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It's interesting, you know, ten years ago, trying to get
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people to invest into food and food systems was near impossible.
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You know, the returns were low two to three percent.
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Of course everyone back then was looking at their mining
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stock returns. But there seems have been a lens put
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on it, as you've mentioned over the last well since COVID,
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especially around you know, and there's some buzzwords here right,
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sovereignty and food security and national security. But it's not
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until we've spoken about this in the past. It's not
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until people can't get their either their their finished product
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on the shelves or their cauliflowers or or whatever in
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the green grocery aisle that they realize that there's a challenge.
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And I think that the advent of obviously food technology
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is over the last ten years, especially in Australia, has
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made food of very and food systems very attractive to
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invest in. And there seems to all be a bit
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of that nationalistic pride driving that too. I'd love to
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get your thoughts there.
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I think we should be very proud of the food
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system that we have in Australia. The Syro study a
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few years ago came out with a measure that Australia's
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food system feeds over seventy five million miles. We are
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inherently an exportination for our primary industries. We are well
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regarded for being clean, green, sustainable, and most importantly of quality.
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And as someone who gets the privilege of facing this
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every day in the supermarket when there is without the
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constraints in the supply chain, I think we sometimes forget
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to appreciate how magical our food system is, and so
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the question is how do we make it more, How
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do we increase productivity, how do we support the full
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supply chain, How do we make sure or that there
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remains high degree of profitability so that we have an
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ongoing sustainable food system around us. One thing that Mark
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and I constantly discuss is I think everyone understands that
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food is important because we all need to eat. But
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getting the private sector to part ways with their own
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capital to invest in the ecosystem has been very challenging.
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We've been across not only Australia but globally food systems.
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Food ecosystems have been predominantly supported by policy level or
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through development banks and financiers. It is very challenging to
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put an investment opportunity in our food system next to
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some of these more attractive financial returning and dividend paying
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assets and investment opportunities, and it's been a real challenge
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for us. We wish, we know that we can deploy
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so much more capital into the future of our food systems,
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but it's been very, very challenging to convince not just
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the every day investor in the high net worths, but
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through to the institutional investors on why this is a
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strategic investment opportunity which they must allocate into. And so
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it's something that we we advocate for every day and
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it feels like the investor conversations that we have not
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only just in Australia but globally, most of the work
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is actually an education around why this is such an
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amazing opportunity, let alone the obligations to society and.
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Talking about you know, other other companies that you guys
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have backed and in this exact frame as well, around
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protein food security harvest B it's a plant protein and
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the category has a credibility problem over time, you know
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beyond meads. Share price tells that story, but harvest BE
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isn't playing the same game, is it? Mark maybe you
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could tell me, or Tim, because you've got a lot
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more to do with the company, I guess, but maybe
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you could tell me what they're actually doing differently and
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why that matters.
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Yeah. So Harvest by our investment thesis and behind the company,
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really started around what is the market acceptance for future
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protein systems and looking at it not just around
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plant
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based proteins or any of the climate imperatives. Is about
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what is the number one inhibitor for us to diversify
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protein options for the consumer and for the market. And
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ultimately what that led to is two driving factors. Firstly,
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it's texture and texture has been one aspect which I
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think every future protein solution has been trying to work on,
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and what we believed was harvest B's texture was is
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the market leading solution, an option and market Secondly, is
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what is in the food, which really comes back to
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the provocation that opens this whole discussion. Today we having
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a clean label where Harvest b has somewhere around a
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dozen ingredients rather than if you look at the back
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of the label of some of the other alternative protein
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solutions in market. Is a clean label's really critical to
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so that we can ensure that we provide a hard
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degree of nutrition without putting all the additional additives into
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it to make it feel and taste like a animal
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protein solution. And so, for us, advancing the food system
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is very much around finding not only just the great
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products in market, but the innovators who've been able to
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pivot and find that market product market fits. And so
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for harvest B is an exceptional team and they've gone
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through a range of various formats, integrations, applications, and integration
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trials with a range of customers to really try to
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find how do we materially advance the protein ecosystem that
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we have available to us. And then secondly to that
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is how do we do that in a sustainable manner,
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predominantly on the basis that we need to feed a
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growing population and the food system is not the current
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food system is not going to be able to achieve
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that in itself.
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And harvest B is complementary, it's not a replacement. So Mark,
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why did this look investible? You know, when the category
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narrative seemed to be collapsing.
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It's a very good question. One of the things we
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really liked about harvest B wasn't necessarily just the fact
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that they're producing an amazing texturized protein that essentially can
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replicate the mouth feel and the palette feel of traditional
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based animal proteins. But they're also not of the opinion
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that it's either animal or plant, which a lot of
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I think the other alternative protein that have come to
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market have divided the market. On harvest B's focus is
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very much around increasing the protein availability across the whole
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of the food system, now that includes animal and plant.
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But what they're doing that's very very interesting is they're
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actually blending their texturized plant based proteins with animal proteins.
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And so if you think about a suv or think
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about age care defense, how you might how you might
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actually cook at a commercial scale, blending the harvest bee
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proteins in with animal proteins at the same time does
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a number of things. It reduces the actual cost of
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the protein consumption for the user by I think tim
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can correct me by twenty five or thirty percent. It
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increases the fiber content and it actually increases the protein
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content as well. So when you actually blend together both
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animal plant based proteins, you're getting a much more nutritious
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food system at a cheaper cost. That's more accessible to all.
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And so where you see a lot of the other
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plant based protein companies saying meat is bad, Harvest B's
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these this is very much rained. Well, let's increase the
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availability of the protein stack across the whole of the
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food system that's going to benefit consumers around the board,
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and that includes things like aged care, defense, school, school mills,
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and others. And so that's something that's uniquely different about
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the strategic positioning of Harvest B versus some of the
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other plant based protein companies.
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And as you mentioned earlier
too, you're drawing that line
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from Hanoi down to Jakata others. How many people make.
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It's seven hundred millions people that represent the fastest growing
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middle class on the plane.
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Seven hundred million. So places like Indonesia where the president
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is boarding programs trying to feed school children at least
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once a day, something like Harvest B would be a
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game changer.
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Yes, absolutely, And you know the technology that's come through
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Harvest B that allows for these sorts of these sorts
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of of food product to be produced and also transferable
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because they can come dehydrated, which means you don't need
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cold chain. That's incredibly important across regions like Indonesia where
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you've got challenges with infrastructure and hub and spoke models.
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So yeah, harvest b solution is incredibly important, and it
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can be transported, it's light, it can be blended with
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animal proteins or a communised by itself, and that Indonesian
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example of the getting every child one million day is
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a perfect example of why these companies are incredibly important.
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So jens I guess, overall, what does the operational reality
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of scaling a food manufacturing business in Australia actually look
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like today?
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That's a really good question. We are working with a
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company at the moment that we've recently invested in which
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is actually in the fiber space, Todd and a new
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type of fiber that essentially would be used to replace
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inulin but also to increase and benefit things like gut
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Biome Indland is one of the one of the fibers
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currently used in the baking industry and also in the
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cereals and museley bar industry as a fiber component. There
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are better alternatives available now, with companies like health Food
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Symmetry that create their fiber product being trilled now by
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a number of food ingredients companies now to work with
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them and to get them into our food systems. As
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--> 00:10:30.440
Tim mentioned earlier, does take time. It takes about twelve
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to fifteen sixteen months to actually do the trialing and testing,
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and that's got to be with then large manufacturers the
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food products you can name any of them, you know
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that produce breakfast cereals, musuly bars and others. So getting
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those trials trials in there takes time and requires a
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champion on both sides, both within the startup company but
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also within the food ingredients company. And then once that's done,
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making sure that the recipes fit, that they can scale efficiently,
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they can produce enough product and material for large national
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and international markets. And then most importantly, the unit metrics
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makes sense, so that's the cost of the product that
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it might be replacing. And so these are also the
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sorts of challenges and opportunities that we work closely with
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the companies that we invest in in to solve, and
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also then creating those institutional relationships and contacts for those
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companies to actually start to do pilot scull production that
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will then lead to large commercial scale opportunities.
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Conventional wisdom says that you know traditional foods have had
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their moment and the markets moved on. But harvest be
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full Foods, Embryo and the other companies you've you've mentioned,
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they've you know, they make the case that conventional wisdom's wrong. Mark,
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do you see the capital you know, you see the
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capital cases for these three companies, and Tim, you see
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the operational reality? Can you walk me through the last
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time you landed in genuinely different places on something and
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what resolved it.
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I think Tim and I probably spent the life we've
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been working together for over a decade and certainly spent
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the last six years deeply embedded within the food system.
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So our views and the thesis that we've built around
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Mandlay are very much united in that in where we
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see the opportunities. I think one of the areas that
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has been challenging because of the lack of knowledge is
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that investing in the AG and the food category actually
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can provide significant investor returns and higher returns than a
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lot of the traditional venture venture categories, which might be
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like B to B SaaS. So when we invest in
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a company, we work with them closely, we support them
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through other follow on investments. We introduce a lot of
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other capital and institutional investors and strategics coming in is
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that we can fast track them to an exit opportunity. Now,
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an exit opportunity from a venture perspectives, where there's either
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a secondary market or a trade sale that allows for
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that original principle to be returned to the investors with
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the profit as well. We know, having invested now in
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the category for close to a decade that when managed properly,
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that this category does provide top quartle return So you know,
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very very top level returns in comparison to a lot
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of the traditional venture venture industry verticals as well. But
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there are very few that have the detailed, detailed domain
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expertise to work with in diligence companies like the ones
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we invest in, because it takes a very very broad
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knowledge of food systems everything from on farm animal genetics
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right through to restaurants SaaS and so it does take
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a very broad knowledge and understanding of the system and
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the ecosystem that we operate within. And the other thing
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on top of that, Todd is that across the systems
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that we work with and the companies we invest in,
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we know that mid market exits. That's two hundred to
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six hundred million dollar exits are roughly where we land
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with food companies, feed ingredients and agricultural companies. So we're
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not necessarily unicorn hunting in it. And what that means
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is not looking for that one company that's going to
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do one hundred x and that returns everything for a fund.
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It's amortizing and averaging that across a portfolio where we
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know there are active mid market exits to provide top
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quartal returns for our own investors, but also allows us
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to grow the companies to scale where we know there's
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an opportunity for founders, investors and strategics to come in
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and helps grow and scale beyond a certain point in time.
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So Tim Marks has given me the pr version, Mate,
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give me, give me some reality. When you two disagreed
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on something and how you solved it, was it paper scissors?
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Was it a bit of a punch on in Kelvin Grove?
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What we're on.
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I think I get a fair share of stinki from
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the Mark when I talk about opportunities across our desk,
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and I think the most critical thing is not to
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come with our own prequency assumptions of where the industry
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is at all not and that for us, discipline is
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not just about taking our time and being considerate about
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our investments. But really I think what unites Mark and
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myself is we both come from a engineering or scientific background,
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and that first principle approach is how we look at
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our investments, even though we act in a more you know,
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non scientific environment sometimes and particularly an investment where there's nonlinear.
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But what I do want to highlight is Mark and
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I are not two gentlemens who are farmers by background,
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and so for us to come in to ag and
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food and talk about what is the future and where
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the innovation is is something which is not fitting to
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be frank And so how do we solve this as
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an industry or thematically focused fund manager is to really
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lean on our networks and industry partners to give us
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the feedback and insight to what is the actual needs
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and demands to market. And trust me, Mark and I
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have walked into hearing a first time pitch and walking
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away with our own assumptions of what the challenges are
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in the commercialization journey ahead, only to be proven wrong
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consistently by the company and the founder more than between
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market and as myself between each other. That said, one
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thing that Mark and I constantly debate is around timing.
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I think we see, with no doubt we see a
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volume of amazing innovation products and then you sprink on
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top some very enthusiastic founders and it looks like a
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very sexy job. But the reality is, whilst there might
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be some great products and innovations in market, our fund
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is determined by not only just returns in absolute values,
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but also timing and funds a benchmark on an internal
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rate of return which is a function of time and
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the absolute number of cash return. And so we are
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on the clock. And as much as we want to
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back everything which is the best future of AG and food,
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the reality is we need to also get the timing right.
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And that's probably what really challenges Mark and I around
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our internal debating is what do we foresee the forward
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timing being on the commercialization and an adoption. What is
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the timing in getting the company ready or having the
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metrics for an acquisition or exit or IPO, and what
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is the timing for the broader market to have an
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appetite to acquire these companies? And so timing has been
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a real debate between us And the example I'll give
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you is the company Mark just discussed, which is health
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Food Symmetry, a advanced prebiotic fiber solution or ingredient which
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is derived from virgin sugarcane. So basically, out of sugarcane
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they remove the sugar, which is completely opposite to what
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you would generally think. But by removing the sugar and
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keeping the fiber intact, it lasts through the gut for longer,
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which means it's better for you. Now, the question we
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had to ask ourselves is, yes, this is a great product,
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Yes there is a lot of clinical trials, Yes you
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can put a claim on label, but is the time
now?
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And what that ultimately led to is a belief that
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we have gone through the protein wave as a macro
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and that the next one is going to be fiber
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as a key macro nutrient in markets. So that's timing piece.
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And then the second piece is the industry piece. And
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what really the way that we looked at it was
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we thought, very much through the lens of innovation is
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about what is the nutritional claim, what is the IP position,
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what is the operational ability to executing scale? But actually
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the question that came from industry is what is the
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functional benefit both well, fundamentally, what is the functional benefit
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to adopting and replacing my current fiber solution with this
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new innovative alternative And functionality means firstly, do I need
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to change my production line? Secondly is what is the
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impact to my formulational recipe And what ultimately got us
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over the line with this investment is the understanding that
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by using this ingredient as a fiber the fighter Biomes
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as the trade name, you're able to use less fiber
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whilst getting a more complete and better for your guard
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to nutritionally fiber solution in your product. And so for them,
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one dose each is one point five grams, and so
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even if the per kilo or per gram cost of
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fier Biome is more than injurelent, the reality is used
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less and so we're still able to achieve a price
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parity whilst also being able to was also where the
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customer does not need to change their production line to
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adopt this alternative fiber solution.
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Yeah, I might add Todd just on top of what
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Tim has said then, is that one of the reasons
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we don't really clash on investments is that we don't
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come with preconceived conception, but both Tim and I are
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very much data driven and where we're seeking to get
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validation on an opportunity to either one of us or
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both of us or the team have queries about, we
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lean into our venture partner network. Now, venture partners are
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groups with an adventure fund that actually support deal flow,
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market validation, competitor analysis, and have been operators in the
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verticals that we invest in. So we have about adventure
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partners globally including Australia, Singapore, Indonesia, the UK, France, the Luxembourg,
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and there's a few others. And these are operators who
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have either founded or worked deep within food agriculture or
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downstream companies. We lean heavily into our venture partner at
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work to support the endorsement of opportunities that we look
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to invest in, and they provide the data, analytics and
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deep market knowledge and understanding. And the reason that's important
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is because we're not vets, we're not agronomists, we haven't
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necessarily run food ingredients companies. But we have people in
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our network that are our venture partners that have and
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can provide that deep domain expertise and analysis, which is
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underpinned by data that allows us to come to the
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assumptions and the strategic thesis of investment that we do
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come to. So it's not a sit around and debate.
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It's let's use data and the people we know around
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us as points of validation for the assessments we make
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as we're thinking about any investment.
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And data is king, isn't it. It provides the insights,
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optimization and then eventually the experience should be used more
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openly gence. I want to come back to a question
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at the end of this conversation. It's the one that
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sits underneath everything we've been talking about. But first, before
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we get to that, you're both in Brisbane in June
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for Global agg invest Australia June ten to eleven Mark.
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Who should be in the room that isn't planning to
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be there and what should they be asking that they're
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not asking now?
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Yeah, so Global Like Investing is actually an interesting event.
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It's only previously been held
in New York, Tokyo and London.
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It's the first time the event itself is being held
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in the Southern Hemisphere and in Brisbane for that matter.
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The event itself was traditionally for a lot of natural
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capital providers, so those that are looking to invest across
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agricultural land and agricultural systems. But this year, and particularly
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the Brisbane event, there is a big focus on ag
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technology and technology adoptions on farm to increase productivity. So
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the event itself traditionally tends to attract institutional investors, so
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the large corporates, large super funds and others that invest
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in land assets, as well as high net worth individuals
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and those that actually work within the corporates in that space.
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This year, I think there's going to be much more
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of a focus on the technology companies that help drive
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and underpin food production and productivity. So if you're an
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investor or an angel, if you work within the food
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systems or the food manufacturing supply chains, or if you're
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associated with natural capital and investing across natural capital that's there.
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That's the sort of audience that is going to be
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attracted to Global Egg Investing. It's exciting to say that
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it is the first time it's been held in the
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Southern Hemisphere and so I think there's a really interesting
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opportunity for Australia to put its hand up to say
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we are world leaders in food innovation, agricultural production, and
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if you think about the whole of the Australian geography,
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we actually represent almost every growing geography across the world.
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So we have tropical, we have cold climate, temperate, we
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have subtropical, and we have intermediate agricultural zones. So whether
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you're comparing us to areas of North America, the southern
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parts of the US, Brazil, Argentina, the Middle East and
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parts of Asia, the technologies that we actually produce in
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Australia have the relevance across all of those jurisdictions and
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that's something that we need to become a lot more
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vocal about and a lot more supportive of across our
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own investment landscape.
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We'll be there, looking forward to seeing you guys there too.
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But the question I said I'd come back to earlier,
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who controls the technology that feeds the next billion people?
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And what does Australia have to do in the next
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five years to make sure the answer isn't not us?
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Mark you first, then Tim.
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So I think in Australia we have an in credible
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research and development base. We have very unique systems and
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financial systems around our growing industry, having levees that might
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go to various levy groups like Horticulture Australia or groups
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like Agriculture Victoria's Services, and there are levy bodies across
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all of the major industry groups. Now a percentage of
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the levees that come out of those levy bodies go
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back into research and development for the innovation. Australia has
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some of the best R and D and innovation coming
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out of anywhere in the world when it comes to
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the horticultural and agricultural food systems that we work in.
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Where we fall over is the follow on investment required
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to take that capital or to take those opportunities, capitalize
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them appropriately to grow into global markets. Where we don't
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do that, we lose them. And a concern that we have,
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both Tim and I have, is that if investment in
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the technology and the food systems and agricultural area is disincentivized,
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and that could be through anything from the increasing capital
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gains for investors right through to duties and taxes involved
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in land tax, we lose these opportunities to global markets.
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Australia itself is fairly behind much of the rest of
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the world when it comes to financial innovation, across our
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systems that support food and agriculture, and so that's an
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area where we really need to lift our game is
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for our banks to become more innovative and more supportive
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of fast growing companies in the space. And that could
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be through everything from things like trade financing opportunities, credit
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lines not necessarily directly associated with securing land asset as principal,
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and others. So our innovation across our financial institutions needs
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to become much more aggressive and much more thoughtful so
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that we don't continue to lose opportunities to foreign markets.
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Tim, I'm going to throw to you, but I'm going
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to give you a little bit more of a challenge
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sum it up in one's for.
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Me, I love to think that Australians are an ecosystem
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and population of early adopters, and so my single line
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is everyone should be everyone should take a little bit
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of a risk, everyone should try something a bit different.
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And what that ultimately means is everyone as a customer
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has the power to really try these future solutions and
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get out of our day to day status quo and
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what we feel comfortable with, because ultimately innovation is a
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little bit uncomfortable, but it's the excitement of something a
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bit different which will ultimately drive the future of our economy.
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Markostowski, Tim Hue, Adelaid Venture Partners in Tundra three Companies
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eight bits. One question that matters more than most people know.
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Thank you both.
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Thanks, thanks so I got really appreciate it.
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Mark Gstowski, Timothy Hughes, Mandalay Venture Partners and Tundra three
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Companies eight bets. One question that matters more than most
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people know. Thank you both for intelligence optimized on Todd Crowley.
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If this conversation shifted something for you, share it with
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someone who should hear it. And if you're heading to
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Global agg Invests Australia in Brisbane and June, come and
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find us. These conversations are better in person