Trailhead Capital Q&A

A conversation with Sarah Hovde and Nick Schroer of Trailhead Capital

This is part of our series spotlighting some of Third Nature’s best-in-class fund managers. Check out the series intro here.

In our last post, we explored Third Nature’s “earth systems” lens and how our partner funds help us strike the right balance between depth and breadth in our investment approach. Today, we’re spotlighting one of those partners: Trailhead Capital.

Like Third Nature’s predecessor venture fund, Closed Loop Capital, Trailhead Capital takes a full-value-chain approach to investing in food and agriculture. Too often, we’ve seen food and ag operate in silos—you could attend a food industry conference without hearing a word about farming, or an ag conference where food was barely mentioned. This disconnect reflects the industrialized food system’s fragmentation, obscuring the root causes of its dysfunction. At Third Nature, we’ve always believed that being in both rooms at once provides a clearer picture of the overarching and overlapping systemic challenges—and, more importantly, the opportunities to fix them. Trailhead shares this systems-level perspective, investing across the full supply chain—from upstream agricultural innovations to midstream technologies improving distribution and efficiency, all the way downstream to food quality and human health. Their lens and expertise makes them a perfectly suited partner for Third Nature.

Without further ado, please see below a conversation we had with Trailhead’s Sarah Hovde, Head of IR & Ops, and Nick Schroer, Principal.

Tell us about your firm and investment thesis.

Our firm, Trailhead Capital, invests in the Regenerative Agriculture industry, specifically focused on Seed and Series A stage companies. Our thesis is that we need to reinvent how we feed, clothe, and shelter humanity in the next few decades in order to avoid the worst consequences of agriculture's contribution to human health deterioration, biodiversity loss, climate chaos, freshwater availability, and the increasing rural/urban divide in livelihoods and economic opportunities. We invest in entrepreneurs who are innovating new solutions to disrupt the current paradigm in food and agriculture. We're looking for founders who have a scientific, technical, or business advantage for a solution that can scale to meet a massive market demand, and these founders may even be living in the future, ideologically, with what they’re creating, while dealing with the day-to-day of the problem they’re trying to solve. Now, four years into our Fund I, we’ve made 29 (soon to be 30) investments and are pleased to report the portfolio is performing very well! We’re starting to fundraise for our Fund II because the investment pipeline and opportunities to grow awareness of this industry are incredibly robust. Much more to come in our fund’s journey… stay tuned!

Why have you chosen to focus on the Regenerative Ag sector? What challenges are you seeking to address?

Your essay on A Time for Urgent Action naturally resonates with our team. But what we especially liked was your statement of, “The time for prioritizing ‘sustainability’ is now long gone.” It made us think of a passage from a book about Regenerative Ag called Dirt to Soil by Gabe Brown, in which he wrote, “I know sustainable is a popular buzz word today…. Everybody wants to be sustainable. But my question is: ‘Why in the world would we want to sustain a degraded resource?’ We instead need to work on regenerating our ecosystems.” This is where our fund, Trailhead Capital, specializes.

We see Regenerative Agriculture as the biggest opportunity to combat the key issues of today, namely climate change, human health (or lack thereof…), food shortages, water shortages and detrimental runoff, the collapse of biodiversity, the blight of rural livelihoods, and so many other downstream effects. At the end of the day (and if you’re lucky, 3 times per day on average), every human on earth relies on agriculture and our food systems. But even still, consumers and governments are just waking up to how far we’ve veered off course with food & ag. So, we believe we’re still in the early stages of this industry (the “first inning”, as you may say), with unlimited potential as the industry becomes more mainstream.

This is why structuring ourselves as a VC feels like the best opportunity to help drive this change – people are extremely motivated by financial returns and we’re here to prove that you can make a positive impact on all of the threats listed above, but without having to be concessionary in your returns. And as consumers and governments may take their time to change, private and public capital (think family offices, institutional capital, corporations) can actually be quite fast-moving and play a huge role here, which is where we’re focused on fundraising from and getting our portfolio companies in front of. A win/win is possible; it just takes the time, effort, creativity, and market signals that successful venture investments require.

How do you take a systems lens to the funds investing?

I would assume that many of your readers who are seeing this post are believers in the “holistic” approach to their own bodies & health – we sure are! A good way to think of our investment approach is sort of like “holistic investing.” We’re thinking about how various factors within the startup, national, international, and environmental ecosystems are influencing outcomes, rather than just evaluating individual companies in isolation. We are investing from everything “upstream,” or on-the-farm focused companies, through “downstream,” or supply chain-oriented businesses, all the way to consumer-facing, but will generally be steering away from consumer-facing in Fund II.

Effectively, we are trying to see where there are needs in the current food system and supply chain that may exist and fill those gaps with investments in high-potential startups. But we also apply a filter in deal screening for opportunities that facilitate systemic or behavioral change, versus those that are simply attending to the treatment of symptoms. Finally, we are also focused on where potential synergies exist across and between our portfolio companies, limited partners, advisors, peer funds, etc. It’s all an interconnected network, similar to a body (as we stick with that analogy), and thus we are trying to keep information, introductions, and support moving across the entire network at all times.

Where do you glean strategic insights to fuel your investment approach and priorities?

We very much believe in a “boots on the ground” approach to investing and a better understanding of where this industry is going. That means we are focused on going to where the founders are, going to where their customers are (usually on the farm), and going to where the investors are to hear their mandates. Our investment team has seen tons of ideas that sound great, but don’t actually stand up to customer scrutiny. Many investors, even in our space, do not gut-check entrepreneurial exuberance against customer values, ideas, and needs. For our "upstream" ag investments we have to prove (in diligence) that the solution offered is truly going to provide a meaningful (+3x ROI) economic incentive for adoption. We cannot fund ideas that have strong environmental benefits but no-to-low grower or commercial value - they will fail to create real impact. We look for no-brainer solutions for farmers and ranchers that have big environmental benefits as byproducts.

Our diligence also dives deep to validate the founding team's expertise, value proposition, unit economics, competitive advantage, marketing opportunity, and as mentioned, home run potential. We work closely with the founding team to go through the business model and financial pro forma, and look to see where there’s potential for the investment to return the fund when we ask ourselves “What can go right?”. We exploit each of our investment team member’s areas of expertise and regularly turn to our Scientific, Operational, and Investment Advisors for insights and reality checks.

Could you tell us about 2-3 of your portfolio companies and how these are positioned within the sector/system you're investing in?

• Ascribe – The team at Ascribe developed a natural crop protection solution (biofungicide), enabling movement away from conventional synthetic, chemical solutions. These treatments are non-toxic, biodegradable, bee-friendly, and support biodiversity. Ultimately, they’re helping farmers move away from some of the “industrialized farming” inputs that have so clearly damaged our ag & environmental systems (and not to mention, horrible for our own human health), while offering a potential sub-market price vs. conventional alternatives. Since our investment in August 2021, the company’s value has grown impressively along with its product and milestone success (more to announce on this company soon!).

• HowGood – HowGood is a SaaS data platform with the world's largest database on food product sustainability. Corporations are increasingly focused on understanding where their food is coming from, so companies can measure their carbon footprint, see water usage, soil health stats, and so much more. The aim is that as corporations understand how much better regenerative ag practices have on the entire supply chain and downstream, they will increasingly be motivated to source as such. We made our initial investment in them in January 2021, and since then, they’ve grown their customer count 13.5x and are now working with 6 of the 10 largest food companies in the world.

• Edacious – Edacious is one of our more recent investments, announced in July 2024. The company’s offering is both a food lab & software platform, making nutrition data (like density and composition) more readily available and actionable. One of the major benefits of regenerative ag is higher nutrient density in the food itself, and Edacious is able to prove this to corporations and consumers alike to help drive demand for differentiated products. They are early in roll-out but already have a long list of recognizable brand names as customers.

Stay tuned for our next Q&A with Alante Capital. And be sure to follow us on LinkedIn and Substack for all the latest company updates and insights!