Clean Seed Capital - starting to sprout

I have written a few posts about this start-up company.

Briefly, CSX has developed the CX-6 Smart Seeder.

The SMART Seeder™ offers an unrivaled level of precision in modern no-till seeding. This drill demonstrates the future of farming.

Clean Seed has developed an advanced precision no-till seeding system comprising several individually patented technologies, including in-ground openers, proprietary seed and fertilizer metering, and electronic control systems. Our most recent ground breaking achievement is also our most advanced and innovative to date: the award winning CX-6 SMART Seeder™, which is an industry first!

It represents a major advance in seeding technology for large scale farming operations:

• can plant seeds at variable rates very precisely in order to fulfill the requirements of precision agriculture
• has the capacity to deliver other products (e.g. fertilizer, pesticides) simultaneously and at variable rates
• it enables farmers to practice intercropping to increase yields and profits http://us7.campaign-archive1.com/?u=07f7d9dee595a47b1c531c8f4&id=dc42a7d073&e=6ffb8de420
• has a modular system whereby malfunctioning parts can be replaced quickly in the field

More detail is provided here. 

http://www.cleanseedcapital.com/home

I was privy to a confidential report on field tests of the prototype and it was superior to anything on the market.  (I obtained this by writing to the President to learn more about the technology - this when I was evaluating a potential purchase of stock.)  Since that time, the SMART Seeder has undergone additional field testing in a variety of conditions/geographies.

In recent years, the company has developed a production capacity by means of an agreement with a respected equipment manufacturer and has also entered into distribution agreement with Rocky MountainEquipment, a company which I established a position with several years ago.
https://www.rockymtn.com/

Recently, Clean Seed made the following announcement:

February 23, 2017 - Vancouver, British Columbia - Clean Seed Capital Group Ltd. (“Clean Seed” or the “Company”) (TSX-V: CSX) has entered into a distribution partnership agreement with Torgerson’s LLC (“Togerson’s”) to bring its CX-6 SMART Seeder™ technology to the United States through 1) an exclusive dealership arrangement for Montana and North West Dakota 2) the creation of a CX-6 SMART Seeder™ demonstration centre and 3) providing a base for further expansion into other key US markets.
http://www.cleanseedcapital.com/blog/post/clean-seed-capital-group-tsxv-csx-enters-the-united-states-market-through-new-strategic-alliance-and-closure-of-associated-investment-1

I have great expectations for Clean Seed:

• It has been able to secure financial support at all times and has no debt.  
• It has progressed in a very deliberate way, building its technology and the supporting infrastructure to bring its product to the marketplace. 
• Management is communicative: I received a response from the the President within hours of writing him by e-mail.  The response was fulsome and direct.  
• Clean Seed's team has "mud on its boots" and strong links with the farming community.  
• It appears from recent additions to its Board, that the company is clearly positioning itself for expansion into additional markets. 

The investment has required patience and a recognition that the path to success has many twists and turns:

• It is common for stock prices in new ventures  to gyrate significantly (and it certainly has)
• New ventures require agility: a willingness to bring new people on board to build management capacity as the technology develops and to bring it to the marketplace  (Clean Seed has done this in spades)
• Many technologies fail because they do not bring quantifiable benefits to customers.  It would appear that the field trials have demonstrated this effectively.  Farmers tend to be "show me" people and are loath to accept the blandishments of slick "suits".  

Here is a synopsis of four keystones for the success of agricultural start-ups.  It would appear that Clean Seed has the "right stuff":

https://agfundernews.com/observants-4-lessons-for-agritech-startups-in-wake-of-acquisition-by-jain7327.html

This said, there are a few issues with the potential affect the fortunes of this company:

• Trump trade policies
• the state of the agricultural cycle (my sense is that we are near/at the bottom of the cycle and that things will improve over the next several years)
• manufacturing glitches and the inevitable issues in the field which arise with the advent of new technologies (operator error, equipment deficiencies)
• competition: Clean Seed is a new entity and must compete with well-established companies with deep pockets and long-standing customer relationships.  
• in the short term, it is getting more difficult for farmers in the Mid-West and elsewhere to secure financing for equipment purchases given a regime of low prices for crops such as corn and soybeans https://www.farm-equipment.com/articles/13760-deu

To my mind, there are two potential scenarios regarding the future of Clean Seed:

1. Organic growth: a slow process whereby the company grows its market and adds other products over time.  
2. Take-over by a larger corporate entity.  Case IH comes to mind as its product line is carried by Rocky Mountain et al.  

My bet is on the second scenario, although I would prefer to watch Clean Seed develop to the point where it could command a higher price point.  

I have steadily added to my position over time as the company has passed various milestones.  The additions have not been affected by the stock price of the moment, a rather silly way to make one's investment decisions with beasts of this nature.

Strategic Positioning of Clean Seed

When searching for potential investments in agricultural equipment manufacturers, I looked for, among other things, products which "fitted" best with emerging trends - in this case - the growing presence of larger farming operations.  The CX-6 Smart Seeder is clearly aimed at this market.  Read this. (You can drill down more by clicking on the links internal to the article.)

https://www.farm-equipment.com/articles/13828-deu