First Stage Investor

World Tree Steps Up Its Game

World Tree Steps Up Its Game
By Andy Gordon
Date December 19, 2022

World Tree is raising again — this time on StartEngine. This raise gives old and new investors alike a chance to grab a revenue share of the 2032 Empress Splendor harvest. 

Raising every year is baked into World Tree’s DNA. It’s part of its business model. A new crop is planted every year. And World Tree covers the cost with an annual crowdfunding raise. 

And with every new year the revenue share opportunity and calculus change slightly. This year is no different. But before we get into that, let’s quickly review what World Tree does. 

Every year, World Tree collects money from investors to plant several hundred acres of its voracious carbon-eating tree, the Empress Splendor (Paulownia Fortunei). It has signed up dozens of farms in North and Central America where the trees are planted and grown. The farms take primary responsibility for the trees, but they also get help from World Tree. After 10 years, the company cuts down the trees and sells the timber. World Tree gets 25% of the profits, as do investors. The remaining 50% goes to the farmers. 

Longtime First Stage Investor members know how much I like World Tree’s concept. Not only does it generate a financial return for investors, but it also offsets investors’ carbon footprint. Empress trees absorb 103 tons of carbon per acre per year. If 75% of the trees survive, as World Tree intends, every investor can offset more than 77 tons of carbon per year — nearly five times more than the average American carbon footprint of 16 tons per capita.

Plant a tree. Help save the world. And make a profit. What’s not to like?

What’s New?

The idea sounds great. But let’s dig a little deeper into how World Tree is turning the idea into reality. 

World Tree targets a 75% tree survival rate. According to company President Cathy Key, World Tree should be able to sell its timber at an average of $5.86 per board foot (BF), which would give it a net profit of $3.86 per BF. According to the company, one acre — priced at $4,600 during this investment round — would give investors a return of $16,284. This comes to a 3.5x return for investors. 

But that’s only if three-quarters of the trees survive, and that’s no sure thing.

In unmanaged plantations, the Empress Splendor has a 30% survival rate after nine years. This is the absolute minimum that we should expect from World Tree’s managed plantations. According to the company’s most recent numbers, 34% of the company’s 2016 plantation batch survived, while 49% of the 2020 batch and 72% of the 2021 batch survived. Right now, 90% of the 2022 batch are surviving.

At the moment, the company’s ability to maintain a 75% survival rate with its 2022 batch is unproven. (That 90% survival rate will decrease over the next 10 years.) Its performance is improving with each passing year, as it should. So we have reason to believe it can reach its 75% goal. But there’s still no guarantee.

To World Tree’s credit, it’s been stepping up its game. In its first plantation batch, it closed contracts with unreliable farmers, forcing it to learn how to better take care of the trees. It’s now putting that knowledge to use more than ever before. It’s visiting its farms more frequently… setting up several regional subsidiaries… and expanding local teams. These steps lower the risk associated with the survival rate of its trees. And — if it works as well as expected — it will also boost investor returns. 

World Tree’s current acre price reflects this lower risk. In 2019, investors could buy an acre for $2,000. In 2022 they will pay $4,600. Taking better care of the company’s plantations increases company costs, which makes higher acre prices unavoidable.  

As an investor, I like the trade-off. Paying more for an acre of trees cuts into your potential profit. But it also increases the chances of farms producing more high-quality wood. The company would then be able to sell its lumber at a higher average price than the going rate of $5.86 per BF for medium-quality lumber. (The Empress Splendor has three grades to choose from. Cathy explained that World Tree’s farms produce different qualities of lumber covering all three grades.)

A Matter of Math

Best case scenario, if 75% of the trees in a plantation batch survive after 10 years, investors can make at least three times their investment — or more depending on the lumber price. And they will offset their carbon emissions by 4.8 times. At the other end of the spectrum, if only 25% of the trees survive, investors get their money back and still offset their carbon footprint. They can even get more than a 1x return if the company sells its lumber at more than $5.86 per BF.

It’s a slightly different calculus than in previous years — with a higher floor and lower ceiling. But as World Tree inches closer to making a 3x return an almost sure thing, the revenue share opportunity should not lose any of its appeal to investors.

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