A conversation with Ivo Degn and Philippe Birker, founders of Climate Farmers, about the reason why they picked carbon credits as the first business to focus on, how they recently raised $2,5 million in a very unusual way, at least for a startup, what they consider a regenerative investment and much more.
LISTEN TO THE CONVERSATION ON:
How a beer in the summer of 2019 in Mauerpark, in Berlin, at the then hottest day ever recorded led to the foundation of Climate Farmers, a non-profit and for-profit focused on accelerating the regenerative transition in Europe.
WHY IVO AND PHILIPPE WORK IN REGENERATIVE AGRICULTURE
Ivo and Philippe were having a beer in Mauerpark in Berlin in 2019. It was a very memorable day, the temperature reached 39.2 degrees. It was the hottest day ever measured in the German city until that point.
”Ivo and I were both saying, if we don’t work on climate change, then we will look back at this face of our lives and we will say: hey, this is not something we could justify towards our children or any future generations. And we’re both saying regenerative agriculture seems to be the single best answer that we have because it’s the only thing where we can turn something that’s one of the main causes of climate change, which was 24% of our greenhouse gas emissions, into a solution by essentially reversing the effect. And we have so many other amazing side effects next to it. So we both said, Hey, this is the thing that we want to focus our time on, and basically since that summer of 2019, I think we both have dreamt about regen ag, woke up with regen ag, fell asleep with regen ag and have not regretted this for a single second, because it’s such a beautiful scene. You meet amazing people, you get to hang out with regenerative farmers, eat good food, and I think it was one of the best decisions of my life.” – Philipe Birker
”As Phillip said, the potential that we have is that we can turn this into one of the only industries, one of the only areas which can contribute more positive effects than negative. And this is the incredibly hopeful side, I think this is for me, why I am in regeneration. Because it’s an incredibly hopeful approach, when we were talking about using this very scary crisis that we are in for a transformation towards a system that is actually what we all want, which is a future in which humans and nature are not in conflict with each other. And I think this is really the key thing of our work. How do we create that shift of the system from where we are right now, a destructive element, towards one where we take our role back within the larger ecosystem.” – Ivo Degn
THEY PICKED SELLING CARBON CREDITS AS THE KEY BUSINESS TO FOCUS ON FIRST
Climate Farmers got verified by the German Verification Agency in September 2022, and since then, they are essentially generating credits for farmers. According to Ivo, carbon markets is a stepping stone to get to the system where they want to be, which is a society that pays farmers for the numerous ecological, economic, and social services they provide to the society.
”This was kind of the starting point to get farmers paid, we are right now also working with other organizations like Nature Metrics together in order to get biodiversity credits out there, which seems to be a lot harder.” – Philippe Birker
”There’s more and more of a movement happening to finally hopefully also be able to pay farmers for soil, water storage capacity, and the immense potential that it has to prevent flooding and prevents droughts. And I’m sincerely hoping here to get to insurance companies to get involved there. But carbon was definitely back then the first one that kind of sprang to mind where people are willing to pay for it, especially in the European Union.” – Philippe Birker
”We connect the farmer and the organization on a very direct level. So essentially, we say adopt a farmer, visit the farm yourself and build a relationship with the farmer, so that you see with your own eyes, what’s happening with the money, and that you don’t have just to rely on a verification, but then you can actually see and experience what the impact is of the money that you’re giving to the farmer.” – Philippe Birker
”The reason we got into carbon markets is A, because it’s a way to provide finance right now, not a potential payment for biodiversity or other things […] Farmer signing up get money within a year of starting their project. The point is, as Philippe said, what we need to get to is a system where we, as society, pay farmers for the numerous services they provide us as a society, as we all know, carbon was one of them, water, biodiversity, clean air, etcetera, etcetera.” – Ivo Degn
WHY THEY DIDN’T RAISE TRADITIONAL IMPACT VC MONEY
We’re talking about the system change, we’re talking about shift in mindset, says Ivo. The issue with impact VC they find is that impact VC still consider that more is better, that is inherent in that model. When talking about regenerative, we need to do different, which often means careful decision making, where you have to balance growth with quality.
”This is exactly the point where we have said, we cannot bring in VC decision makers onto our board of directors, because that is the mindset, and that is even the legal requirement that they have to have more, we don’t necessarily want more, we want the right thing to be done.” – Ivo Degn
”It’s been very frustrating to a certain extent, I would say, because going into this, I was very much thinking, hey, there’s a lot of impact VCs out there, right? They seem to be popping up quicker than carbon credit companies. And that’s something. But what we found out that most of these impact VCs are still stuck in a system in which they are receiving money, which is based on giving a high return on investment, and returning high return on investment to their shareholders. And so very often the impact metrics are the second line, I would say, the background dancers, and the front dancer is still always the financial metrics.” – Philippe Birker
”And I think also to mention a lot of, and I think to be very fair, there are also a lot of impact VC funds still struggling to be profitable, because it’s also very high-risk investments, which they’re doing in the startups. And what we realized is there’s a very big gap between the classic impact VC case, which I think for some organizations, it can really work, when you have a very straightforward product, which you need to scale up or you need some investment […] but if you are working on a complex issue that ours, then it’s not that straightforward, .” – Philippe Birker
HOW THEIR LOAN OF 2,5M IS STRUCTURED
The recent investment in Climate Farmers has been done through a loan with a whopping 3,5% interest, which was negotiated down by the investor, not the entrepreneur.
”So, what it is in our case, what is enhancing the life or the capacity of our system in our case is a 10-year term, so we pay that loan back over a period of 10 years, we have a grace period of a couple of years in which we are not paying back, in which we can get to profitability. And we have an amount of $2.5 million, and then we have an interest rate, that interest rate is the one thing where I would say this is not representative. Because I believe that an interest rate of even 15% would have been fine, is something that we could have paid back quite well. If our business model works. In this case, Kai [the investor] insisted on it being at 5%. And then a couple of years later, he called me and said, Ivo, I’ve been thinking about this, I don’t think it’s right, I think we need to set it at 3.5%.” – Ivo Degn
”In this case there was a strong preference of him to do it via subordinated loan, mainly, because he wants to get out of the way. So, going back to the previous argument, the best way to invest in system changes, find people you believe are able to do that, and then get out of the way and let them do the work.” – Ivo Degn
NEVER STOP FUNDRAISING AND BUILDING RELATIONSHIPS
Ivo argues that for regenerative agriculture to scale, we need these kinds of investors. So, they will continue hosting those conversations.
”I think one very important learning from this last fundraise is, never stopped fundraising. Although, my tendency would definitely be to say, okay, let’s drop this and go and build products. But building relationships is extremely important. And so, this is what we’re doing. This is why we’re shouting it from the rooftops. And this is why in September we’re doing a series of events on exactly that, to build a group of funders around this idea of regenerative investment.” – Ivo Degn
WHY THEY DIDN’T CHOOSE A STEWARD OWNERSHIP MODEL
In our case, our company is there for a mission, and it’s not there for anything else, says Ivo. So, if that vision is achieved, we are okay with it dissolving. A company does not need to be around forever.
”I love the stewardship model. There’s only one aspect there that I’m missing, which is the mission bind. So, a company that is in steward ownership could shift its mission, it just can’t be sold. In principle, you can be steward owned, without necessarily being bound to your mission.” – Ivo Degn
”Also, the aspect of selling the company. I see the point in the steward ownership model, it makes perfect sense. But for Climate Farmers, I don’t see the reason why if it would serve the mission, it could not be done.” – Ivo Degn
THE RELATIONSHIP BETWEEN THE NON-PROFIT AND FOR-PROFIT
Climate Farmers has two companies: a nonprofit company, which has a German entity, and a for-profit company.
‘We could potentially sell the for-profit company […] Somebody offers us $50 million for the for-profit we take that money, we put it in a nonprofit, and we do important nonprofit work with it. That would make perfect sense, potentially.” – Ivo Degn
OTHER POINTS DISCUSSED
Koen, Ivo and Philippe also talked about:
- Connecting with farmers on social media
- Moving towards payment for ecosystem services for farmers
- How funders need to enable system change
- The problem of young farmers not wanting to enter farming
- Farmers’ Philosophy series! Koen van Seijen in conversation with Anne van Leeuwen, regenerative farmer and co-owner of Bodemzicht Farm
- Brandon Welch and Phil Taylor – Updates with Mad Capital on how to enable billions to flow to regen organic farmers
- Randal Breen – How a first generation farmer uses holistic investment to double the farm
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The above references an opinion and is for information and educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.