When a 4× Return Isn't Enough
Aquaculture has no shortage of ambitious development projects. New production technologies, expanding markets and growing demand for seafood all create opportunities for investment. Yet attracting the capital required to realize those opportunities is frequently difficult. The explanation is often that investors are reluctant to accept the biological and operational risks associated with aquaculture.
But investors aren't inherently afraid of risk. Venture capital, private equity and family offices exist precisely because investors are prepared to accept substantial uncertainty in pursuit of attractive returns.
Perhaps the more useful question is whether aquaculture developers are offering sufficient returns to justify the risks they're asking investors to assume.
A Profitable Business Is Not Necessarily an Attractive Investment
Aquaculture business plans typically begin with forecast volumes, growth, survival, feed conversion, operating costs and selling prices assembled into a projection of future profitability, frequently expressed as EBITDA or EBIT. These are essential measures of business performance, but they don't necessarily tell an investor what return they can expect on the capital they're being asked to provide.
A business generating $20 million in annual EBITDA might be an outstanding investment if it requires $50 million in capital to establish not so much if achieving the same EBITDA requires $250 million.
The timing of that investment matters, as do additional capital requirements, ongoing reinvestment, financing costs and the eventual value of the business. Investors must translate the operating forecast into an expected return on their equity.
And they have alternatives.
The Investment Alternative
Consider an investor with NOK 1 million available to invest in aquaculture seven years ago.
One option would have been to purchase shares in an established salmon producer such as SalMar. In late October 2019, SalMar shares traded at approximately NOK 428.50. By October 15, 2026, the share price was NOK 551. During that period, shareholders also received NOK 140 per share in dividends.
An investor who purchased NOK 1 million in SalMar shares in October 2019 and held them through October 2026 would therefore have approximately NOK 1.61 million in shares and accumulated dividends, assuming the dividends were retained as cash. That represents a total return of 1.61 times the original investment, with an annualized cash-flow return of approximately 8%. It's a respectable outcome, achieved despite considerable volatility in salmon prices, biological challenges and changes in the industry's operating environment.
Of course, investors in 2019 couldn't have known what SalMar would deliver over the following seven years. Its historical performance is not a forecast of future returns. Nevertheless, it provides a useful real-world benchmark.
Now consider an alternative investment in a developing tilapia producer in Africa, a vannamei operation expanding in Latin America, or a novel land-based salmon facility. These businesses might offer considerably greater growth potential, but they also introduce uncertainties that are much more difficult to evaluate.
Why would an investor choose the second opportunity?
Presumably, because it offers the prospect of substantially greater returns.
But how much greater is enough?
The 4x Return
Suppose our investor is presented with a business plan for a developing tilapia producer. Based on the capital required, the ownership offered and the projected financial performance, the investment could deliver a 4x return over seven years. That's an annualized return of approximately 22%. On the face of it, considerably more attractive than the return achieved by SalMar shareholders over our historical period.
But the projection depends on the business achieving its plan. Production must reach the forecast volumes, operating costs must meet expectations, selling prices must hold and the business must avoid substantial additional capital requirements. What happens if some of those assumptions prove wrong?
Rather than treating the projected 4x return as the expected outcome, consider three possibilities.
| Outcome | Probability | Investor return |
|---|---|---|
| Business delivers its plan | 25% | 4.0× |
| Business survives but substantially underperforms | 50% | 1.4× |
| Commercial failure | 25% | 0× |
These probabilities are illustrative, not estimates of actual aquaculture project success rates. Their purpose is to demonstrate how the likelihood of achieving a business plan affects the attractiveness of an investment.
The probability-weighted return is calculated by multiplying each potential outcome by its likelihood and adding the results.
(25% × 4.0) + (50% × 1.4) + (25% × 0) = 1.7×
Suddenly, a business plan promising a 4x return produces an expected payoff of just 1.7x the original investment. That's only marginally better than the 1.61x actually delivered by SalMar over our seven-year comparison. Would that modest additional expected return adequately compensate for the uncertainty, lack of liquidity and possibility of losing the entire investment?
(The 1.7× figure is an example, not a guaranteed outcome or a complete measure of risk-adjusted return. Nor is SalMar's historical result a risk-free benchmark. A rigorous prospective comparison would evaluate the potential outcomes and risks of both investments. Nevertheless, the distinction is important.)
The return projected in a business plan is not necessarily the return an investor should expect.
Raising the Bar
We can reverse the calculation. Suppose our investor wanted the tilapia investment to produce a probability-weighted payoff of 2.0×, providing a meaningful increase over SalMar's historical 1.61× return. Using the same probabilities, the successful outcome would need to deliver 5.2 times the original investment rather than the 4x return projected in the business plan.
If the investor required an expected payoff of 2.5x, the successful outcome would need to deliver 7.2x. These aren't prescribed investment hurdles. The appropriate return depends on the risks, the investor's circumstances and the available alternatives.
But the principle is straightforward.
The greater the uncertainty surrounding an investment, the greater the prospective reward required to justify accepting it.
And that reward must be credible. Simply increasing projected production, lowering forecast operating costs or assuming a more generous eventual sale valuation doesn't make an investment more attractive. It may simply make the business plan less believable.
Making the Opportunity Investable
For aquaculture developers, the implications are significant.
If the prospective return is insufficient to compensate for the risk, there are fundamentally two ways to improve the proposition: reduce the risk or increase the potential reward to investors.
Reducing risk might mean demonstrating commercial operating performance before seeking expansion capital, staging investment around verified milestones or reducing the amount of capital required before the business can generate cash.
Increasing the potential reward might mean offering investors a greater ownership stake or more favourable investment terms.
Both approaches have consequences for developers. Demonstrating performance takes time and money, while offering more equity reduces the value retained by existing shareholders.
But neither consequence can be avoided simply by presenting a more optimistic business plan.
The challenge is not just to demonstrate that a profitable aquaculture business can be built. It is to offer investors a sufficiently attractive share of that opportunity, at a level of risk they are prepared to accept.
SalMar historical comparison: Share prices in Norwegian kroner, using October 2019 monthly historical pricing and the October 15, 2026 closing price. Dividends paid from December 2020 through July 2026 are included without reinvestment. Calculations exclude taxes, transaction costs and currency effects. Sources: historical share prices, SalMar dividend history and 2026 dividend announcement.