owns the land, buildings, and equipment, but its tenants rent them out and handle all the operations.
Also, like many real estate investment trusts, those leases are what’s known as “triple-net.” All that means is that all expenses are covered by the tenant. That includes taxes, maintenance, repairs, improvements, everything.
It’s one of my favorite business models because it returns so much cash to investors. And that’s why I want us to get in on this opportunity.
The company is ready to start on its next project and needs funding to purchase the land and start the legal legwork to get all the permits lined up to start construction.
In order to raise the money, Viroment is offering investors a promissory note. That’s kind of like when a public company sells a bond on the open market.
You’re loaning money to the company and it's paying it back plus interest at the end of the term.
In this case, the term is 36 months or three years. And the interest rate is a whopping 17%.
It’s not going to double or triple your money right off the bat. But it guarantees to help you grow it at 17% a year for the next three years. And when the term is over and you get your money back, there may be an opportunity to reinvest it into equity.
But for now, it’s all debt for them. And that’s alright for us.
There’s a minimum investment for this one that’s a little higher than usual. But the opportunity is about as close as you can get to a guaranteed profit, so I’m OK with that higher minimum.
And now, you’re ready to make your first private debt investment and diversify your portfolio with another alternative asset. Congratulations! You’re fast on your way to becoming a seasoned angel investor.
To a seat at the table,
Jason Williams
Founder, Main Street Ventures
Follow me on Twitter @TheReal_JayDubs
To learn more about Jason and Main Street Ventures CLICK HERE