HeavyFinance
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HeavyFinance

Disclaimer

  1. All research on startup and the whole investment memo has been done for personal use of Akim Arhipov.
  2. Please note, fff.vc is not syndicating for this deal, we are simply sharing the opportunity, everyone can participate directly.

General overview

Started as an agricultural crowdfunding platform 3 years ago, HeavyFinance has become a European climate tech investment marketplace, which supports farmers in the transition to sustainable agriculture.

Since their inception in 2020, they’ve started supporting farmers in 5 EU countries*, have originated over EUR 40mn, and have become a frontrunner in carbon offsetting projects in the sphere of agriculture. HeavyFinance now consists of 50 people, including agronomists and soil scientists, and they are financed by leading regional VCs.

We are on a mission to remove one gigaton of carbon dioxide from the atmosphere by 2050.

Problem

A significant number of the EU farmers seek to switch to regenerative agriculture such as no-till or strip-till farming, which increases the farm’s profitability. The transformation requires considerable investment in new agricultural equipment. Each hectare of sustainably managed land can remove 2-3 tons of CO2 from the atmosphere, contributing to the fight against climate change.

Since the financial crisis of 2008, banks have reduced their EU lending activity and tightened credit conditions further as new capital requirements have been imposed on them. This has left European farmers, particularly SME farmers, at a disadvantage, because it is unprofitable for the banks to originate loan tickets below EUR 50k.

93% of Europe’s farmers own less than 50 hectares of arable land, leaving them underserved by traditional financial institutions. HeavyFinance is addressing this funding gap which exceeds EUR 30bn.

Products

In full alignment with the EU’s Green Deal, owning a pan-EU crowdfunding licence, HeavyFinance has created an EU-wide lending business that provides comprehensive and competitive green lending solutions to SME farmers. We fill in the funding gap with short-medium term loans and bridge farmers who seek financing with the investor community.

  • Lithuania, Latvia, Poland, Bulgaria and Portugal

We originate two types of loans:

  • Interest-bearing loans: “our traditional” lending product, where farmers borrow funds to purchase equipment, machinery, land or finance working capital. The average interest rate is 13%, the majority of loans are collateralized with liquid and valuable assets such as farmland and hold additional surety including farmer’s personal guarantees.
  • Green loans: 0% interest loans*, which we created to fund farmers’ switch to regenerative and more profitable farming techniques. Instead of earning a standard interest rate, investors in such loans obtain access to income from the sale of carbon credits.

One ton of CO2 removed from the atmosphere equals 1 carbon credit. Carbon credits are used to offset corporate carbon footprint and are traded on the global market, and their buyers are the world's largest banks, air carriers, hotel chains and other firms such as Microsoft or Apple.

The expected investor’s IRR investing in green loans at the current market prices is >25%.

Traditional loans
Green loans
Mimimum check size
€100
€100
Average loan size
€26,000
~€100,000
Average term
30 months
42 months
Period of receiving benefit
Equals to loan repayment term
Loan repayment term + 12 months
Return
13% fixed annual interest rate
0% fixed annual interest rate 25% expected IRR generated through sales of carbon credits
Collateral
Yes
Yes
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Loan principal is still repaid in 3-5 years; all loans are collateralized

Market

Lending

  • €200b existing market - current agricultural financing in the EU
  • €30b financial gap - unfilled demand for financing
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Carbon markets

The current size of the global voluntary carbon market is <€5b, This concerns the voluntary actions of corporations to offset their CO2 emissions.

According to McKinsey, the market is expected to grow 15x to ~€50b in 2030 and 100x by 2050. This will be fuelled by the increasing governmental and stakeholder pressure to achieve net zero emissions.

Concerning removal carbon credits (generated by HeavyFinance; the most valuable type of carbon credits), the annual demand for them is expected to be ~10 gigatons in 2050, while the current supply is just a few million tons. We believe that this mismatch will have positive effects on the removals’ price trajectory.

Validation / Traction

By July 2023, they have already financed €2.5mn worth of green loans in Lithuania and Poland (in addition to €40mn of traditional loans financed). €2.5mn of green loan translates into >5k ha of farmland. They see a high demand from farmers to acquire an interest-free loan.

The average expected IRR for investors is ~25%.

Their experience in the soil carbon market also extends to carbon consulting (soil carbon). Their soil scientists help farmers that have already switched to regenerative farming to increase the productivity of their land, project management team makes sure that the application to the carbon programme is smooth and successful, and their treasury team ensures farmer’s share of carbon credits is sold at the optimal price. They have already advised 55k ha of farmland.

60k hectares translate into €40mn of contracted recurring revenue during the upcoming 10 years. Their aim is to secure at least 130k hectares by the end of 2023.

Competitors

Companies such as eAgronom and Agreena compete with us in the agricultural carbon market regionally. However, they only play in the carbon consulting market.

There are other crowdfunding marketplaces such as Lande, which focuses on standard agricultural interest-bearing loans alone with no exposure to carbon markets.

To the best of our knowledge, HeavyFinance is the only platform, which delivers value to farmers through the symbiosis of lending and agricultural/carbon market consulting. This ensures the defensibility of our green loans product.

HeavyFinance investment opportunities

They would like to invite you to review their investment proposal

  1. Below is the link for you to review the projects listed in the platform:
  1. Below are a few examples of already fully funded green loans projects:
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In addition, to accelerate the path towards our goal to remove 1 gigaton of CO2 by 2050, they will be launching a Dark Green fund (SFDR Article 9) with a target size of €50mn, which will focus on sustainable investments. They have secured an anchor investor and are currently looking for LPs to join our journey.