WSO Podcast | E93: Long-Short HF to Farmland Startup AcreTrader

About

In this episode, I'm joined by Carter Malloy, CEO & Founder of Acretrader.com, a site where you can easily invest in farmland. Prior to breaking out on his own, Carter spent five years at a long-short hedge fund and over seven years in equity research at Stephens before that. Learn what he liked most about equity research and investing as well as why he eventually decided to start his own company.

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WSO Podcast (Episode 93) Transcript:

Patrick (CEO of WSO): [00:00:06] Hello and welcome. I'm Patrick Curtis, your host and chief monkey, and this is the Wall Street Oasis podcast. Join me as I talk to some of the community's most successful and inspirational members to gain valuable insight into different career paths and life in general. Let's get to it. In this episode, I'm joined by Carter Maloy, CEO and founder of A. Trade, a site where you can easily invest in farmland. Prior to breaking out on his own, Carter spent five years at a long, short hedge fund and over seven years in equity research at Stephens. Learn what he liked most about equity research and investing, as well as why he eventually decided to start his own company. Enjoy. Carter, thanks so much for joining the Wall Street Voices podcast. Thanks for having me. It'd be great if you could just give the listeners a short summary of your bio.

Carter Maloy: [00:01:02] Absolutely. So I grew up here in Arkansas with the school here as well at the university. I graduated with my undergrad in physics, spent a few years playing music and owning a few small businesses. I did seven years of equity research on the sell side and then another five years on the buy side and a long, short equity fund. And then for the last couple of years, been focused on A. Trader, which is the company that I'm really excited to talk to you about today.

Patrick (CEO of WSO): [00:01:30] Very cool. So in terms of just going back, I'd love to just jump into undergrad. So was physics always a passion of yours or what did you kind of? Were you ever thinking finance as kind of your first or one of your I guess you didn't do finance. You were a small business owner. I'd love to hear about that. And yeah, I do there. And then specifically, what got you into equity research?

Carter Maloy: [00:01:51] Yeah. For me, the goal, you know, at least at the onset was always to own my own business. I think there was a moment there where I was confused and thought I wanted to be a doctor. And so I'd been studying biology in school and then switched into business and then ultimately decided, Look, I'm going to work for myself forever, which did not come true. But you know, I consider I was going to work for myself for a long time and so I just wanted to study what I found the most interested in school, which I which at that time was physics.

Patrick (CEO of WSO): [00:02:18] So why did you feel like you wanted? You knew you wanted to work for yourself? I mean, this is now true, so you are working for yourself now. But it took a while to kind of get back there. So what was what drew you to the entrepreneurial lifestyle or life?

Carter Maloy: [00:02:31] I think I was lucky, mostly lucky in that my parents were both entrepreneurs, and so I grew up in an entrepreneurial boom and bust type of household, you know, lots of lots of job changes and lots of new business ideas being pursued.

Patrick (CEO of WSO): [00:02:46] What did they do? What types of business

Carter Maloy: [00:02:49] Banking, oil exploration, like wildcat oil exploration? Nothing, nothing sexy. Or anything fun like that. And then my mom had a candy business for a very long time, actually. Very cool. Ok, so we have two other pursuits in there as well.

Patrick (CEO of WSO): [00:03:05] So when you came out of school, what was your first endeavor? Did any of them do well or did it kind of was it kind of struggle after struggle or what was what was that like?

Carter Maloy: [00:03:14] Yeah, the primary focus after school. I'd been playing and touring around in a band and we had a diesel know basically this big van that we drove around in. What did you play? Guitar mostly and then keyboards as well. So we had this van that we drove around in and converted it to run on vegetable oil, which sounded like this kooky idea of, in reality, like, you know, we literally pull up to the next time we were playing and go eat some Mexican food, go out, ask their permission, go out back and get their used vegetable oil and travel around for free. And when you're in a band living on ramen noodles, that that tank of gas is pretty meaningful. And so we realized at the time like, Hey, this can actually be a business helping other people to do this, and so try and do a business. And that went well for a few years. And then we ultimately exited to a group of local entrepreneurs.

Patrick (CEO of WSO): [00:04:03] How do you turn a business of vegetable oil fuel into? Is it the type of engine or something that can handle it or what will you?

Carter Maloy: [00:04:11] It was just a secondary fuel system, basically, so new fuel pumps, new fuel tank in the car to help propel it along. So pretty, pretty straightforward. A couple of thousand dollars of alterations. So nothing crazy. But at the end of the day, what that man is, I was a diesel mechanic, you know, if fuel systems mechanic for a few years.

Patrick (CEO of WSO): [00:04:30] And so where did you tour with this van? How many other guys or gals to a couple?

 

Carter Maloy: [00:04:35] Yeah, there was four or five of us total, usually plus a couple you friends running lights or soundboard board or whatever. And yeah, anywhere from New York to Chicago to Colorado was sort of the boundaries. I guess you did that for two years, did at the end of school and then then out of school as well.

Patrick (CEO of WSO): [00:04:53] So then what? It seems like a complete 180 to then go into equity research. How on earth did you manage that and what drew you to that freak accident?

Carter Maloy: [00:05:04] You know, had a had a friend of a friend that worked at a reputable firm called Stephens, very well known for an off Wall Street private investment bank and very conservative in nature, very well-run organization. And so it was sort of a storied company. I knew about growing up and of had a chance opportunity to go, take an interview and so bought a corporate finance textbook and only textbook. I ever read cover to cover, but, you know, chop through it and went in thinking, I hope now I know what it is. I can talk to that person. And really, they just wanted to explore for research. I think the things that people look for most are, do you like to go learn new stuff and go dig around in industries? And that to me, really was exciting. And I think, you know, the fun, the most fun part of my. Career there was I got to go be in a library every day, basically.

Patrick (CEO of WSO): [00:05:56] Were they the types of questions I assume were more around, like, what do you like to do or were they more fit, fit and behavioural kind of things to see if you enjoyed that?

Carter Maloy: [00:06:04] Or was it like, Yeah. You know, all the above, you know, look, and they

Patrick (CEO of WSO): [00:06:09] Asked you to pitch a stock. I should say they did.

Carter Maloy: [00:06:13] I failed terribly at it.

Patrick (CEO of WSO): [00:06:15] You know who got the job, but you still got the

Carter Maloy: [00:06:17] Job I did. I interviewed with several research analysts. The first one great guy that was looking for somebody with real chops, and I definitely did not have them until it was about a 15 minute interview. The second person was internet advertising and digital marketing analytics type of analyst, and I had another business that I had mention earlier. It was a flaming failure, was a website centered around digital marketing, and so at least had some understanding of industry fundamentals to visit with him about. So that was a two hour long interview. And I think at the end of the day, we got along well as people and that that matters most probably when you're interviewing and both on either side of the table.

Patrick (CEO of WSO): [00:06:59] So it turned into a long interview, more like a conversation, and that was kind of all that was needed. He was like, I want him on my team and your career was your finance career was launched.

Carter Maloy: [00:07:09] Yeah, I got lucky, you know, but I think I always remembered. And you know, as a team, we worked really well. And so in interviewing others throughout my career, I always made sure to really pay attention to personality and fit and curiosity, creativity, the things, at least in equity research and in particular, that matter more than can you build an Excel spreadsheet on day one?

Patrick (CEO of WSO): [00:07:37] There are certain things you would ask to try and get at that in terms of like curiosity specifically.

Carter Maloy: [00:07:43] There are and I still do you know, I want to learn what people do outside of work and outside of school or outside of their career and in finance. You know, you ask people over the last few books you read, for example, they'll always name off the top three or four investing books or critical thinking books. And that's cool. Like, that's really great that people have that passion, but you want to know that they have other passions in other pursuits as well. And so maybe, you know, typically I'll ask people like, what? What's the last thing you dug in on Wikipedia about or what's the last topic that you became interested in? That was not purely finance or purely related to this job. Right?

Patrick (CEO of WSO): [00:08:20] Interesting. And do people struggle with that or not? Not so much, because now they have the intersection and they talk about

Carter Maloy: [00:08:27] Some, do you know, and if and if they struggle to tell you what they're interested in or what they like? That's tough for me. Even if, like the person genuinely loves finance and they love crunching numbers like, that's great. But in the world of equities, like, you've got to also be interested in people and be interested in in businesses and sectors. And so if you love finance, that's great. But like, tell me, tell me about the last time you dug into natural gas markets or oil's future contango or you pick the industry and the problem, but you just want to see people that you know they have a passion for more than just purely like the CFA questions, for sure.

Patrick (CEO of WSO): [00:09:07] So it makes total sense. So I mean, you had a really long run at Stevens. You were there for over seven years, eventually managing director there. Tell me about that progression. What was your day to day like kind of when you first started and then how did it evolve over time?

 

Carter Maloy: [00:09:21] I think out of the gate, you know, I found a strength and I really liked excel and like macros and, you know, cutting corners. And as we all as I know, you talk about a whole lot, it's really, really important core skill set. So I focus a lot on that because I sucked at writing and so that that piece of writing took me, took me a lot longer to figure out how to how to convey a complex thought into a sentence or really ultimately, more importantly, a picture, you know, and today and as my career progressed, I really moved away from trying to write eloquently to Let's do this with crayons, you know, can we take some complex theme or some complex industry and boil it down to a slide or two with pretty pictures?

Patrick (CEO of WSO): [00:10:10] Interesting. So you kind of tried instead of trying to write eloquently, did you have an analyst above you that would help with the writing? And you were kind of doing a lot of the analytics in the background and the graphs and the thank goodness.

Carter Maloy: [00:10:22] Yes. Yeah. He was, you know, very focused writer. And so our skill sets complemented each other pretty well.

Patrick (CEO of WSO): [00:10:30] That's great. That's great. So what after you know, you had a really great run, where was that? What was the office

Carter Maloy: [00:10:37] In Little Rock, Arkansas, which is where they're their primary offices? It's a couple thousand person I bank, so they've got offices all over, but headquarters and probably half or more of the employees are in. You were there in Arkansas?

Patrick (CEO of WSO): [00:10:48] That's right. Ok? And so tell me a little bit about. The evolution of your thought process as you kind of approach that final year or maybe even final two years, where are you thinking, Hey, I want to go start something on my own or at this point? Had you started kind of playing with that idea or were you thinking, No, I want to go, I want to go by side and start actually practicing or seeing what I can hit and what I can handle as an investment professional.

Carter Maloy: [00:11:12] I the whole time I was there, I, you know, I still today, I don't know what I want to do when I grow up. So, you know, it would be unfair for me to deny that I thought about other things. But in reality, like, I loved the job, I liked the people there. It was a really cool place to work. So like my boss, his boss, you know, the guys all around me on the floor. So it wasn't that I was out seeking to leave because I loved the process and the industry we were in and what I was doing and people, so it really came down to. I spent a decent amount of time on the short side on short selling and had made friends with a few fund managers that focus on that. You know, one of those ultimately said, Hey, we're going to we're thinking about starting a fund. Would you like to join us? And again, it was a it was a people that far more than it was anything else. I really like these people still do like they're the guys I went to work with Thunder, still close friends. But that was the big deciding factor is I can I can enjoy this because I get to do what I want and I'm surrounded by good humans.

Patrick (CEO of WSO): [00:12:20] How did you make that determination just through? Was it a long conversation, the courting process of trying to get you to come join them? Was it like a year or was it six months? Tell me about that interview. Why did they target you specifically number one and then why? Or why do you think? And then how did you get comfortable with the fact that this is a startup fund? There's some risk here.

Carter Maloy: [00:12:43] There's always risk, and I kind of like risk, and so that was a that was the whole thing was the easy decision to be forward about it. Yeah, because it was just a new thing to go do. I moved out to where you are in San Francisco and had a really great five years there. And so the interview process was fairly straightforward. You know, one of the guys that I was close with, he and I had worked really closely on a number of stocks. So that was pretty straightforward because we knew each other. The other one was this this very intimidating engineering mindset type of person who turned out to be a lovely, lovely human as well. But he did dig into me and, you know, show me what you can do. And ultimately, a case study is the thing that that it rested on in an industry I knew absolutely nothing about. So that was interesting.

Patrick (CEO of WSO): [00:13:33] This is tell me a little bit more about that. You have to. Was it like, here's a here's a case in twenty four hours to get it back to us kind of thing? Or what was

Carter Maloy: [00:13:40] Yeah, it was probably a week or two and it was financial services. Oh gosh. Type of type of business is

Patrick (CEO of WSO): [00:13:47] Incredibly difficult because like all, everything's different.

Carter Maloy: [00:13:50] Yeah, they had six different business lines and, you know, tons and tons of countries and all that fun stuff. And so, you know, you, I did in that case, what you should always do, which is phone a friend. You know, so start picking up the phone and calling people to ask them their opinions on it and how they'd go about the analysis and how they think about it. And that was the

Patrick (CEO of WSO): [00:14:09] That was the project. And so initially you said I had worked with this person on stocks. Was this somebody in Stevens that you kind of broke off with?

Carter Maloy: [00:14:16] No. The two fund managers I went to go work with had previously worked at a large West Coast hedge fund.

Patrick (CEO of WSO): [00:14:23] Got it and said they were breaking off, starting a new fund and they identified you through probably your research, right? That's right. And liked it. Ok, so. Real quick, before we move on to the long short fund, what about equity research and in terms of like as a career now what if you had to say something to the younger listeners? Is it still, do you feel like it's still a good place to be in terms of? I know there was some pressure on it, but some people are just love that job, that that idea of going to the library, like you said and learning about different sectors. So what would you say to those people?

Carter Maloy: [00:14:56] Yeah, I think the industry has some secular challenges. I think the industry has. I don't think that the industry has fee compression. Find me an industry that doesn't exist, you know, they're rare. And so that's the nature of the beast. And as long as you go in and you work hard and put your head down and put out good, thoughtful product in whatever sector of a of a bank, for example, that you want to go work in, you should do well individually and have a good time at it.

Patrick (CEO of WSO): [00:15:25] And how about pay? Was it? Do you mind sharing a range of pay from, you know? Going from Holloway Junior coming in, obviously you're in Little Rock, so the cost of living is super low compared to New York. But just to give people an idea of how you progressed over the years there and then and then had the long short fund, obviously in a much higher cost of living area was, I assume the page up was pretty significant. But if you could just give us an idea, it doesn't have to be exact, but just a range from like how it scaled. So they get.

Carter Maloy: [00:15:53] Yeah, it's out of respect and privacy for the bank and the fund, you know, unfortunately, I'm not going to disclose the pay. What I will say is the great thing about the industry as a whole is it is pay for performance, right? And so I was lucky to see I was lucky to have good performance first and then then lucky to see my

Patrick (CEO of WSO): [00:16:10] My pay even on the equity research side. Like how did they measure your performance just based on the calls you were making and stuff?

Carter Maloy: [00:16:16] Yeah, there was a grading matrix calls and management trips and stock performance and buy side votes. So, you know, I think that

Patrick (CEO of WSO): [00:16:25] They were measuring there were actual metrics. They were they were measuring on and you had a bonus tied to that specifically.

Carter Maloy: [00:16:30] That's right. And I think most banks have, you know, at least some, if not a majority of equity research compensation based on objectivity. There's always subjectivity, no matter, no matter where you work.

Patrick (CEO of WSO): [00:16:42] There's yeah, I mean, I know for like bankers coming out that are like M&A or coverage bankers, their comp can be one hundred percent of it or 50 percent of it could come from bonus, right? And so I'm trying to get an idea. I know very little about the equity research world because I was in there. Is it more like I assume it's a much smaller bonus, like a 20 to 30 up to 30, 40 percent something like that on base?

Carter Maloy: [00:17:05] You know, for all the way up, my journey was at a point was probably that, you know, but as a whole, throughout my career, I think the bonus was was definitely the majority or a large majority of convocation was OK.

Patrick (CEO of WSO): [00:17:18] Very cool. I think that's awesome. I think it's better that way.

Carter Maloy: [00:17:21] I totally agree.

Patrick (CEO of WSO): [00:17:22] Or performance.

Carter Maloy: [00:17:24] I'm happy to take low upfront compensation and trade for eat what you kill.

Patrick (CEO of WSO): [00:17:28] Yeah. And so that you were kind of that's a good transition, I think, into the long, short world where that's even more the case, where I feel like the upside is definitely there as a kind of an early founding employee will call you were you have to share this. But were you given any carry has a pretty junior? I mean, well, you weren't really junior because you were seven years, nine years actually out of school at that point. Did they treat you like that? Like, how should people think when they're going to a new fund negotiating something like Kerry or.

Carter Maloy: [00:18:01] Yes. Yeah. The range is very, very wide. And you know, there are compensation studies out there on the industry that will show you just unbelievably wide ranges in terms of what analysts or partners or PBMs take home and it's unique to every fund, but as a whole, you know, again, what matters is you show up, you work hard and you perform, and those things tend to work themselves out with a caveat of. You should also make sure to work at a good fund with good people. And I would put the people way, way in front of the fund. So to me personally, dramatically more important to work with people that you like because you're seeing these people more than your best friends or your wife or husband or your family every day, all day. And so that's the thing at the end of your career, it will, no matter what's in your pocket, what matters is what the journey was like. And did you have fun on the journey?

Patrick (CEO of WSO): [00:18:59] So for sure. And so the in terms of Stephen's, you were loving it there. You love the people there. What got you comfortable enough to kind of leave that behind? Was it? Obviously, the people, but like, did you feel like you had enough time, so you had a couple of weeks study, was it like a long court or was it like a six month process or was it like a two month process? Tell me a little bit about that. I mean, obviously they you had some people who had one guy grilling you a little bit and the other was just being a little more cordial. But I want to hear just so people can understand. And then were you interviewing them a lot? Like, were you pushing back on specifically what their strategy was? It sounds like these people had great track record, so there's a little bit of comfort around that. But can you talk a little bit about that?

Carter Maloy: [00:19:42] Yeah, I think I know it was intended, but pushing back as in a word I would use, I wasn't grilling them, but I was definitely interested in how they, you know, how they made the magic here and how the sausage got made every day and what it turned. You know, what I learned is it got made through a really, really intense and very deliberate process. And that was the piece that that got me the most excited. And frankly, the most comfortable is the fund had a how to structure and they had an approach and we never, you know, broke that or went around that. And as a result, you know, things tend to things didn't work out when you when you do what you set out to do and stay true to your, your laurels or your plans.

Patrick (CEO of WSO): [00:20:23] And tell me a little bit about the transition. So you made the jump. Was it was it tough to kind of switch into that rigorous process? Or do you feel like what in equity research had prepped you really well for that

Carter Maloy: [00:20:32] For that long short? I think the process is the same. You know, the product is differs. It's altered somewhat.

Patrick (CEO of WSO): [00:20:40] Isn't that the look is pretty? The writing doesn't matter.

Carter Maloy: [00:20:42] That's right, you know, but at the end of the day, the core function of the job go understand an industry, a company management team, incentives potential outcomes and build a financial model and some sort of presentation or summary of that. It was always the case in both jobs and in fact, at the fund. I mean that that ended. We every investment was backed by a thirty to one hundred page investment. So we put together very real Power Points ultimately. And so

Patrick (CEO of WSO): [00:21:16] Were these. Was it more or was it more like a long, short fund where there are fewer positions but more concentrated in heavily researched? That's rare. That's right. And would you say that when you first joined, were you like one of three people, like the two founders and you? Or was it so really? Oh, wow. So it's really small.

Carter Maloy: [00:21:33] Yeah. And we. Another great person and close friend joined just after I did so very quickly there. And then we hired analysts, call it two and three or analysts through and continue to.

Patrick (CEO of WSO): [00:21:48] So what about like your day to day? So obviously you were doing a lot of heavy research and getting those reports written so that you could make a decision. But I'm curious, like when you got to the end. So like you spend all this time, what if you get to the end and you don't feel very strongly in one direction, you feel like it's pretty priced, the securities are priced pretty appropriately. Do you have to start all the way back over again? And how many times are you doing that before you feel super strongly about a specific position?

Carter Maloy: [00:22:14] Yeah, if you get to the very end, then you don't love it, then just don't do it. Don't just set a price, right? If you if you decide you love the company and you want to own it at some point or inversely, this thing is I got some real hair on it. Some problems. Yeah, but you don't love the setup. Then you set targets, you write it down. On paper, I think that was the really important part for us of creating these ridiculous slide decks was you had to memorialize your thesis and so right, you couldn't lie to yourself later with thesis creep. Like, we all suffer from it. It's a human thing to do. And so I continue to do it all the time despite know dozen years plus of trying not to. but that's the important part is at the end of that process, if you don't love it and move on. Very cool. So if you don't love it halfway through, quit stop.

Patrick (CEO of WSO): [00:23:04] But yeah, what if you're looking for a short if you don't love it, that's a good thing. You keep going

Carter Maloy: [00:23:09] If you don't love the

Patrick (CEO of WSO): [00:23:11] Idea, of course. Of course. So, so you're kind of going through this. What would you say in terms of the percentage of all the work or the ideas you looked at? Actually became positions you put on.

Carter Maloy: [00:23:24] A small minority, I think rarely would you feel like that, yeah, if that I mean, rarely would you get all the way to doing a full month's work, you know, and then at the very end of that, say no. That's certainly still happens and that's a good thing. But but usually after a day or two of reading transcripts and, you know, calling pool equipment, distributors or whatever it may be. And realizing, OK, this actually isn't as exciting as I thought, then move on because time is your most precious resource.

Patrick (CEO of WSO): [00:23:55] Very cool. So it sounds like you had a lot of success there. Adam grew significantly. Obviously, an initial fund isn't that big. Are you able to share kind of what the initial aim was for the

Carter Maloy: [00:24:06] First initial risk was? Yeah, I think it ultimately, you know, out of the gate are pretty early and it's and it's life in the first year. So it was in the hundreds of millions and scaled up effectively from there.

Patrick (CEO of WSO): [00:24:17] Great. And so you were there for a good five years. Sound like you had a lot of success. You guys are doing well. What prompted kind of the finally to put your stake in the ground again and go to the startup route again?

Carter Maloy: [00:24:30] Yeah, a couple of things. One was family. I'm from here in Arkansas and I had to had a dad and rather ill health and sort of my best friend, and so I wanted to get closer to him. So that was a big driver for me. Beyond that, my dad and I historically bought and sold a bunch of farmland together, and I had a neighbor come to me in San Francisco and say, Hey, I would like to buy some too. It's like, Well, we'll go in line and do it. It's a multitrillion dollar asset class and put up incredible historical performance, and we're looking and there was nothing there. And so there was an aha moment of, hey, here's something that, you know, when I do move home to be with my dad, we can work on together because he's a back story, he's also a farmer. I said banking in oil earlier, but primarily a farmer.

Patrick (CEO of WSO): [00:25:16] You must love this working, working with his son.

Carter Maloy: [00:25:19] Yeah, we're having a blast.

Patrick (CEO of WSO): [00:25:20] It's amazing to you. So tell me about the exit, though from the from the long short fund. Was it obviously your reasons for the family and all that stuff? So I'm sure they were understanding. But was it ever? Do you ever feel like you could go back if something if for whatever reason, things don't work out or you want to get back in? Do you ever do you ever have that fear? Because I think some people have that fear when they jump, you know?

Carter Maloy: [00:25:45] Yeah. If I wanted to go back and I always do, I mean, I miss it every day. So if I wanted to go back, I would hope they would have me is the way I would. I would put that it was. It was a very amicable separation. I was very lucky to work with good people, so they fully understood the situation for sure.

Patrick (CEO of WSO): [00:26:05] And then so for specifically in terms of how you kind of did this, you had the setup, you said you had that conversation of you started, have you had the aha moment when you went to look for, OK, well, where can you buy farmland online? And it really didn't exist for this multi-trillion dollar asset class. Was there a lot of homework that went into like getting things ready and prepped before you jumped or was it like, I'm just going to jump, I'm moving to Fayetteville where it's the cost of living chicken. I've done so well. I can just relax and I don't have to worry about it. I have good runway here to make this thing work. What was the problem of it? Because people are people freak out like making that jump. You had a big advantage of going to, you know, obviously back to where it's you're not living in San Francisco anymore and, you know, Bay Area, so you're not spending $4000 a month on an apartment, but. Right? Tell me a little about that.

Carter Maloy: [00:26:58] Yeah, I think the two were fairly independent. The idea of moving home was definitely concrete. You know, and the business was second to that. The business has now become, you know, very, very vocal in front of front of mind. And you know what, I spend most waking hours doing, but having a blast working on it?

Patrick (CEO of WSO): [00:27:20] So tell me about that. The initial days, it's been about a couple of years since you started. Tell me about the little the evolution of A. trade or what happened with the initial kind of first few months as you started kind of the brand. And I love the branding. I love the name, by the way. Very well done. Tell me a little bit about your first few transactions and how you even got it up and how you started getting the inventory and the difficulty of a two sided marketplace. Why do you give people just a little summary of what it even is so they know?

Carter Maloy: [00:27:47] Absolutely so. A. Trader is a real estate investing platform, so it just makes it easy to go online and buy shares of farmland and earn passive income. You can literally invest in farmland, starting with five, 10, 20 thousand dollars in minutes online. So. So we've built a platform, the same rules as crowdfunding basically to allow people to come get access to this. This asset class, which we're convinced is pretty incredible.

Patrick (CEO of WSO): [00:28:14] Do we do you still have to be? Do you have to be accredited to do it or is that are those rules changing soon or?

Carter Maloy: [00:28:20] Yes. So you have to be accredited today. The rules of the definition of accredited is evolving positively for investors and especially for people that are in the investing industry to include them, even if they don't have the threshold of income or net worth. We are also at

Patrick (CEO of WSO): [00:28:36] The Jobs Act.

Carter Maloy: [00:28:37] The. That's correct. That was what initially created. This was the Jobs Act. Yeah, you know, the in summary, the Jobs Act made it more approachable to securitize smaller assets. So if you wanted to previously securitize something and go raise money from people you didn't know, it took hundreds of thousands of dollars and an S-1 and going public to do so and or other wildly rigorous situations, the Jobs Act just reduce the barriers so that you could go out and raise capital for a million dollar, a piece of property or business or whatever that may be

Patrick (CEO of WSO): [00:29:09] From thousands of investors from. That's right. That's right. So but tell me, what is the. Are they still not allowing non-accredited? What's the like? Why are they not allowing that? I thought that was, you know, like we funder in these other like startup ecosystems that are doing this. So tell me why that still isn't allowed.

Carter Maloy: [00:29:28] There are different components of the Jobs Act in different exemptions from regulations it can operate within. And so the one that we and most that we see most of the larger crowdfunding platforms operate under are what's called the regulation or the five or six or five or six B exemption from REGNE. So those are accredited investors or very few not accredited.

Patrick (CEO of WSO): [00:29:51] There are other you are able to advertise.

Carter Maloy: [00:29:54] That's right. There are other alternative structures you may have seen fund rise, for example. That's a basically a RYT ereat, and those can be marketed with pre-registration. So upfront investment in time those can be, can allow and not accredited investors as well. And so we're working on a product in that realm to bring on non accredited investors. We did not set out to only make farmland investing available to accredited investors.

Patrick (CEO of WSO): [00:30:20] Got it. Ok, so tell me a little bit about just initially that the early days, the first few months and then tell me how it's evolved.

Carter Maloy: [00:30:28] So early on, it was about building an MVP. So, you know, I did a bunch of survey work, you know, through Google and SurveyMonkey to understand investors appetite for farmland for the specific asset class we were working on. And what we learned is there's a ton of interest. But people didn't know what farmland was like. Why would I invest? It sounds awful and boring. And I think with a little bit of education, you know, here's this long term compounding asset class returning, you know, returned about almost 12 percent a year for the last 30 years in a highly consistent, unlevered low volatile manner. You know, once you show people off your charts, they go, Oh, wow, all right, how did I miss this one? And so I think one was really about building proper educational materials. Obviously, you never overpromise. You want to make sure to be crystal clear as to how things are built and the understanding, you're providing people of an asset.

Patrick (CEO of WSO): [00:31:23] Can I? Can I stop you for a second? And you say the 12 percent return is a lot of that capital? How much of that is really capital appreciation versus the cash flows with the farmland?

Carter Maloy: [00:31:31] It's been roughly 50-50. I think it leans a little heavy to appreciation. So you nailed it. You make money two ways, right? The asset appreciates or has always historically in the last 30 years, appreciate it underneath you. And then on top of that, the farmer pays your rent so you get some cash in coming year. Yeah. So the combination of those two are roughly even with appreciation, maybe kicking in a little more.

Patrick (CEO of WSO): [00:31:53] Got it! Ok, sorry, I interrupted to keep going.

Carter Maloy: [00:31:55] No, no great. Great question. It's fun. Fun getting asked those types questions. So it's all we think about every day. Yeah, it's farmland. So. So the early product was, you know, build something to educate people and build something that's easy to use. Both those are really hard to do. It took us some time built an MVP, which is a minimum viable product. So here's the basic technology. Put it online to see if there's interest. And hey, there was a lot of interest. People were pumped about it. And so then it was all right. We've got the interest now. Let's go, take some real time, raise some capital and build a real product before we truly roll this out and launch it, which we launched just about a year ago now. But we spend an inordinate amount of time making sure to get our systems right. Our security right. The ease of use correct. What we're dealing with people's money. At the end of the day, it's a pretty emotional thing and we screw that up. We're not going to be around for very long.

Patrick (CEO of WSO): [00:32:50] So tell me a little bit about the fundraising process and what you had to show in terms of traction or interest that got investors comfortable enough to write a check. It was like, would you consider like pre-seed and obviously you didn't need a 10 million dollar round necessarily to get to get to the from MVP to the first launch, but to beta, but I'd love to hear about that.

Carter Maloy: [00:33:13] Yeah, so and we are in process of closing a larger investment round today that we'll be out talking about soon and are excited about. But for the early capital, we used a safe round simple agreement for future equity, which acts like convertible debt, basically a really simple six page convertible note, if you will, without a coupon or a lot of the other. Just a discount features a sort of discount, a discount or a valuation cap. So we chose to provide our investors both. So just to make sure they were in at the right place. And so let's see. So we went out with that to go raise money. It was really execs in agriculture and technology and banking that I'd worked with over the years that provided, you know, luckily for us, provided some of that early vote of confidence of, Hey, we see the addressable market, we see the product market fit. And so we're interested in playing a part in this since then. Yeah, we've got to show some real traction. And so we've been we've been grinding away here for the last year since launching it at getting that to occur and we're now in that hockey stick period of execution here. We've moved that move, but transition quite a bit from build and build and build to, oh my gosh, now we've got to think about think about managing all of this and volume. Fill it up, right? And so it's been a really fun exercise and we were lucky in that. We've just got an incredible team of people here that are all thoughtful about processes and scalability and automation. And so we've so far so good.

Patrick (CEO of WSO): [00:34:50] That's awesome. How big is your team now?

Carter Maloy: [00:34:52] Just we're approaching 20. Not all. Those are full time.

Patrick (CEO of WSO): [00:34:57] Yeah. And have you been able to? Yes. Is it heavy on the developer side? Still?

Carter Maloy: [00:35:03] I see almost half his development.

Patrick (CEO of WSO): [00:35:05] Yeah, it's like it sounds very similar to my team.

Carter Maloy: [00:35:08] Yeah, exactly. And I walked into this knowing exactly nothing about software development. In fact, today still, I think it took a Python class, you know, and I live in San Francisco. But yeah, but really, it was for finance and still a very little little development shops.

Patrick (CEO of WSO): [00:35:22] So that has that been the hardest part as being a non-technical founder kind of just finding the right developers? Or how did you how did you find them?

Carter Maloy: [00:35:28] Yeah. Again, I got lucky and I keep saying that, but it's been a good year. Believe it any more. I don't believe it anymore. You know, it was pretty simple. So I sort of built this business plan and built the slide deck. I went and hired some, some legal counsel to help navigate, Is this actually doable? And come to find out it was very hard and still is very hard to make sure we do everything exactly right per regulations, and some of which are not exactly black and white. So we just decided to never get in the gray area. So that took a while then, as was fleshing that out and running the idea by some friends, you know, went out and looked for a developer and so built a list of 100 websites and fintech that I liked then went through that with a fine tooth comb is to excel right? So the rank them, you go through with a fine tooth comb and say, All right, here are the top 20. I went and found their lead developers even either on the website or through LinkedIn, and just started reaching out to those people. Boil it down to five. One of them really, really liked and we got along well and he was clearly very good at what he did. So that was that was that hired him and he was like

Patrick (CEO of WSO): [00:36:39] Kind of a CTO, lead developer,

Carter Maloy: [00:36:42] Is lead developer or product manager is what we would call them. So.

Patrick (CEO of WSO): [00:36:46] Got it. Ok, so what's I guess? Well, given that it's like almost like a two sided marketplace, right? You need the land being listed and you need the the buyers coming in to purchase the land. What has been there's always one side tends to trail the other. Sometimes it goes like this. But what? What is kind of been the path so far? I know it's been kind of live like publicly for about a year, but what have you seen?

Carter Maloy: [00:37:09] Yes. So the demand

Patrick (CEO of WSO): [00:37:11] Side, I guess wrong, by the way, the first time I talked to

Carter Maloy: [00:37:15] They're all a challenge, right? It's really running two separate businesses that are the same thing or depend on each other. I should say the demand side is pretty focused on marketing and data science, right? It's about customer acquisition cost and lifetime value and the relationship between those two metrics and and going out and getting the message out there and doing so in a capital efficient manner. So, so and again, there we've got just really great people focused on that problem every day to go out and solve that and let the world know that we're here. On the supply side, it's much lumpia. It's pretty reliant upon relationships and making sure that you're doing the right deals in the right places and so that, you know, is run by a guy here and at my clinic. He previously managed a few hundred million dollars of farmland, so knows I'm a redneck, but this guy I know is dirt in a way or soil in a way that I never will. And his team, for that matter as well. So, so they're focused every day on going out and finding farmland. And at this point, we're speaking to hundreds of farmers here.

Patrick (CEO of WSO): [00:38:18] I'm curious, is he an employee of you or is your partner or how did that? How does that work?

Carter Maloy: [00:38:22] Employee Yeah, I mean, we're all employees in the day. He's a he's certainly a stakeholder. Every everyone here is a stakeholder in the business.

Patrick (CEO of WSO): [00:38:29] Yeah, very cool. And so the goal here is I mean, it's like you said there's you have a lot of runway or a lot of play, a lot of do you feel like you're going to be able to? Is there a certain point where you see where it's where it's profitable? Or are you already profitable? What's the what's the kind of seeing kind of how you're scaling is, is there a good runway there?

Carter Maloy: [00:38:49] There is. There's great visibility on profitability or unit economics are good. I think as a as a young company and especially in the network business model, we want to grow quickly and grow responsibly. And so thus we are we are OK with using some additional outside capital and running at a net loss for a time to scale it up faster. Again, again, in a responsible way, we know without a doubt if the investors on our platform do not have a good experience or if the one at one hundred one in two hundred firms that we put up there is a bad investment for them. We won't be around for very long and obviously our intention is the opposite.

Patrick (CEO of WSO): [00:39:29] So do you feel like? There is risk around timing, so like as you scale, let's say, for whatever reason, the asset class, I don't know why this would happen, but there's drought or there's whatever, whatever have you in a lot of them, maybe instead of two out of one hundred turning into negative investments, it's 20. Does that keep you up at night? What keeps you up at night in terms of is it that? Is it something else?

Carter Maloy: [00:39:56] Yeah, I think. And I want to return to the negative of the investment. But for us as a platform, it's also making sure we have investments on the platform. And we've decided and if I were to show you our chart of momentum of funding fundraising on the platform, you'll see a couple of flat points. We went three weeks in December without a single listing. We had several right there at the at the edge about to put them up and found a small problem we didn't like. And so we would rather forego the revenue than have our investors have a bad experience as a result of that offensive level of diligence and underwriting. We've talked about diligence earlier tend to be pretty, you know, pretty forceful with it. This is the rest of the team here as a result of that. We do hope that our farms perform very well over time. Interestingly, in terms of the asset class and downturns and what could cause investors to lose money like they absolutely can. They know that what's fascinating is we're usually going in without leverage, so you don't have the amplification up or down. Yeah, in terms of returns, it's very difficult to imagine a scenario where with no leverage, a piece of productive ground suddenly becomes not productive. Aside from somebody dumping a bunch of barrels of nuclear waste, it's tough to come up with that scenario, right? And, you know, but bear markets do occur, right? And so the most recent example of that would be Nebraska, and I'm going to botch the numbers here. But yeah, roughly. So Nebraska,

Patrick (CEO of WSO): [00:41:28] I love this stuff. It's super interesting to me just hearing about this ask because you're educating me and you're possibly educating a lot of the listeners as well. Farmland. So it's cool.

Carter Maloy: [00:41:36] It's fun stuff and a lot of this. Not a lot. All this information and then, you know, orders of magnitude more are on our website at A. Trader. So you can always go as much as you want to read. We got it there and call us anytime. But the bear market story Nebraska. So through 20, 14 or fifteen, they had this massive run up in land prices, their 100 200 percent jump in prices and then from 14 through 19, there was a five year downturn in prices. One because there is heavy speculation, too, because people in many parts of the state shouldn't have been buying farmland anyway. It's sitting on an aquifer that's drying up. So, you know, we wouldn't have pursued, you know, wouldn't have even open the file on. But there was a lot of capital that came into the state very quickly. Why so good returns was the big one? So it

Patrick (CEO of WSO): [00:42:27] Kind of fed the good returns, fed more returns and more returns kind

Carter Maloy: [00:42:30] Of thing. That's right. So the yields were really good for number of years, even in the bad places and then commodity prices were really on a tear through 2014 14. And so people are making hand over fist so farmers are buying their neighbors. Farm investors were coming in. More farmers were buying the neighbor's farm, which was really the big driver there. And so after this huge run up, you've since seen a bear market and it's the best and most extreme isolated bear market that we can find in the data in the last 30 years in the U.S.. I keep saying 30 years, it's because the time period through which we have the best data, measuring stick and information, and I can go back to another bear market. If you want to

Patrick (CEO of WSO): [00:43:10] Further delve into the oh yeah, tell me what was another

Carter Maloy: [00:43:12] One. But I want to finish up on Nebraska. Sorry, go ahead. So 14 to 19 five year bear market prices came down 17 percent in the end. Sorry, if I up the numbers, but we're roughly on point into end on a nominal basis. The investors still made money because even though the prices of the land came down, you were running with no leverage. And on the other side, the farmer was still paying your rent check every year. So, so you had a cash yield in pocket. So you sell the land today at a 17 percent loss on principle principal on the on the core asset. But you had made a 20 percent give or take on the cash rent four percent over five years. So. So in the end, in that bear market still came out. Ok?

Patrick (CEO of WSO): [00:43:52] Yeah, it's so interesting. Yeah, I mean, it's so it's almost like the institute. What's going on with institutions? What's why? Why aren't they? It's just because it's too decentralized to what do they call it, the. Scattered, I can't remember the

Carter Maloy: [00:44:09] Word, yeah.

Patrick (CEO of WSO): [00:44:11] You know what I'm saying, it's part of it. I think there's no roll up strategy here

Carter Maloy: [00:44:15] Or there is. And so, so interestingly, they are here, so pure institutional capital, so, so private equity capital in the last 10 years has gone from three billion of exposure in farmland to 30 billion. Still tiny, it's a three trillion-dollar asset class. So right, a point of it is professionalized now.

Patrick (CEO of WSO): [00:44:34] What about what about in the U.S.? How much is that?

Carter Maloy: [00:44:37] That's so, yeah. Globally, farmland is about nine trillion. So I'm just speaking to the U.S. market.

Patrick (CEO of WSO): [00:44:41] Yes. Ok, so it's still only still only a point.

Carter Maloy: [00:44:44] That's right. On top of that, there's then family offices, which are much more difficult to measure. There are some large endowments, some pension funds, churches and then family offices that have been buying hand over fist. I think the most notable in the press anyway has been the Bill and Melinda Gates Foundation buying very large tracts and deploying hundreds of millions of capital into farmland. They see it the same as we do. It's a, you know, it's it seems to be at least a good store of wealth, you know, a good preservation mechanism.

Patrick (CEO of WSO): [00:45:15] So tell me, is the bear market the 15 to 20 percent down trend we've had in the markets in the last two weeks? Is that good or bad for you?

Carter Maloy: [00:45:24] We have seen a marked improvement in our website traffic. So I think in the last week, maybe I'll go back to farmland. Here you go. In the last week, I think our website traffic is up thirty five percent week over week, so that's a pretty meaningful jump. You know, and fear and panic is never good. We don't want anybody to invest on the website out of fear and panic. We do see that market volatility highlights do people. I wonder if there are other assets out there that are less volatile, and we definitely think that farmland is one of those.

Patrick (CEO of WSO): [00:45:59] It's really interesting. It's almost like. You're getting the hard asset underneath it with no leverage, but almost like it's. Could you equate it to a high yield bond, but safer, you know? And how long how long before you think like if you were to reach scale, wouldn't that inherently drive prices up to the point where the investment? Like, if people are late to it and there's other cop, let's say there's other copycats that are coming out to copy what you're doing, and maybe they're a little less stringent on the on the scene, on the due diligence front. And people are running into this asset class. You know, they say retail investors become savvy about it and they start piling in. Where do you see there being a point where the canopy's over the three trillion or so? Where do you see, like at one trillion?

Carter Maloy: [00:46:57] Yeah, we're a long way away. You know, I think right now, 50 to $100 billion of farmland transaction every year, we think so. Even if we're taking down a billion dollars a year, we're still a tiny player in the market. That's absolutely our goal is to be there. But yeah, that that does not seem to have a discernible. Impact on prices. I want to circle back to your bond, your question as well. It's a fascinating one. Yeah, I do personally think about it as a bond. I invest personally in the farms on our platform under the same terms as are our website users. And that's the way I look at it is, you know, here is a know more like a tip's or something where you have, you know, there is correlation to inflation. It's the one thing farmland is correlated to decently. It's inflation, everything else, like S&P, it's almost exactly zero in terms of correlation. But it does over time. You have some inflation hedge there. Yeah, so that's helpful to think about. And as a bond, if you think about investing in bond, you're backed by a government or backed by a company here. We're backed by a hard asset that produces something that unless we all die, we will need, right? No matter what happens in the world, we have to eat. And that's a pretty comforting thing to know about farmland as an investor is we're going to need the soil for a very long time.

Patrick (CEO of WSO): [00:48:19] I'm surprised it with technology and with the improvements in output per whatever that we haven't seen the cash, the cash on cash or at least the appreciation flatten. That's surprising to me that there hasn't been any sort of, you know, massive bear markets where like there is, maybe, maybe it's because you don't have the data all the way back, but maybe once machinery became much more prevalent. I don't

Carter Maloy: [00:48:45] Know. Yeah. So for the actual underlying prices, we do have the data going much further back. It's the rent that's tough to put together, so we can see the long term appreciation trends and over 50 years, the appreciation, just half of the income component, right there are half of the IRR component. The appreciation has been about six percent over the last 50 years. It's amazing and you bring up a really great point, which is yield. Not income yield, but crop yield, crop yield. Yeah, and that is an up into the right chart. So you know, you've got supply and demand, right? So we have so many mouths to feed in the world and that's growing every day and pretty rapid clip. We have the amount of farmland and that's shrinking every day. We lose three acres a minute in the United States farmland.

Patrick (CEO of WSO): [00:49:26] And why is that mostly development?

Carter Maloy: [00:49:29] Cities are growing. We're using more and more land. So OK. So the basic economics are really easy to understand. Growing demand, limited and shrinking, you know, very finite and shrinking supply

Patrick (CEO of WSO): [00:49:40] And productivity is not keeping up with that.

Carter Maloy: [00:49:42] You got it. So that's the other, you know, it's flying demand equation. That's the other big thing is productivity. Crop yield, in our case, yeah, it's all a big jump around. Mechanization saw a big jump around genetic improvements and input improvements. So application, smart application of fertilizers and has continued to curve upward for a really long time in a consistent manner. So just to feed the world, we've got two stats five years old, but roughly double our output, our crop output in the next three to twenty 50. So the next 30 years. So we need a hell of a lot of improvement in crop yields just to keep up. And even then, you still have the demand issue of the amount of farmland shrinking out there.

Patrick (CEO of WSO): [00:50:30] It's really interesting. It's a really interesting. It's almost like a little math mathematical model you could put together in terms of trying to get to your underlying. It sounds like the tailwinds behind the asset class are pretty strong based on what you're telling me.

Carter Maloy: [00:50:43] We would firmly agree with that,

Patrick (CEO of WSO): [00:50:45] Even with the genetic non-organic, just not you. So, yeah,

Carter Maloy: [00:50:53] That's a whole another podcast.

Patrick (CEO of WSO): [00:50:54] Yeah, that's a holiday. Yeah, I we're here in San Francisco. So as you can imagine, the Whole Foods crowd and the genetics, it's very the organic crowd here is very strong.

Carter Maloy: [00:51:05] It brings up a fascinating, yeah, not conflict, but the yields of organic are far less right on a on a per acre basis than the yields of genetically modified crops. So in theory, if the world moved to one hundred percent organic tomorrow, we wouldn't have enough food because you need to use more space to grow organic, right?

Patrick (CEO of WSO): [00:51:26] That's really interesting. Yeah. And so, you know, the genetically modified all that stuff that's more resistant to parasite to, you know, can really dramatically increase the yield. I assume

Carter Maloy: [00:51:36] So. That's right. And again, I'm not I'm we're not anti or

Patrick (CEO of WSO): [00:51:42] I eat organic,

Carter Maloy: [00:51:43] Organic or TMO.

Patrick (CEO of WSO): [00:51:44] I have my kombucha here. I'm very much in the Bay Area.

Carter Maloy: [00:51:48] I mean, we just did an organic farm on the platform, a conversion farm where we're helping the farmer to bridge it into organic. So we're even from a pure financial return perspective. We're believers. Very cool.

Patrick (CEO of WSO): [00:52:01] Anything else? Anything you would tell your younger self or the listeners, the young listeners out there in terms of career, in terms of startups, anything that you'd like to share before we call it. Or about the start of in general that I didn't cover that you'd like to share?

Carter Maloy: [00:52:15] Yeah, I think the big one is, don't worry, I show up to work, you know, and get there first and leave last. But worrying does no one any good. And I think probably earlier in my career, I did a lot of scenario analyses and a lot of thinking and worrying about what was going to come out the other side. And in reality, as long as you work hard and keep trying, you know you can stumble upon some luck every now and then.

Patrick (CEO of WSO): [00:52:40] Great. I love that we'll end there. Thanks so much, Carter for joining. Thank you. And thanks to you, my listeners at Wall Street Oasis. If you have any suggestions whatsoever, please don't hesitate to send them my way. Patrick at Wall Street Oasis. And till next time.