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An enviable position brings a choice of suitors

Wade Barnes, founder of Farmers Edge, inspects a crop of canola just south of Winnipeg.

JOHN WOODS/john woods The Globe and Mail

Every week, we will seek out expert advice to help a small or medium-sized company overcome a key issue it is facing in its business.

Wade Barnes is an expert at helping agricultural companies grow. The founder and chief executive officer of Winnipeg-based Farmers Edge uses satellite technology to tell farmers how they can increase their yields.

For the last few months, however, it's been Mr. Barnes who has been getting growth advice from others – mainly hungry investors wanting to buy into his business.

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Mr. Barnes, who started the business six years ago, is in a position many other companies would envy: He has nine different companies – mostly hedge funds and venture capital firms – wanting to purchase a piece of Farmers Edge.

The company is appealing because it's both a tech firm and an agriculture company, he says. "There's not a lot of groups like us out there," Mr. Barnes says.

Its technology can pinpoint exactly where farmers should plant crops, what they should plant and which fertilizers to use, among other things, using satellite imagery.

It's this high-tech approach to an old, but in-demand, business – farming and food production – that's driving interest in the company, Mr. Barnes says.

Until suitors started calling, Mr. Barnes hadn't thought about bringing in outside investors. Much of the interest was sparked by recent speeches Mr. Barnes delivered at agriculture investment conferences around how tech can affect production; he was hoping to attract more customers, not investors, he says.

"Our Caramilk secret has been to stay very independent," he says. "And with investment comes less independence."

With all those approaches, Mr. Barnes has come around to thinking that now would be a good time to take on a partner. In a few years, he says, there will be more competitors. If he doesn't use money to grow now, he could one day fall behind.

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Mr. Barnes says offers have ranged from $2-million to $30-million, and he'd like no less than $7-million to $8-million. He plans to use the funds to expand to the United States, invest in further technology and make some acquisitions.

But he wants to stay in control: at this point, he'd part with no more than 49 per cent of the company, he says.

Besides getting the best deal – which to him would be enough money to grow the business while retaining control – he has to determine whether he should team up with an expert in the agriculture industry or go with a partner outside the field. The majority of the interest has come from the latter group, with three investors saying they want control positions.

Mr. Barnes has already spoken to most of his suitors. His main challenge is deciding on who to choose. (While he would be open to working with more than one, Mr. Barnes says most want to buy in on their own.)

"Most of the people we've spoken to want to be involved, but they don't understand the business," he says. "We're not sure if that's good or bad. Maybe someone who doesn't know the business won't interfere and let us do what's made us successful. Or maybe not."

The challenge: How to decide who to choose?

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Brooke Valentine, Toronto-based associate partner with PricewaterhouseCoopers LLP

Ultimately, he needs to find the investor that best provides his business with the elements to execute his company's plan. He should determine what's important to him – is it partnering with someone who can provide a global reach? Or access to new customers? Those would be the things I'd look at.

If he needs exposure to existing customers, an industry player is often better positioned to deliver that. Where investors outside of the industry can be of value is in other areas like executing acquisitions. They'll rely on the existing management to address industry business challenges.

If it's control he's worried about, there are ways to limit how much new investors will be able to influence a company. That's largely done in the shareholders agreement. That would spell out what level of responsibility the investor will have. Often, day-to-day decisions remain with the current management, while the major decisions around capital expenditures and business acquisitions are influenced by the investors.

Rick Jaques, Winnipeg-based vice-president at Bank of Montreal for Manitoba and Northwestern Ontario

I wouldn't say hard and fast that he should go one way or the other. Whether it's an industry insider or not, there are pros and cons on both sides. It boils down to making sure there's a fit with investors and that both Farmers Edge and the investors buy into where the company is going. They have to understand the parameters of how they're going to operate going forward. It doesn't matter where the person comes from; it's more about being able to look that person in eye. Set parameters upfront of how to work together to avoid surprises down the road.

To do this right, he has to understand strategically where he wants to go with the company. Some investors will want to have a voice on the board or be more active in day-to-day management. These are things that need to be set out and clarified, and knowing the direction of the company will help him figure out those details. No partner will be perfect, but it comes down to trust.

Tim Angus, chief executive officer of Toronto-based Regen Energy Inc . (which recently received $6-million of venture capital investment from industry players)

We wanted to work with investors who had a lot of experience in our industry and Farmers Edge should consider that, too. Look for people who have invested in other companies in his industry that could become partners or a new customer base. Find relationships with people who can benefit you and can continue to advise you through growth strategies. That's how venture investment works – it's not just passive investors who sit back and hope you do well.

No matter who he chooses, he'll want to keep as much money in the company as he can. But he can't be so greedy that he loses the opportunity. At the end of the day, my 51 per cent of the business could be worth millions more than owning 100 of something of something that's not worth a million. That's the struggle of most companies – to get comfortable with the stake in the business they end up with. He needs to keep his head down and not lose the opportunity because he's scared of losing control.


Crystallize a vision

Understand where the business is going. That will help determine who to bring on board and assist in laying the ground rules for the partnership.

Spell out who does what

A shareholders agreement can outline everyone's role. That can minimize the loss of control, though be prepared to kiss a deal goodbye if the investor doesn't agree to the terms.

Look for more than just money

Find a partner that can also bring new clients, unique experiences, technology or other non-monetary benefits to your business.

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