Slow Money Thriving in Oregon

Community investing efforts are growing across the Pacific Northwest! There are various LION networks in the region, different crowdsourcing efforts, and two formal networks in Oregon that have organized around Slow Money.

WFFC_circle_logoSouth Willamette Valley
Inspired by a visit from Woody Tasch to the University of Oregon in early 2013, a few attendees set out to help build resilience in their local food and farming economy. They went on to form Slow Money South Willamette Valley with a mission to catalyze low-interest loans to local, sustainable food and farming businesses in their region.  

10173610_790224060987861_8619412046739248348_n

Slow Money SWV had their first public gathering in December 2013 where they catalyzed 3 loans to local food and farming entrepreneurs. In just over a year, they’ve catalyzed 10 loans totaling over $98K through a peer to peer lending format. 

For more info about SMSWV contact Erin Ely at erin@slowmoneyswv.org.

SOSlowMoneySouthern Oregon
Farther south in the Rogue Valley, Southern Oregon has its own network appropriately named SO Slow Money.

SO Slow Money had their 2nd annual Home Grown Finance event on August 5th with several local emerging farm successes. They brought in $47,500 in private Slow Money seed investments last year and 4 of the 8 companies currently in their summer accelerator came through SO Slow Money.

We are incredibly excited for the future of local sustainable farming in Oregon thanks to these sustainable food champions. These fellow Cascadians are “bringing people together around a shared vision. It starts with the soil, entrepreneurs are the seeds and Investors are the water.”

For more info about SO SLow Money contact Rosetta Shaw at rosetta@svtg.org.

USDA Announces $78 Million to Boost Local Food

steldev3000003

Regional food received  an impressive new spurn of funding from the USDA last week. The money is split between the Rural Development Business and Industry Guaranteed Loan Program ($48 million) and available grants from Agriculture Marketing Services ($30 million) targeted at giving much needed federal investment in “food hubs, farmers markets, aggregation and processing facilities, distribution services, and other local food business enterprises.” 

Locally sourced food now accounts for roughly $7 billion a year  in sales but with any emerging sector, cash investments are needed to continue its growth, and its exciting to see the USDA taking a proactive approach and creating new funding options for farmers, growers, and sellers of locally sourced food.

This comes in tandem with the 2014 Farm Bill tripling the funding for and renaming the existing Farmers Market Promotion Program (FMPP) to allow grants to support regional food system infrastructure, as well as direct marketing programs for farmers.

These new funds are available to a wide variety of regional food stakeholders including; cooperatives, non-profit organizations, corporations, partnerships or other legal entities, Indian tribes, public bodies or individuals.

The USDA is accepting applications for the funds on a rolling basis, so our Northwest regional food developers should get their applications in ASAP.

You can read all the details in the USDA’s press release here.

Early Registration for Food Systems Financing Web Course

cdfa-logoThis Friday (May 9th), is the last day of early bird registration for the Intro to Food Systems Financing Web Course from the Council of Development Finance Agencies.

This 2 day full immersion course (June 4-5), will address the financing challenges associated with growing, processing, distributing, marketing, and selling food. This is an opportunity for those looking to better understand financing options available to new and emerging food entrepreneurs. The course will discuss capital investment opportunities from federal, state and local governments, tax credits, loan and grant programs, as well as ways to build partnerships in your arena.

During each session, attendees can raise their hands, ask questions, comment on presentations and take interactive polls. CDFA’s Course Advisor moderates the WebCourse to ensure speaker and participant interaction throughout.

The early bird price is $550.00 for members and $675.00 for non-members and goes up $50.00 after this Friday.

This is a great opportunity to learn about how to catalyze your endeavor and find the type of funding designed for your specific needs.

For more information and to register for the event click here.

Investing Without Zombies

BY MICHAEL “LUNI” LIBES – LUNARMOBISCUIT.COM

The results of an investment (in an early-stage startup) depend not only on the success of that startup, but also on the form of the investment.

A sophisticated investor is going to be nodding right now, thinking about liquidation preferences and other common add-on’s to equity investments. But at the same time, those sophisticated investors likely have a majority of their investments in a state where they are worth somewhere between nothing and a 1x return.  A state often called a “zombie” investment.

The root cause of “living dead” investments is not the high failure rate of startups.  Failure leads to truly dead companies.  These zombies are not only still running, but earning revenues or even profits.

The actual root cause is the traditional structure of equity investments.  Take a step back and look at the assumptions of such deals:

  • Investors buy P% of the startup for $X
  • The entrepreneur uses $X to earn $R
  • If $R is sufficiently large, an acquirer buys the company, returning the investor $10X

This is the basic formula for success as an Angel or venture capitalist.  The problem is that successful investors only see this story play out 1 out of every 10 investments, plus 2 investments with a $5X return, a few more with a $1X return, and 4 or 5 that are total losses.  Unsuccessful investors never see the $10X, and without that, have a loss across their portfolio.

I look at this and wonder why the investment structure is optimized for the least likely case, rather than the most likely case.  Is there not an alternate investment form that boosts the returns of the majority of deals above $1X?

Traditionally, the only other form of investment is debt.  It works for homes, cars, Fortune 500’s and the U.S. Treasury, but traditional debt does not provide enough reward for the risk of early-stage investments.  When debt terms are adjusted for investors, the results are too much risk for entrepreneurs.

Looking around the fringes of the financial world, I found a structure that does work.  Revenue-based financing (a.k.a. Royalty-based financing).  This comes in a variety of forms, but in general it works like this:

  • Investors provide $X
  • Entrepreneurs use $X to earn $R
  • Investors receive Z% of $R, until a total of $2X-$4X is returned

The two main variables here are the percent of revenue (Z%) and multiple of return.  Typically the revenue-share is 3%-9% of “top-line revenues”, a metric that is easy to define and compute.  The multiple is commonly $2X for growth-stage investments, and $3X-$4X for early-stage.

This basic structure provides a few benefits for investors.  First, it provides a built-in “exit”, one that doesn’t wait until the entrepreneur has build up enough value to either attract an acquirer or launch an IPO.  Second, it aligns investor interest and entrepreneurs, earn revenues.  Third, it makes no assumptions about when the revenues will arrive, nor requires negotiation on when to issue dividends.  Fourth, it leaves the company management free to operate in whatever manner they please, e.g. management worries about growth vs. profits.  Fifth, it eliminates “zombies” as either companies are alive and earning revenues, or dead (or soon dead) earning nothing.

In short, it provides a reasonable payment for the use of investor capital, while providing a relatively high IRR (with a big boost of that IRR due to the quicker repayments vs. equity).  Plus this structure boots the odds of at least a $1X return, as the investee begins repayments as soon as revenues are earned.

The drawback?  The upside of the investments are capped.  If the structure asks for $4X, then the maximum return is $4X.  However, there are multiple fixes for this issue: tack on some warrants, or toss in some traditional equity.  Do something that adds back in some of the upside.

I discovered this structure while researching the business model for Fledge.  Fledge, in addition to a business accelerator, is also an investment fund, one that targets “conscious” companies, a market with few exits and few comparables.  Fledge uses RBF for its investments, roughly as described above, and so far after 19 such deals, we think it’s not only the right structure for impact investing, but a potential fix for the broken venture capital market everywhere.

 

USDA Announces New Programs For Small and Mid-Sized Farms

northwest produce boxThere was more good news last week for small and mid-sized farmers with an announcement from Secretary of Agriculture Tom Vilsack about new efforts from the United States Department of Agriculture (USDA) to serve smaller farms.

This includes an expansion of the Farm Storage and Facility Loan Program, which provides low-interest financing to producers.  Since its inception in May 2000, the program has made over $33,000 loans, mostly to large and commodity farmers. The changes to the program will make it easier for diversified small and medium sized farmers to quality.  It also expands how the funds can be used to include produce cold storage and handling, with 23 new categories of eligible equipment including sorting bins, wash stations and other food safety related equipment. The loans will also have less strict security requirements, with loans up to $100,000 secured only by a promissory note. The USDA is also developing new tools to help these farmers and ranchers make better financial decisions when planning for their future, including a whole farm insurance policy that will better meet their needs.

While time will tell how these products perform in the marketplace, it shows a growing recognition among government officials of the importance of smaller, diversified farms.

Funding Available for Northwest Food and Farming Businesses

cff-cover1
We are pleased to announce the opening of the application period for the  Cascadia Foodshed Funding Project.  This project brings together a unique group of foundations and investors who are seeking to create a positive impact through a combination of grants, equity, loans and assistance to food and farming businesses in Oregon and Washington.  Up to five separate investments of between $25,000 and $250,000 are expected in 2014.Candidates for investment should be:
  • located in or provide substantial benefit to Whatcom, King, or Pierce counties; Eastern Washington; or Multnomah County in Oregon;
  • improve measures of health, social equity, family wage employment, and rural community resilience;
  • seeking funding of $25,000 to $250,000.
We will accept applications until February 28, 2014, and deploy funds on a rolling basis throughout the year. All applications will be received through Slow Money Northwest’s Gust portal at https://gust.com/organizations/slow-money (select food/drink as your industry). Your application should include at a minimum:
  1. Your business plan in enough detail to show how this investment will help you succeed;
  2. Financials, past and projected, that match your business plan and funding need;
  3. Your funding need, and how it will help accomplish your business goals; and
  4. A statement of benefit (500 words maximum) describing how your enterprise can help improve one or more of the following impact areas: Health, Social Equity, Family Wage Job Creation and Preservation, Rural Community Resilience, and Ability to Influence Policy.  For more detail on the impact areas,click here.
We will review applications and reply within 30 days with our initial response. Please don’t hesitate to contact us with any questions about the project or application process.
Email: cascadia@slowmoneynw.org
Phone: Japhet Koteen at 206-326-9828.

Raise Your Voice to Help Define “Accredited Investor”

Even if you didn’t excitedly pore over the new SEC rules as we did, you may have read highlights of how they will affect a business’s ability to raise capital. While these rules still only allow businesses to take investments from accredited investors, the SEC is currently accepting feedback on how to define an accredited investor.

Here are the questions they  asked commenters:

  1. us-securities-and-exchange-commissionAre the net worth test and the income test currently provided in Rule 501(a)(5) and Rule 501(a)(6), respectively, the appropriate tests for determining whether a natural person is an accredited investor? Do such tests indicate whether an investor has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of a prospective investment? If not, what other criteria should be considered as an appropriate test for investment sophistication?
  2. Are the current financial thresholds in the net worth test and the income test still the appropriate thresholds for determining whether a natural person is an accredited investor? Should any revised thresholds be indexed for inflation?
  3. Currently, the financial thresholds in the income test and net worth test are based on fixed dollar amounts (such as having an individual income in excess of $200,000 for a natural person to qualify as an accredited investor). Should the net worth test and the income test be changed to use thresholds that are not tied to fixed dollar amounts (for example, thresholds based on a certain formula or percentage)?

This definition and the proposed rule changes will have a direct impact on the startup environment and the work that we do here at Slow Money NW.  Some platform based organizations fear that the changes the SEC is considering will hurt the startup community as they do not take into consideration modern financing models.  AngelList CEO, Naval Ravikant, submitted these comments and recommendations.

Care about the rules surrounding the higher bar that same-sex couples face to make angel investments? This is also an opportunity to have your voice heard on how to make these regulations more equitable.

Questions? Feel free to reach out to us at rachel@slowmoneynw.org.

Seeds of Success Launch

Farmers Alexa Helbling and Nina Sajeske
Farmers Alexa Helbling and Nina Sajeske are saving to buy a tractor next season to expand productions of hogs and chickens.

On February 19th, we enrolled the first class in our Seeds of Success program. Eight new farm businesses from around the region opened their Individual Development Accounts at One Pacific Coast Bank and made their first deposits.

Each participant has either completed, or is currently enrolled in a business training or internship program to help them build the skills and networks they need to succeed in their enterprise. Over the next year, these new farmers will work with mentors, instructors and peers to develop and improve their  business plans and identify equipment, stock or land needed. Once they reach their savings goals, they are able to use those funds along with their matching dollars for the purchase the asset they’ve identified as key to their success.

This program relies on the expertise of the instructors at Cultivating Success, Seattle Tilth Farmworks the supportive community of new farmers, and the generosity of the donors who provide the funding to match our participants’ savings. We’d like to give a special thanks to Northwest Farm Credit Services and all the individual donors who have contributed so far.

We experienced such an interest and enthusiasm for this program from young farmers across the state, we would like to launch our next class this year.  We have funding to support the operations, but we need your help to fund the savings match. If you’d like to support the program, please click here. Every dollar you donate will go directly to the farmer in the form of a business-building asset, with a clear, concrete plan on how to use it.  No waste, no fuss, just helping farmers grow healthy local food to feed the next generation of Washingtonians.  For sponsorship and donation information, please contact Japhet Koteen.

Rockefeller Reports

The Rockefeller Foundation has been investigating the Social and Economic Equity in US Food and Agriculture Systems. As part of this work they have generated a series of intriguing reports with the most relevant beingBridging the Gap: Funding and Social Equity Across the Food System Supply Chain. As explained at their website, “This report examines the current state of funding for addressing the problems in the food system and promotes the goals and the vision for a healthier food system. It analyzes where capital is flowing and where it is not flowing, and what kinds of approaches are needed to increase the flow and effectiveness of capital where gaps currently exist. RSF Social Finance, a Slow Money ally, managed the report. View the report …

Job Opportunities at Angelic Organics

carman

Angelic Organics, a farm incubator and training program in Caledonia, Illinois, has two openings for motivated organic farm professionals.

Half-time Farm Finance Program Coordinator to help beginning farmers improve the economic viability of their farms through increased access to capital and financial products as well as supporting farmers in building business and financial management skills.

 

Go to http://www.learngrowconnect.org/ for more information and to apply.