Unpacking the complicated relationship between investors and farmers

Private equity and venture capital firms have a growing appetite to invest in agriculture, the world’s largest industry. Many have formed successful relationships with farmers and are providing solid returns to investors, but some face a learning curve as they seek to understand the space and how it fits into their thesis.

Agriculture is a promising sector for investment dollars, but in recent years this space went through a “valuation reset.” Promising Ag startups under-delivered on their returns, partially due to misalignment in exit timelines. In this article, we share our top takeaways for players on both sides of the aisle, farmers and investors, to help anyone breaking into private equity-backed agriculture understand how to form productive, meaningful relationships.

Why it’s hard to invest in agriculture:

Agriculture existed before private equity and venture capital, so it’s not easy to convince generational farmers to adopt new practices. But the industry does face a flurry of challenges, which any outside player should seek to understand before forming a relationship.

Labor availability continues to be the top issue farmers face in the average year. Additionally, unpredictability of weather, global trade and other key issues can shift a farming operation’s value dramatically in the short term. Effective risk management and coping mechanisms are crucial to maintain operational efficiency, but this reality doesn’t always make sense to outside players.

We commonly hear from farmers who struggle to secure loans or work with financial backers due to their unique business model. Despite being the world’s largest and oldest industry, modern financial systems can’t always make sense of the longer return cycles needed to properly calculate a farm’s value amid yearly fluctuation. This is why investors can’t always get their product to sell or form a working relationship with the production side of this business.

Related: We asked agriculture investors what to expect in 2025

Farmers think of their finances in 10-year increments, and their idea of a solid return is sometimes just breaking even. Without understanding these conditions, investors will find it challenging to bring an Ag business under their wing.

Building your agriculture portfolio company:

For investors who successfully navigated unique agriculture valuations and purchased a business, operations can still be challenging, especially as you seek to build an executive team of experienced industry professionals.

One of the most surprising factors to first-time Ag investors building their team involves equity. In the typical portfolio company outside of Ag, your leaders’ equity is the most attractive piece of the compensation package, but this “typical portfolio” is designed with an exit window of 3-5 years.

Seasoned Ag professionals know this timeline isn’t likely in their industry, so they’re more focused on short-term incentives like salary and bonuses. If you’re prying someone loose from a large Ag corporation, their equity package may rival the one you’re offering, even if the payout is further down the road. Additionally, the overvaluations from this industry in the last few years make equity harder to calculate, which could deter top candidates.

It’s also a challenge to pull the most important hires into Ag companies from other industries. Investor favorites like ex-consultants or ex-investment bankers can typically pursue their industry of choice, and Ag doesn’t always make the top of the list.

If you’re trying to recruit from these talent pools, you will need to spend more time focused on their cultural fit and values, because Ag professionals join the industry to help feed the world first and make money second.

Additional considerations:

In agriculture, relationships matter more than logos or titles. Many farming operations are family-run and community-centric, and decisions are made with legacy in mind. For investors to build influence and trust, they must focus just as heavily on relationships as they do on capital. That means spending time on-site, listening to operators and demonstrating a long-term commitment to supporting their business models.

When investors and farmers find alignment on values, timelines and vision, the results are transformational. But that alignment doesn’t happen by accident. It takes thoughtful hiring, clear communication and a willingness to navigate nontypical valuations and timelines.

To learn more, contact Eric Spell at (336) 217-9116 or eric.spell@charlesaris.com.