Leading regenerative, organic and transitioning agriculture credit firm, Mad Capital, has announced the oversubscribed close of its Perennial Fund II (PFII) at $78.4 million. The fund, which is designed to provide U.S. farmers with tailored transition finance to help them adopt regenerative organic practices while boosting long-term profitability, had early commitments from Builders Vision, The Rockefeller Foundation, the Schmidt Family Foundation, and others. These investors are joined now by Social Finance, Innovaciones Alumbra, the New Mexico Finance Authority, Bedari Collective, the McConnell Foundation, and others, totaling 111 investors.
The oversubscribed close of Fund II is the latest milestone for a company that has pioneered new approaches to debt capital for regenerative, organic and transitioning farms in the U.S. since 2020. With a mission to transform U.S. agriculture by scaling regenerative practices that restore soil health, improve biodiversity, and strengthen rural economies, Mad Capital identified earlier that capital was a barrier for farmers transitioning to regenerative and organic farming and that accessing appropriate capital was a central challenge.
Traditional financing institutions are not designed to support the unique needs of regenerative organic farmers. With organic acreage representing only about 1% of agricultural land in the U.S. these institutions often perceive regenerative and organic farming as more risky than conventional agriculture. They also often struggle to grasp the concept of an organic transition period (as well as the post-transition financials) or that these crops can command significant price premiums over conventional crops. Moreover, even when transitioning farmers can gain access to traditional debt, the terms often do not account for the realities and financial implications of the transition period.
Mad Capital launched Perennial Fund I in 2020 to address this. Through this fund and the subsequent Fund II, Mad Capital provides tailor-fit private credit to regenerative organic farmers, who are working to bridge the transition financing gap by providing the flexible and patient capital it takes to transition a farm from degraded to a biodiverse, profitable, and regenerative farm.
Perennial Fund II
With resounding success and many lessons learned from Fund I – which raised $10 million from 42 investors and closed in February 2021 – the firm launched Perennial Fund II (PFII) initially targeting $25 million. PFII held a first close in November 2023 and a second close in February 2024, at which point Brandon Welch, co-founder and CEO of Mad Capital shared that they were about one-third of the way to their $50 million target. However, after upsizing twice due to strong investor demand, the fund ultimately closed oversubscribed at $78.4 million, an amount more than 7x the size of Fund I, lifting their total AUM to $100 million.
The larger fund size for PFII will enable the firm to build on the work of Fund I and expand who it works with – in terms of the number of operators but also the size in both revenue and acreage.
Welch explains that the “bread and butter” of their financing has been in 1) operating capital to cover the 2-3 year organic transition period when farmers can experience reduced yields and lower margins, 2) infrastructure and regenerative equipment financing, and 3) capital for real estate expansion. The firm will continue to offer these financing tools to both new clients and farmers from Fund I.
Of the latter, Welch explains, “Many operations are mid-transition or have recurring needs, such as equipment, infrastructure, working capital. These existing relationships help reduce risk, in part because we already have performance data, trusted partnerships, and understanding of farm and market specifics.”
What gets him most excited is that PFII will allow them to expand on this work in a couple key areas:
- Upmarket to larger operators– The sweet spot where financial capability and impact overlap is with operations generating >$2 million per year in gross revenue, Welch explains. The team has found that these commercially oriented operators approach their farm or ranch first and foremost like a business, with their decisions and team oriented around the financial risk and returns of each decision they make. Regeneration is core to their thesis, but the numbers have to work. Mad Capital can support this with more flexible financing.
- Regenerative grazing – the firm has also expanded its core clientele from organic row crop operators to include holistically managed beef operators. In the last year, they’ve added three new grassfed grazers to the portfolio that collectively manage over 70,000 acres.
The team has already started the process of putting this capital to work, deploying $25 million in loans out of PFII thus far. They have already partnered with 17 farmers and ranchers managing over 126,260 acres and its pipeline shows no signs of slowing.
“Our farmer pipeline continues to grow stronger as we scale into the market and prove our ability to partner with savvy growth-oriented operators,” says Welch. He points to the fact that they have looked at over $250 million in deals last 6 months and funded less than 10%.
Journey to an Audacious Goal
At the outset, Mad Capital – like its non-profit sister, Mad Agriculture – has set out to be radical in its approach to farm finance. This approach has served them well so far, both with farmers and investors. At the foundation of what drives them is a goal they set for themselves to finance 5,000,000 acres of farmland by 2032. Currently, they are financing 163,164 acres. Despite being on track to meet this target, they will need to grow the business 60-70% year over year to keep pace.
“We’re strategically growing to continue meeting this target,” says Welch. “In 2021, we were only 1% of the way toward that goal, and now we’re 10% of the way there.” That’s significant progress but to accelerate their path to 5 million acres, he refers back to the key areas where PFII is helping them expand as two critical levers: larger operators and regenerative grazers.
Welch breaks down some of the math: averaged over the last 4.5 years, for every $10,000 Mad Cap loan, their operators manage 48.1 acres. If they keep a similar ratio, they’ll need to deploy a bit over $1 billion to impact 5 million acres of land. PFII will allow them to better finance and support larger scale operations. Serving regenerative grazers, who tend to influence enormous acreage while operating ‘capital-light’ compared to intensive row crop operations is another way to accelerate the growth of acres. They see this as an enormous market opportunity with US grazing land covering over 800 million acres and cropland covering 390 million acres, according to USDA ERS.
This strategic approach has resonated with investors. As an early investor in Fund II, Builder’s Vision recognized the unique and integral role that Mad Capital is playing in the space, “Through their innovative and holistic approach, they are providing capital to farmers who have been overlooked and underserved by traditional capital markets, while their broader platform also offers technical assistance, market access, and a sense of community,” said Sara Balawajder, Director, Investments at Builder’s Vision. “We’re excited about Perennial Fund II and its potential to de-risk this space and open up capital market access more widely to farmers looking to transition their practices.”
Fund II attracted a diverse group of other mission-driven investors, as well, including family offices, foundations, and institutional investors, signaling the powerful lever for climate impact and financial return that regenerative agriculture can be and the trust and excitement that Mad Capital has built in the space with its work to date.
“The Social Finance Impact First Fund is excited and proud to support Mad Capital in the launch of Perennial Fund II,” says John Pion, Director of Impact Investments at Social Finance. He explains, “Through addressing critical financing gaps for farmers, Mad Capital will advance meaningful environmental impact for our lands while promoting economic opportunity for farmers around the country. We believe in the team’s ability to scale their highly impactful model and to seed broader systems change in the U.S. agriculture market.”
Even with the success of PFII, this audacious goal will also require subsequent funds – something Welch and the Mad Capital team have already put some thought into. Conceptualization of Fund III is already underway, with the leading concept being a semi-liquid, evergreen fund designed to scale into a vehicle exceeding $500 million to attract institutional investors seeking impact forward and uncorrelated yield.
Welch emphasizes, “We don’t set acreage goals just for the sake of scale; we are ready to evolve our targets as we learn more about how Mad Capital can be best suited to transform the food system.” That may be the firm’s defining strength: designing and delivering finance tools that meet the unique needs of farmers daring to farm differently, while continually evolving to meet the needs of the system.
Sarah Day Levesque is Managing Director at RFSI & Editor of RFSI News. She can be reached here.