Investee Profile – Ag Exchange Group

Lyle Ehrmantraut, founder and CEO o Ag Exchange Group, is from Torquay Saskatchewan, with a degree in Finance from the U of S and 15 plus years working in the ag sector.

Background on Ag Exchange

The concept for the company grew out of a series of things that happened during my career. I had worked for companies such as Monsanto and Cargill, and after the Canadian Wheat Board ended, many times, I saw opportunities for grain sales lost because we really didn’t know what was actually available to buy.  It was a poor process that took days and sometimes longer for a transaction to be completed and in some cases, the deal never happened – for any number of reasons.  What I wondered was, ‘How could technology help with this?’

I drafted a business plan with what I thought would be a viable business to take advantage of this opportunity. I had a good understanding of the players in the market – both buyers and farmers (sellers). I understood the challenges farmers faced in marketing their grain; I also understood the challenges farmers faced with the promises of new technology; and, I knew that the buyers needed a better process for buying grain.  The end of the Wheat Board had changed everything.

I completed my proof of concept in March 2013 and met with SCN in the Fall of 2013.  In building my business plan, I spent eight months traveling to farms and elevators, meeting with farmers and buyers to talk about their challenges and to ask them what they thought would be a better system.  I was on the road A LOT.  I asked lots of questions and didn’t just tell them what I thought they needed.  Farmers have so much technology coming at them all the time, with big promises and in many cases, a failure to deliver on those promises.  I learned that you only get one chance with them.  If the technology doesn’t work, and work intuitively; or the ROI isn’t there, they won’t stay with it.  We had to get our product right.

When you decided to raise money, how did you decide to go to SCN and then, on the amount to raise and what you were willing to give up?

I was at the gym one day and picked up a magazine while I was waiting.  SCN was on the cover. (Yes, print media is still relevant!) So, after I read about them, I decided ‘What could it hurt, to meet with them and pitch my idea?’

The need to raise money was only part of my decision.  I knew I needed technical expertise too.  I had just received a quote from a developer for $500K to build out my concept and was just about to sign on with them when I met with SCN.  With that number, at least I knew what the market was saying I was going to need.

When I pitched to SCN, they wanted to know, ‘What’s the business? We can build the technology. How are you going to make money?’  That was when all of my discussions over the previous eight months helped me to answer that question. The investors liked my answer. Not long after the pitch, David Callele contacted me to talk about his technology development company and what he could do for me as an in-house versus contract developer.  What this gave the company was someone with a vested interest; who would have pride in the product and be there for the long haul. As a founder, it is always hard to give up a piece of your company, but I knew that giving up equity was worth it to have a stable tech team that was as committed to the business as I was.

Insight for other companies wanting to raise money?

Yes, lots!

  1. Don’t pretend or think you know your market.Find out. Ask questions. Listen. Learn.
  2. When building your company, plan for it to take twice as long and cost twice as much.
  3. Avoid greed. Find partners you can grow with.
  4. Talk to your potential customers A LOT.
  5. Understand your numbers.How are going to structure your revenue model?What will your pricing look like?

I have a comment for investors too.  For investors going into the ag sector, it is important to know that it just takes longer to see results.  Farmers are slow to adopt. PERIOD.  Patience is critical. So, having the right investment partners matters.  Be very careful about who you work with.  They need to understand your vision. And you need to be communicating with them all the time.

It has not been an easy path and I have learned a lot along the way, including how costly professional services are – and yet how very important they are in getting things right from the start.

Future plans for Ag Exchange, and any final thoughts

I am really excited to have our product launched under the name CXN 360.  We are seeing a 15-20% growth month over month and now have seven reps in western Canada. The service is not commission based like a traditional brokerage service or even other online services.  Growers and buyers are free to transact as much or as little as they choose without experiencing additional costs.  The service was built with the mindset that any truly open and efficient market is fully transparent, provides choice, and operates without transaction fees.

Right now, we have 40% of the buyer locations in western Canada. And we are growing.  We have reduced the buying process from days to, in some cases, as little as 30 seconds. We have gone a long way in reducing risk and addressing the issue of trust between buyers and sellers. Once that ‘agree to purchase’ button is clicked – the farmer has a binding contract from the buyer with their digital signature.

One day I asked David, ‘When are we done developing?’  His answer, ‘Never!  And he’s right.  Our future means always looking for ways of making our product better, improving the process; expanding to other commodities; and, growing the network of buyers and sellers.

What we have, thanks to SCN, David and his development team, and my concept, is a product that is simple and easy to use. We’ve been told by both buyers and sellers that we are The Gold Standard for commodity trading. And that is because we consistently deliver on our promise… to provide both growers and buyers with an efficient, profitable and transparent commodity-trading platform.