Forbes By Alex Konrad
Charles Baron has a story he likes to tell about the time that farmers in North Dakota saw his data. Baron’s startup, Farmers Business Network, pools data from farmers and shares insights from the group back with its members. And for one corn crop across thousands of acres in North Dakota, the data said that Baron’s customers were planting the lowest yielding, highest priced seed on the market.
“The difference was a lot of money,” Baron says. “So we said, don’t shoot us as the messenger. But what’s going on?” A farmer finally raised his hand, the cofounder explains. “And he says, they took me elk hunting. And then a couple of others raise their hands…”
Longtime relationships and free trips to Disney; a heavily consolidated market of suppliers that thrives on a lack of information – that’s how sales have operated for decades in U.S. agriculture, the startup cofounder argues. It’s also why Farmer’ Business Network’s data-driven, pro-transparency approach has taken off so fast since launching just two years ago. And it’s why some of agriculture’s leading players would like to see the controversial business fail.
Since CEO Amol Deshpande and Baron sat down with the idea of a data network for farms in 2014, Farmers Business Network has built a network of 3,400 farms, spanning 12 million acres of farmland (roughly the size of Maryland and Delaware) and sharing more than 25,000 invoices to date. While it doesn’t disclose exact revenue, FBN’s direct sales vertical is already on pace to make tens of millions in sales on 1,000% annual growth.
Farmers Business Network has also raised a significant amount of funding for a two-year-old company. The latest is a $40 million Series C round led by GV (formerly Google Ventures) and Double Bottom Line Partners, an investment that brings FBN’s total funding to more than $84 million. After a valuation in 2016 of $192.55 million, according to data from PitchBook, Forbes estimates the new investment values Farmer Business Network at close to $400 million.
The funding allows FBN to continue to expand its direct sales business, which the company claims can provide its member farmers with seed and chemicals at sometimes half the cost of major suppliers. Membership to FBN and its data only costs farmers $600 per year, so direct sales and loans are how the startup makes most of its money. While FBN claims its model is more asset-light than traditional competition, it still has nine warehouses across the U.S. and employs large amounts of employees in rural markets to manage customer relationships and drive sales.
“That’s what it takes to succeed in this market,” says investor Andy Wheeler, who co-led the new funding round on behalf of GV. “I’ve seen an endless parade of startups raising money in this space, and most of them are missing this exact piece, and that’s why they won’t be successful.”
While other startups struggle to translate Silicon Valley thinking into the language valued by farmers in North Dakota or Montana, FBN swears by what its supporters say are strong farming roots. Deshpande, the CEO, got into fish farming right after college and had invested in several agriculture startups at Kleiner Perkins Caufield & Byers, his former firm where he and Baron incubated FBN. Baron, who now runs product for FBN, helped lead investment initiatives in alternative energy while at Google and counts a brother-in-law as a farmer; even Wheeler says he comes from a longtime farming family from Iowa and Illinois.
What they offer farms, says Baron, is a technology-aided version of the small talk farmers would make at a coffee shop or supply store. But by anonymously crowdsourcing their crop results, planting patterns and the prices they pay, FBN promises to “democratize the information” so farmers know when they’re paying more for a seed than the neighbor down the road, or when those incentives promised by a longtime rep are actually costing the farm thousands of dollars in production below the local average. “It takes more of the farm economy online in an objective way,” says Baron.
Phil Pitzenberger thinks next year’s crop will be about the 17th he puts into the ground in Iowa, planting some corn and soybeans across about 3,600 acres (close to the average size of an FBN member) with his father and younger brother. Like many FBN customers, he found the startup through Facebook, when he saw ads on the social network in late 2015 and early 2016 and met some employees at a farmers’ seminar in Chicago.
Pitzenberger was already looking at the farm’s yield data to select seeds and saw the value in comparing that data to similar operations. He’s the ideal early adopter: data-minded, a drone enthusiast who posts photos taken with them to Instagram, and a writer on the industry. But while he hasn’t met any neighbors who use it yet, FBN says he’s not alone in his area in joining the data co-op. This year, he used FBN’s chemical procurement for the first time, as well as its financing program, another new vertical of business for the startup.
“It was a better price than where I normally buy, which was hard for me because we’ve been pretty loyal to our local retailers,” Pitzenberger says. FBN didn’t pressure him into buying through its network, he says, but simply showed its price on the website. The farmer ended up buying fertilizer from his long-time local partner and his chemicals from FBN Direct. “With the tight margins we are in, anything you can do, it helps,” he says.
In northern Montana, just a few miles from the Canadian border, Todd Eney won’t start planting his crop of winter and spring wheat, malt barley, yellow peas, yellow mustard and canola until April. This year he’ll plant the barley in early May, a lesson learned in 2016 when FBN data showed Eney and his father that by waiting from their typical late April, they’d bump their crop from 60 bushels per acre to 70.
Eney and his father signed up for FBN due to the efforts of the startup’s local sales rep in their part of Montana, the son of the owner of the local John Deere dealership. They’d been collecting data on their crops, then taking to a desktop computer, “where it would just sit there.”
Like Pitzenberger, Eney now buys some of his seed through FBN and through his local rep, whom he still calls out to the farm to look at problems. He’s not interested, for now, in its financing. But Eney’s now on FBN’s national advisory board, a group of several dozen farmers from each area where it operates, and has ideas for how it could make its local meetups less of a sales pitch and more of a best practices session. “FBN’s made us pay more attention,” he says. “I go into my account and look at things every day. I was on right before you called.”
When tech disrupts a longtime industry like agriculture, its creators—often technologists or marketing gurus from one of the coasts—have an uphill battle to face. First they need credibility. FBN says it’s good in that regard. It needs evangelists on the ground such as Pitzenberger and Eney. But then it has to stand up to powerful, consolidated interests that dwarf its scale with just the operations from one region. Monsanto, one of the leaders in the seed market, sold more than $9 billion of seed in 2016; Dow’s agricultural business brought in more than $6 billion.
At FBN, Baron calls big agriculture an oligopoly, one that doesn’t like the transparency and cheaper prices that FBN’s data allows. “You’ll see nasty comments by their employees on social media,” he says. “We are willing to do and say things that might be unpopular in the industry.”
With FBN’s core business showing you where you overpay for products, its direct business would seemingly set up the potential for a conflict of interest if it’s not selling the cheapest product. Competitors are also quick to point out when FBN is offering its products so cheaply because they don’t come with the same guarantees, such as free resprays for herbicides like the one that Pitzenberger bought in the past year for his corn. In that case, FBN told him that he wouldn’t need a respray since it would work properly the first time. “Some things are behind the scenes a little bit,” he says. “The price more than made up for it.”
FBN says it clearly labels where it doesn’t offer the cheapest price and won’t push its products over better local options, Baron says. But the network also faces a challenge in simply convincing more farmers to part with their data. In North and South Dakota, FBN now tracks close to 10% of the corn and soybean crops, staples for the area. But outside of the corn and soybean belts, FBN has yet to make as many inroads (the two crops make up about 80% of its reach). Expansion into Texas and Louisiana is next.
In addition to new territories, Farmer Business Network plans to use the new investment to hire more reps and data scientists and look internationally. The company could eventually offer more prescriptive planting modeling to its farmers,
At GV, the investor Wheeler says FBN’s focus on making each of its lines of business independently cash-flow positive means the company isn’t as risky as it might seem. FBN’s past two funding rounds have been preemptive and over-subscribed, he adds.
One benefit of “poking the eye” of the establishment: FBN wouldn’t make for an easy or palatable acquisition for the likes of Monsanto, which would face too much risk in scaring away farmers and undermining the value of the business. “This type of business almost certainly has to go public,” says Wheeler.
FBN’s cofounder Baron knows that his startup’s reputation with farmers remains, for better or worse, its most valuable IP. “This is not a Silicon Valley comes to the Midwest story,” he says. “What we’ve done is to try to bridge those two cultures. And that’s why we’ve grown: we have a deep connection with our farmers and the problems they’re facing.”