Compost Company Strikes a Royalty Deal

Is it possible to use cow manure to turn a profit? That’s the question entrepreneur Teddy Stray had mulled over for years on his wife’s multi-generational family ranch, renowned for its award-winning Pt. Reyes Farmstead Blue Cheese.

Repurposed waste is the raw material for many businesses today, from clothing made out of recycled containers, to mushrooms harvested using discarded coffee grounds. Mining manure from the dairy farm could be promising, Stray thought. But it wasn’t until he attended a 2008 Slow Money Gathering in Point Reyes that he was inspired to take action and in 2009 started Point Reyes Compost Company. As Stray often says, “Everyone has to take crap from his father-in-law, but not everyone buys it from him.”

The potential for his compost company looked sweet in the fall of 2011, not just to Stray, but to seven interested Slow Money investors who committed a total of $175,000. About $30,000 of that was an equity investment, buying an ownership stake in the company, while the rest came via an innovative royalty financing structure. The royalty strategy allowed Stray to retain capital and pay back the investment using a percentage of revenue.

Point Reyes Compost Company has revenues under a million annually, with strong growth. Stray sources only from farms that operate with environmentally responsible practices and he produces a premium product that is “nutrient rich” compared to other composts. Point Reyes Compost Company has four products; “Bob’s Best” from cow manure, “Double Duty” from cow and horse manure, “Mary Jane’s Blend” from a combination of cow and horse manure for potting soil, and “Poulet Poo,” a blend of chicken poop and vineyard grape pumice great for prepping soils. Coming soon is an indoor mix that works for greenhouses and other inside gardening. There are five compost competitors in the region, but all produce different types of compost—for example, discarded green materials and worm composting.

Stray reconnected with Slow Money’s Northern California Chapter at a spring 2010 event in West Marin. And then again in June of 2011, when he gave an overview of his company as part of an entrepreneur showcase, following which a group of Slow Money investors made a few visits to his operation.

“Each meeting helped me see that our values were deeply aligned, and also offered me business critiquing and support. I couldn’t find that anywhere else,” says Stray. “They really helped me get a clearer picture of my niche.”

In October 2011, while discussions with investors continued, Stray was invited to be one of 30 presenters at the Slow Money National Gathering held in San Francisco. “The process was, well . . . slow,” Stray says with his customary smile. “But I’m not sure it could have happened any other way.”

Stray now feels he’s secured not only capital for his company, but also relationships that will help him over time. “I’ve developed some of the best relationships over the past two years with my Slow Money investors,” says Stray. “The conversation is honest and straight up. There’s no posturing. We can talk about anything.”

The need for compost is increasing, notes Stray, due to the boom in organics. “People understand that you have to feed your soil to get good yields, and you can taste the difference if it grows from a soil that is well fertilized,” he says. “Finding a market for manure also benefits livestock farmers by offering a new revenue stream. This creates diversification for farmers because they can now sell their excess material.”

Stray has a wealth of lessons learned both from making compost and growing his company. As it says on one of his bags, “Don’t let anyone else sell you their crap.”

Listen to a radio interview with Teddy Stray and Slow Money investor Marco Vangelisti on Slow Living radio.

For details about the Royalty Financing model, and other Slow Money financing models, go to Marco Vangelisti’s blog on Slow Money Northern California.