As the development of agritech accelerators has plummeted over the past decade, new models of funding have emerged, including seed funding that provides venture capital investment on a small scale — less than £100,000. Prominent among these new models of funding is the startup accelerator, which invests in multiple startups at one location. In addition to financial support, accelerators provide an education programme in business and product development, legal and infrastructure support and a strong mentorship and alumni network.

We will launch a premier accelerator in Penrith, Cumbria, which works with several startups annually. Depending on the business, we will work on at least two intakes annually. Our competition comes from other accelerators in Europe, as well as other sources of funding to very early-stage startups that are either restricted to friends and family or difficult to acquire from traditional sources of financial help (i.e., banks) The inclusion of education and mentorship gives these programmes a competitive edge against traditional VC and angel investors. We will achieve market-leading performance for investors and startups by demonstrating and supporting in our startups these key principles:

• High performing, supportive teams
• Testing assumptions, and seeking data on performance
• Continuous improvement
• Open communication

Background & Venture Overview

In the past decade, there has been a significant shift in agritech technology, with a new emphasis on alternative forms of crop production and efficient technologies to reduce the overall costly human element of business. Also, there has been a significant shift towards how alternative investment classes (i.e., cryptocurrencies, decentralised autonomous organisations “DAO”) act within the wider agritech business sector. Significant research is currently being undertaken in the latter at alternative forms of investment en masse, reducing the investment load on traditional finance for the sector.

Furthermore, the so-called “internet-of-things” which has a growing connection with agriculture and farming in general is an area of interest for FERNLab. Core integration with remote access internet has revolutionised agriculture over the past five years with more yet to come in terms of technological development. As a result, many new ventures in this space need far less capital than they would have five years ago, and their needs place them below the required investment size of traditional VC firms.

To serve this market, new models of venture capital have emerged, chief among them the seed fund and the startup accelerator. Each makes relatively small investments (generally £50,000 or less per startup) in very early-stage ventures, but the startup accelerator pairs this with educational programmes and strong mentorship. FERNLab programme aims to quickly impart relevant business information and knowledge to startup teams to improve the quality of their work, ensure common emphasis on mentorship and networking ensures that not only is the quality of the minimum viable product better and more sustainable, but also that the startup can access wide networks within the wider startup and business community for such needs as raising further capital, hiring new staff or discovering important early customers.

We will launch the FERNLab startup accelerator in Penrith, Cumbria that will run a three-month programme three times annually (however, due to the nature of our work it could be smaller groups on longer timeframes, depending on the project.)

Business Landscape

Startups can get funding from more traditional sources, including angel investors and seed funds. Seed funds are relatively rare in Agri-tech despite the name, as the current trend is to combine them with more educational and mentorship content and create an accelerator instead. Furthermore, many startups do not have access to qualified angel investors, who generally work quite privately, whereas a programme like FERNLab has a very public presence, both online, across the UK and in Europe. In addition, the FERNLab model has the scope to be replicated in several locales globally.

Our broader competition is other Agri-tech accelerators in the UK and EU, however, despite the size of the overall market, most are focused on traditional farming innovations and not alternative business formats in the rural environment. The decision to bootstrap or to take funding is usually based on the capital needs of the company, the market it competes in, and the experience level of the founders.

The main competition for a form of an accelerator is other accelerators on a global level. Early-stage entrepreneurs can move to a new location with relative ease, creating more competition between new accelerator programmes, and better-known programmes in California (host to several agri-tech accelerator programmes currently. However, due to the location and unique proposition of the Newton Rigg site, FERNLab can leverage the remote location and ideal growing conditions for several startups for several years moving forward.

With the advent of coronavirus (COVID-19) many potential locations and programmes have halted their operations. Most accelerator programmes are not backed by industry professionals in the UK but by academic sector professionals, including Newcastle University (the closest) and Lincoln University on the east coast. Other centres targeting specific sector development including agricultural efficiency or horticulture exist. These centres have done an incredible job of creating an active exciting startup community in their respective areas. However, our goal is not to stress the existing infrastructure in the UK but to develop our niche by combining cutting edge techniques, programmes and outcomes from our companies who join our programme Studies have shown that VC funds that are actively engaged with other investors enjoy improved returns, so our initiative on communication, openness, and networking will directly contribute to our overall results.

Profile of a Startup Customer

Our target startup will be a team of at least two, but possibly three founders who are launching an internet-based business. Because the goal of our programme will be to refine and prove the business modem to get early traction, the startup should be past the idea stage and the team should have already created either mock-ups or a prototype of their future business product. No business plans are required at first instance, as it is the job of FERNLab to develop that business.

At least one of the founders of the startup must be a practically minded person, we discover this in discussions of their project and thorough investigations about their background and work history. This enables them to execute faster and cheaper and overall reducing the costs for the startup centre.

Performance Expectations – Investors

A 2009 study of British angel investors found that while 56% of all investments failed, roughly 9% returned more than ten times the invested capital. This resulted in an overall return of 2.2 the investment, which was generally over four years and resulted in an IRR of approximately 22-25% per annum. Similarly, data internationally shows several high profiles exits in sector in recent years either from listing or M&A, on average, the purchase price of startups globally was $167mn[1].

Performance Expectations – Startups

As discussed above, there are well-established accelerators in Europe and the US, however, to date agri-tech and software combination startup sector businesses are few and far between with the majority being an add on to higher education institutions. We intend to break away from the current financing structures for startups in this area to be entirely independent of higher education, but also to have a connection with the sector.

Structure & Strategy

Each aspect of our model is based on the principles of demonstrating and encouraging:

High performing, supportive teams
Testing assumptions, and seeking data on performance
Continuous improvement
Open communication

It is our firm belief that implementing strong practices based on these above principles will directly lead to market-leading performance, both in our investor-facing activities and our startup-facing activities.

Investor relations

In the eyes of many in the industry, the sector is seeing a radical shift currently and it is harder than ever to find institutional investors willing to come on as limited partners to such a project. The low annual capital requirements of a startup accelerator also put them below the investment threshold of most large institutional funds. FERNLab will work to avoid using valuable partner time on the traditional “fund hunting” exercises and will instead make it easy for large numbers of small to medium-sized investors to also join in and grow the value of the accelerator programme.

While Cumbria’s agritech investor community may be small, we will win by engaging the broader community of potential investors not just in Cumbria but across the UK and Europe. The cornerstone of our investment cycle will be our funding portal which will drive investment and interest in the accelerator.

Our unique system will enable us to:

Generate publicity and investor awareness
Create a valuable database of interested investors and reporters
Streamline the investment process – remove hurdles, improve completion rate
Take in a broad base of small investments
Attain our investment needs with a minimum of partner time involved
Communicate clearly with our investors, increasing their overall satisfaction with the course
Create engagement with our investors through the investor portal blog site

Each of the benefits above applies not only to FERNLab’s funding rounds but to any rounds raised by portfolio and graduate companies through this system. Graduates would have access to life to the investor community. We will also have the option to allow other local startups to post their funding rounds on it in return for either a finder’s fee on the round (4% or an equity stake).

Education Plan

The education programme that is part of the FERNLab remit works off the back of the former New Rigg College site, whereas the academic atmosphere is carried over to the business environment. Because of the pressures on founder time and founder focus, our education programme must consist of only the most important topics, covered in a concise way that is easily and immediately applicable.

We intend to create an advisory board of experts who will be on a revolving basis to ensure not only continual improvement in our information and format but continual updates to the content to suit the changing landscape of business and technology.

Our initial educational programme will be significantly different from those of other accelerators in its inclusion of content for improving the personal well-being and effectiveness of the businesses. The short length of the programmes means that one of the most effective things we can do to improve the success rate of our graduates is the improve their ability to perform both on their own and with their teams.

We will also include more traditional startup educational tips, including business practices, software, and agritech best practices, working with contractors, performing market research, product development for market fit and market including social media marketing.

Startup relations plan

Our first challenge will be to attract a critical mass of high-quality startups who are interested in joining FERNLab. We will do this by generating as much publicity as possible online and by engaging deeply with the sector and business community in the Northwest to raise awareness and knowledge about the values of our programme nature.

As discussed in the investor plan above, our higher-than-normal level of clarity in terms of funding should push our programme forward in terms of availability and information in terms of public relations. We have also been drumming up support before the launch of the FERNLab project online through social media channels including via the FERN organisation’s main page on Twitter, Facebook, and LinkedIn.

When in full gear, there will be three periods a year we will accept startup applications, which we will make every effort to announce and publicise via the above-mentioned methods. The dates will be known well in advance, allowing startups to prepare their application and presentation. Our goal will be to keep the application requirements minimal for startups so we can get the highest number of orders via the system online.

Startups should submit an email brief outlining their project and their team, and then we will arrange a video chat presentation in which we can get a better understanding of their potential, a better grasp of their personality and technical ability. This will also enable us to identify mentors who have experience or interest of value to the project. With this simple straightforward system, we will streamline our selection process and push for the first intake in Q3 2022.

Once a company is accepted, they will need to work from our offices in Penrith from the start date. We can assist where needed, but most teams will either be in Cumbria already or be able to handle the move eon their own. The ability to be located here for the duration will be part of our selection criteria. Teams, in general, will be arriving with their own set-up, including laptops and mobile phones, however, we will also provide group computer setups on the site in the office areas where needed. We will however keep our overheads as low as possible by pushing their own tech use first. Each cohort will work in a common work area where collaboration between teams will be advised. The general startup leaders’ team will be available full time (and out of hours) to assist with product design, direction, and execution.

At the end of the three-month programme the startups will prepare and practices their pitches, and we will organise and publicise a Demo Day event, in which we gather as many investors as possible from the region and further afield to push for investment.

Community Relations Plan

It will be an important part of our success to be heavily involved in the local startup community. The community gives FERNLab us a contact with businesses, potential startups mentors and investors. And this also allows us to publicise our existence and in particular our programme plan with the community outside.

Mentors are an important contributor to our programme, and we are putting aside 20% of the carried interest in the fund to keeping as many on board as possible with potential payments for specific dates. These mentors are an integral part of the programme teams and act as a key lynchpin of the wider community. Mentors usually are interested in this work not out of financial motivation but because they enjoy assisting startups and get a great deal of satisfaction and pleasure in helping young startups.

Management & HR

Two managing partners, who will lead the investment activities and the educational and mentorship programmes, found FERNLab. Each of our partners has a long history in business and some with operating startups, which gives them not only the breadth and depth of experience necessary to mentor new founders, but the extensive personal networks, which will contribute to the success of our startups and our programme.

Daniel Rad, the founder of FERN and proposer of FERNLab, will lead the project for the first cohort. He has bootstrapped several successful businesses in Asia and operated directorships in the UK since 2018. He has extensive experience in working in both public and private sector. To date, he currently has some 15-20 employees as part of his LORD GROUP industrial and medical sector production facility. He has also extensively worked with rural groups in recent years, including with Bord Bia, Enterprise Ireland, and held consultations with DEFRA and other related groups on rural regeneration.

Kevin Beaty joined FERN in 2021. Kevin is a farmer in Cumbria and the former leader of Eden District Council. He previously headed several social and economic projects in Cumbria. He has extensive experience in supporting businesses in the local area, including modular building projects and environmental recovery programmes.

Sara Usinger will lead FERNLab for the first two years. Sara has a long history in the startup sector across Asia and Europe and is currently leading a project funded by the European Union in Albania. She has experience with agritech developers and software developers, industrial production and scaling up.

Operations

In order for the Managing Partners to focus on the investment and mentorship activities of FERNLab, it is necessary to employ an individual in an operations or coordinator role. Recruitment is underway for this position, but we have been in consultation with several experts in this field who have operated in different environments. This role will not merely support the Partners in their work but manage much of the day-to-day operation of the programme and support the startup founders in their needs as well. This person has excellent people skills and is very effective at streamlining, supporting and accomplishing projects in FERNLab.

Advisory Board

An impressive advisory board supports FERNLab, composed of veteran startup founders, experienced investors, and subject matter experts, all of whom are dedicated to the continuous improvement of the programme and its results.

Compensation, Investment and Alignment

FERNLab is structured to ensure complete alignment between the management of the incubator and the investors. Because each fund is raised to cover three cohorts in one year, no annual management fee is charged. Instead, there are salaries to the Managing Partners, but they are kept at a minimal level, with the expectation they are augmented by the carried interest on successful exits. Our Managing Partners will earn only £45,000 each in Year 1 and 2 and dropping in the third year to £40,000 and £35,000 in fourth year as exists occur and carried interest is paid out.

The Founding Partners of the project also seek to work with local authorities and other beneficiaries to lower the overall cost to the private investors. This methodology has been used before in other localities, including Europe and the US.

FERNLab unique business model also incorporates corporate hotdesking on the site, which allows the startup businesses to mix with travelling businesspeople using Penrith as a stop along their travels. The business hub setup on site is seen as a terrific way for the business to accrue extra income annually through renting out conference room space as well as office space. The business hub side with unique entrance could see an average of 5-10 people a day use the site for work, earning income for the site.

The consistent growth of a fund endowment state for management serves over time to place them on an equal investment footing with outside investors, and the small contribution of each year’s fund to the endowment fund likewise ensures that an investor in on year will have a financial state in the success of every subsequent cohort. The endowment fund will also ensure that not only does the funds for the startups not get eaten by running costs but FERNLab slowly reduces the dependence on annual fundraising through its own economic generation.

Financial Plan

Investment Structure

We structured FERNLab as a public limited company, however, the overall goal of the FERN group is to find routes to lower the tax burden on the accelerator and the companies coming out. There are several options available, including the creation of many of them with CIC status, meaning they can reinvest their funds back as they are classed by a specific definition. The term of the fund is ten years (our initial estimate), but we should be able to fully reimburse the funders in a shorter period than that. Investors are repaid first from any proceeds and share sales of the business. For the management team there is no annual management fee, but there is a 25% carried interest, which is slightly above the standard startup model, but it has two uses. 5% is pooled for the mentors of each cohort (at our discretion) in proportion to the number of cohorts they are linked with during the life of the fund. Another 5% enters the endowment fund on behalf of the investors, which is matched by another 5% on behalf of the management of the startup centre (dependent on profits). There is 10% of the carry remaining for direct payment to management, significantly below industry standard.

FERN Endowment Fund (FEF)

The FERN Endowment Fund (FEF) is a unique innovation in the sector that will reduce the time spent fundraising, as its purpose is to eventually make the entire operation of the accelerator self-sufficient during five to ten years. The funds entering the endowment are earmarked to investors who contributed to them. This means those who invest in early funds will automatically be enrolled into later funds as the FEF continues to grow over time. When self-sufficiency is reached by FERNLab, no new investors will be brought on board, but all the investors who participated in the past will have a rollover stake in future cohorts, for perpetuity in part thanks to the FEF.

FERNLab Revenue Model

Startup accelerators have a large degree of failed startups, it is not a sign that the mentors have not successfully mentored the cohorts but is just part of the cycle of business. However, the accelerators structure their investments so that they can create the performance they need with a very low startup success rate. Indeed, in research in the UK and elsewhere approximately some 40-50% of portfolio companies will fail in the first five years. Another 25% on average will break even, achieving either a small exit or an ongoing business that results in the repayment of our investment. Of the remaining 25% of startups, 20% will achieve a “good” exit, and 5% will achieve a “large” exit. The accelerator makes its returns from that final 25% of startups who we mentor. In the case of agri-tech startups, there has been some debate that many of the companies due to the nature of the business have a higher success rate than the standardised metrics, however, the data is not yet conclusive on this sub-sector.

Here is an example showing one year, including an average of 30 companies:

	% of Startups	Exit Size	Average # of startups in cohort	Orig. investment	FERNLab Equity @ Exit	Accelerator Share	Total Share for the Cohort
Failed	50%	£0	15	£20,000	6%	£0	£0
Breakeven	25%	£500,000	7	£20,000	4%	£20,000	£140,000
Small Exit	20%	£5,000,000	6	£20,000	4%	£200,000	£1,200,000
Good Exit	5%	£15,000,000	1.5	£20,000	3%	£450,000	£675,000
Large Exit	1%	£100,000,000	0.3	£20,000	2%	£2,000,000	£600,000

With 1% of the startups achieving “large” exits of at least £100mn, they have been included here as occurring every five years, since our annual cohort is 30 companies.

If we did an investment of £600,000 annually results in estimated revenue from exits should stack up to £2,615,000. Those exits will occur anywhere between 1-5 years after the startup leaves the programme and further investment reaches them down the line. Revenue from exits will be not straight forward, and has been averaged over five years, starting the first year in our models. The revenue from exists is show because of the five-year form of cohort of structure. The financial nature of the so-called lump payments does not affect the operations of the accelerator as the funds have been designated for operational costs.

From exit revenue, first the original investment will be repaid, so that management is earning a standardised fee based on positive investment return. Operating costs for a normal year are in the range of £300,000 (annual operating budget is shown below).

Financial Projections

As this is a recurring venture, as opposed to a growth-only venture, the key result of our projections is the slow creation of value in our startups and through the endowment fund, enabling us to reduce reliance on fresh round of finance. Although we have made every effort to base our projections on current conditions there are often where work is needed outside the average budgets depending on the startups coming through. Some in the agri-tech sector will be looking for additional revenue for the development of machinery.

We must execute well year-by-year to continue returning healthy returns that our investors expect. Our staffing and overhead needs will change very little unless we expand the programme internationally as Y-Combinator (startup grandaddy) and TechStars have done.

Capital Requirements

As outlined above, we will raise one fund annually to cover operations and investment in FERNLab. In year one, we will run at least two programmes instead of three (non-pandemic times), funding 20 companies instead of 30, so our capital requirements will be less in theory at some £750,000. In years two through four we will be at full capacity, but cash from exists will only begin to arrive midway through these years, so we will be raising a full £900,000.

Years five onward we will begin to benefit from startup exits and the endowment fund will reduce our annual funds to £800,000.

[1] https://www.croplife.com/precision/2021-agtech-venture-capital-investment-and-exit-roundup/

Download FERNLab Business plan

fern biz plan