7 types of capital to finance seaweed cultivation
In my latest State of the Seaweed Industry, I remarked on the lack of coin flowing into cultivation as compared to processing and applications. A few weeks later, Karlotta Rieve spun out that idea in her excellent industry overview.
But even if few would deny that cultivation has been underfunded in recent decades, I have to admit that my argument was flawed.
At Phyconomy, I only track venture capital, as that data is more publicly available than other types of investments. As Bren Smith rightly points out, though, ocean farming, like any other type of farming, is inherently unattractive to venture capital. Only a few highly scalable, IP-driven companies like Sea6 Energy will ever be able to convince hard-nosed investors that returns will be both imminent and megabucks.
Everyone else needs concessional finance to come in alongside private capital. Case in point are the recent funding rounds by Ocean Rainforest ($6.2M from investors including nonprofits Grantham Foundation, Builders Vision, Ocean Born Foundation and WWF), Seaweed Solutions ($4.7M, WWF again) and Seadling ($1M from Conservation International’s venture arm).
If venture capital is unlikely, how then will sea farmers get their hands on the cabbage? Let me count the ways.
1. Redirected venture capital
In the past few years, a raft of seaweed startups have received VC funding for their innovative biorefinery and biomaterial concepts. Now that these startups have moved through their pilot phase and are ready to scale up, newly hired supply chain managers are quickly realizing that securing control over the biomass will be key to the success of their company.
They might not want to vertically integrate, but they will need to co-invest and “risk together” with growers to make sure they get their hands on all the seaweed they need to fuel the rocket ship growth their investors are hoping for. So while VCs don’t want to touch cultivation, in the end, it is inevitable that some of their money will find its way there.
These tie-ups are starting to take shape. One example is Neptune Elements’ acqui-hire of IMTA outfit Arvorig Solutions last month.
There will be more. It’s nothing new, really. See for instance how seaweed cultivation in East Africa got started 30 years ago (and is still run today).
Since 1989, Zanea is one of two major producers in Zanzibar, initiated and still majority-owned by CP Kelco (now DuPont)
Ocean Farmers - supported by Cargill - produces most of Madagascar’s seaweeds exclusively for them.
FMC (now IFF) tried to set up a similar operation to its competitors in Mozambique in the 2000s, unsuccessfully in the end.
After importing seaweeds from Asia for 2 decades, SELT Marine also felt the need to take control and bring production closer to home, setting up farms in Mozambique, Zanzibar and its native Tunisia.
2. Corporates take a stake
At the start of the year, St. Cousair, a large Japanese food manufacturer, invested in Maine’s Ocean’s Balance to jointly develop a suite of Japanese-inspired food products that incorporate seaweeds.
Korean companies are also starting to see the potential of investing in Atlantic production as an avenue for growth, since their domestic market is mature and cultivation in Korean waters has reached its technical and ecological limits for now. No announcements yet, but watch this space.
That mirrors developments in Europe over the past 2 years, where Irish dairy giant Carbery seeded Pure Ocean Algae, Norway’s FMCG conglomerate Orkla took a stake in Arctic Seaweed and Belgium’s top retailer Colruyt became The Seaweed Company’s lead investor.
Corporations get first dibs on high-quality seaplants, growers a ready market.
Beyond food, a different set of multinationals hopes seaweeds will help them with their carbon headache. Last year, De Beers invested in Kelp Blue for that reason. This year, Amazon is funding Plymouth Marine Laboratory’s carbon research alongside North Sea Farmers’ wind/seaweed farm trial.
3. Bank loans
As per Greenwave: “Equity investments kept breaking down as farmers said: ‘Why should I give you part of my farm? I am doing all the work here.’ So, over time, we have become huge fans of loans, just on the farming side. We like revenue-based financing, a low-interest loan that gets paid back once the farm starts making money.”
Having said that, bank loans are not a gimme for high-CAPEX ventures like seaweed farming - or urchin ranching. For that reason, Urchinomics’ recent debt-financed expansion in Japan deserves a mention.
4. Philanthropy and government
Tax avoidance from large companies and rich people, aka philanthropy, is funneled into seaweed farming through the most active nonprofits in the seaweed space: WWF, The Nature Conservancy, ORRAA and Greenwave.
Government grants: too many, not enough? Let me just highlight the latest one I found interesting: $800,000 to expand Royal Greenland’s cultivation in Maniitsoq, Greenland.
If neither investors, corporates, startups, banks, NGOs or the government are keen, crowdfunding is what you are left with. Seeing the recent spate of seaweed crowdfunders, it seems like quite a common predicament.
For now these have all been equity or donation-based. I imagine we will see more crowdlending when Atlantic seaweed farming starts to break even.
Finally, platforms are being built to bridge the gap and simplify financing. Oceanfarmr Finance is the first to market. In tropical seas, ORRAA is working with Mari Oceans and Sea Power to help seaweed farmers access microcredit in Indonesia and Tanzania, respectively.
Bonus: Multilateral development banks
If you think the seaweed industry is too small to appear on the radar of MDB’s, think again. The Asian Development Bank last month approved an investment of up to $15 million in Australis’ Greener Grazing project, growing barramundi and Asparagopsis in Vietnam.
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