FREE Course:

startupWant to take your business concept to the next level? Working with our colleagues at the Center for Inclusive Entrepreneurship, Fledge and Kick, we’ve become great believers in the lean startup approach. Lean companies test their markets and develop their customer base by providing a limited offering, assessing the feedback from real market forces, and adapt their approach based on what they learn.  This makes a failure less catastrophic, and efficiently identifies successful approaches with the smallest possible investment of capital up front.

As a serial entrepreneur, and author of two well known books on entrepreneurship, The Four Steps to the Epiphany, and The Startup Owner’s Manual, Steve Blank shares his knowledge in his free course titled Lean LaunchpadThe key idea in this course is learning how to rapidly develop and test ideas using real life customer and marketplace feedback. Students will learn how to get out of the (virtual) classroom and identify unmet needs of their customers. Armed with accurate market data and customer feedback they can build more successful business models. Learn more and sign up here

11 Questions with Local Investor Jean Johnson

DSC02486_2Jean Johnson is a member of the Seattle Impact Investor Group and an investor in the Local Food Fund. She and her husband, Peter Miller, are co-owners of Essential Baking Company, the region’s largest organic commercial baking company. She considers herself a relatively new impact investor and recently sat down with Slow Money NW to talk about what she has learned and her experience as an impact investor and with the Local Food Fund.

 

How long have you been an impact investor?

I first heard the term impact investing at a philanthropy workshop in San Francisco in the fall of 2012. It was introduced as a philanthropic tool, a way to blend my philanthropic goals with our investment interests. When I returned to Seattle, my husband and I connected with the Seattle Impact Investing Group, which was just forming at the Hub.

That said, my husband and I had made several impact investments for years, mostly at the micro scale, but weren’t using that term. We felt driven to move beyond the traditional investment models of giving our money to a big institution’s fund and mostly ignoring it. For example, we made a small loan to Lumana for a tomato cannery in Ghana which was repaid with interest.

Why do you make impact investments?

Impact investing has allowed me to merge my values with my financial interests. Rather than thinking in terms of creating assets in one part of our lives so that we can give away a certain percentage of those assets through philanthropy, impact investing merges the two. My investments now can be an extension of my values.

I also love getting to know the businesses I invest in and imagining how they can change and grow. There is a lot more meaning in that than the paperwork I receive in the mail updating me on my traditional investments.

Why food?

Food is the nexus of a lot of our interests and a way to frame what we were already doing but felt scattered. Taken broadly, food can be an environmental play or a social justice play. Also, as co-owners of Essential Baking Company, organics specifically and food generally have been long-term passions for us.

People and organizations are throwing around the phrase “resilient regional food economy.” What does that mean to you?

For me, a resilient regional food economy creates space for small and medium growers to make a living while creating distribution channels that allow for food to be delivered throughout the economy, so that everyone in the region has access to that fresh local food. Farmers and the community benefit through increased economic activity, improved health outcomes, and farmland that is saved from development.

You mention that you consider yourself a new impact investor. How have you educated yourself to learn more about the space?

A lot of reading! The Stanford Social Innovation Review has a number of great articles, including a series by Paul Brest, the former head of the William and Flora Hewlett Foundation. I also recently took an online finance class through Coursera, and plan to look for other courses that will give me the vocabulary and understanding to evaluate prospective investments.

I’ve also learned a lot through my participation in Seattle Impact Investing Group, especially through doing due diligence for the Local Food Fund.

What did you learn from participating in the Local Food Fund?

I learned that it is really hard to say no. There are a lot of great companies out there, creating social change through their businesses, but we couldn’t invest in them all. Working with other members of the fund was a fantastic process. The group had a high level of compatibility and came to decisions easily. There was an unusual openness in seeing all questions as valid, which made it a learning experience for everyone.

I also was surprised to learn that business and investment decisions can be creative and interesting. Previously, I had avoided the field, assuming it was uninteresting and dry. Instead, I found much of the decision-making process fascinating and came out of the experience wanting to learn more so that I could make more educated decisions.

How has it affected how you’ll approach other deals?

Before I participated in the SIIF round, I thought of impact investing as being just a shade removed from philanthropy. My attitude was to view return as almost optional — icing on the cake. I did not pay much attention to due diligence and the potential for return. The SIIF process made me realize that in order for this sector to grow and attract investors, it has to work on both sides of the equation; you can adjust the returns on the financial and impact sides, but both need to be there.

Where do you see the industry evolving? Where is there room to grow?

There is a huge rush into the field, and a need to sort out what is true impact investment and what is impact investment light. What we really need are new investment vehicles and investment advisors who see them as a viable option.

What do you look at when you consider investing in a company?

Of course I look at all the same things as making a regular investment, but I also want to see that the company’s mission and values are essential to the company’s operations, not just an added layer. Leadership is also really important. I have to believe in the team that is running the company.

 Beyond the group investments from the Fund, were you inspired to make additional loans to those who weren’t selected as part of the final 3? Why?

Yes, we made additional investments in two businesses and are maintaining contact with several others that we may invest in when the time is right.

One of the businesses, Our Table, has a leader who brings his high tech business experience to the field of sustainable agriculture. He spent years looking at the industrial agriculture system and how to disrupt it. The investment is risky, but it has the potential to prove a completely new cooperative structure that connects consumers to their food.

What advice do you have for other investors?

Don’t overthink it – just start. Just take a small amount and do something because the learning is in the doing. Figure out what you have to invest, talk to other people who are doing it, and find out how you can get involved.

The Health Enterprise Development Initiative Launches!

The Health Enterprise Development Initiative has officially launched! Participants were selected through an online, competitive process and include Delridge Grocery Cooperative, Fresh Bucks NW, Hadar Iron/In Ferment, Humble Pie, Little Gray Farms Escargot Farm, Project Feast, Seattle Tilth Good Food Bag, and That Brown Girl Cooks. John Gardner, Dean and Provost at Bainbridge Graduate Institute, had this to say about the group: “If these nine burgeoning businesses are any indication of the ingenuity, determination, and passion of other out across the region, we have much to look forward to in our future food and agriculture.”

The entrepreneurs are meeting today for their second person session and will be learning . Thus far participants have learned about the history of the food system with John Gardner, how to market to retail locations from Tony D’Ofrio, and have received feedback on their pitches from Luni Libes, founder of Fledge. The last in person session will be Tuesday, May 27th and will feature final pitches that will be open to investors.

Are you a business hoping to participate in future sessions? Stay tuned for details about future sessions.

5 Questions with Joe Dobrow, Author of Natural Prophets

Joe Dobrow, is a 20-year veteran of the natural foods industry and recently wrote a book called Natural Prophets that chronicles its rise and its pioneers who re-wrote the playbook for small entrepreneurs. Next week Dobrow will be coming to Impact Hub Seattle to talk about his book and host a food entrepreneurship panel and strategy slam. Tickets are just $9 and are available on Brown Paper Tickets.

Tell us about your book.

Natural Prophets is an entrepreneurial history of natural foods industry.  Few industries have been as influential and yet there has not been much written about it. It’s an entertaining history that is not very well known. We are lucky that this industry has grown up over our lifetime so we can hear directly from its pioneers.

I began my research to understand how these prophets were able to be so successful. Many of them were high-minded idealists, well meaning but honestly clueless. Despite steep odds, they survived and created a $100 billion industry that influences what we eat, where we shop, and have influenced other industries to be much more transparent.

You’ll be at Impact Hub next Thursday for a fun and unique event. What should attendees expect?

We will be feeding people’s stomachs and imaginations so come hungry!

There are two parts to the event.  One is a panel discussion with entrepreneurs who have built this industry in the Pacific NW.  The panelists will be from Theo’s Chocolate’s, Sahale Snacks, and Nature’s Path. This area has been a real center for food entrepreneurship and we have a lot to learn from them.

The second part will be a strategy slam. Companies will have 5 minutes to pitch their business plan.  Some of these companies are new, and some and some are well established but making some big changes to their business plan.  The panel and audience will have the opportunity to ask questions and weigh in on how innovative they are and how well they adhere to the philosophy of the triple bottom line

What inspired you to organize such an event?

Old style book events don’t work anymore. Traffic at bookstores is down – and you can’t autograph e-books! My background is in marketing so it was second nature for me to create a new type of event. Because this is a niche story, I wanted to get out into the community to find people who are interested in the topic and create an experience that is not so much focused on the book, but focused on the industry.

Joe DobrowWhat excites you about coming to Seattle?

Seattle’s hometown industry is entrepreneurship so it made sense to have an event that highlights entrepreneurs and put in a place like Impact Hub.  Seattle also has a very lively food entrepreneurship community. Having traveled across the country, I can say without reservation that there is something very unusual about it.

There’s extra significance for me personally as I’ve worked here in Seattle.  In 1999 as the head of marketing for Whole Foods, I was very involved in opening our first store here on 64th and Roosevelt.  There was a lot of nervousness about how we would be received as an outsider but the community welcomed us. It was one of the most exciting and satisfying store openings I’ve ever done.

What advice do you have for today’s food entrepreneur?

Patience and persistence is key.  This is really timeless advice and we can look at previous generations to see how it helped them. Stonyfield Farms was in business for 9 years before they turned a profit. Gary Hirsberger talks about his “hopeless infinite naïveté” that kept him going. He was constantly borrowing money from his mother in law and robbing Peter to pay Paul until he could find acceptance and scale that would eventually feed the growth of the company. Today it’s hard to imagine going 9 years without a profit and it may not be necessary, but having that patience and persistence is one of the eternal formulas for success.

The second piece of advice is more timely. As an experienced marketing professional, I want to tell you that social media is not enough. I hear from so many startup companies that don’t have a marketing budget and are relying on facebook and instagram, sadly overestimating the reach and impact they have. You still need to do the hard work of building a brand and building your marketing infrastructure. We need to think in more than 140 character chunks about how to reach our customers and how to understand their consumption habits.

 Event Details
Where: Impact Hub Seattle, 220 2nd Avenue South
When: Thursday, April 3rd from 5:30pm-7:30pm
Tickets: http://www.brownpapertickets.com/event/600850

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.

 

WSU’s Farm Recordkeeping Workshop Will Help Keep you in the Black

Seeing the results of farming decisions often takes months, if not years. Good recordkeeping helps farmers capture this data so they can make decisions based on reality, not just hunches or memory.

If you are just starting to farm or would like to learn how to keep better records, join experts from Northwest Farm Credit Services and Moss Adams on Saturday, April 5th for a recordkeeping workshop. They’ll teach participants about three systems, including paper records, basic computer and paper, and Quickbooks.

To register, visit the Brown Paper Tickets site or download the form and mail it with your check. For more information on the course, contact Holly Thompson at hollynthompson@wsu.edu.

Where: WSU Snohomish County Extension’s Cougar Auditorium, 600 128th St SE Everett

When: Saturday, April 5th from 9:00am to 3:00pm

Cost: $40 per farm, which includes 2 lunches; additional meals are available for $10 each

New Publication Helps Farmers Navigate USDA Microloan Program

Farmers confused or overwhelmed by the United States Department of Agriculture (USDA) Farm Service Agency’s (FSA) new Microloan program process are in luck: the Farmers’ Legal Action Group (FLAG) recently relFLAG Publicationeased a guide, Farmer’s Guide to the Farm Service Agency Microloan Program.

This guide walks readers through what to expect when applying for microloans, paying off the loans, or dealing with any repayment problems. It also provides information on creating and following a farm business plan and how to appeal a denial of an application.

Many farmers who apply for the microloan program have never taken out a loan for their farming operations either because they  recently grew to a size that cannot farm without operating credit, or because they have been unaware that credit was available at this smaller scale.  This new program, revised in January 2013, makes loans up to $35,000 to farmers for farm operating expenses.

The publication is available free for download on the FLAG website or hardcopies can be purchased for $12.50 each plus shipping by calling their office at 651.223.5440.

New Mobile Poultry Processing Capability in Puget Sound Region

ATTENTION Pastured Poultry producers (and those raising rabbit, waterfowl, game birds, etc.),

Exciting NEWS!!! NABC is currently having a state of the art Mobile Poultry Processing Unit (MPPU) built to serve the needs of all commercial scale producers in Whatcom, Skagit and Snohomish Counties as well as larger scale producers in King, Island and San Juan Co. The MPPU will be fully staffed with experienced operators emphasizing food safety and efficiencies to provide each producer with the highest quality product at a reasonable cost. The Unit will be equipped with the best available equipment to achieve a humane kill using a stun knife, effective scald and pluck, followed by evisceration in shackles (to avoid cross contamination), an organically approved anti-microbial dip (lactic acid), and air-chilled for top quality and the safest end product. In addition the MPPU will be offering custom cutting of product, vacuum packing, and professional, custom labels for each producer (with farm logo & name).

Once the MPPU is operational (estimated to be by late May), producers will be able to schedule services online through the NABC website. You will be able to choose your processing date, provide cutting and packaging specifications and be assured that all of your needs will be professionally met. You can specify how many birds you want packed whole, or choose the number to be cut in halves, or packed as breasts, legs & thighs, wings, and soup packs. Chicken feet and livers can also be specified, as well as gizzards and hearts if desired.

Each producer must obtain a WSDA Food Processor License, http://agr.wa.gov/FoodAnimal/FoodProcessors/, (only $55 annually) which will require a source of potable water. In addition, each farm must provide on-farm composting for offal, have a 220 V power source in proximity to the processing area, potable water, a receiving area for waste water (a suitable pasture or other well drained area that will not pollute a water supply or stream), and a level paved or graveled parking area for the 26’ MPPU to operate.

The cost for services is subject to change, but the objective is to provide for a cost effective infrastructure to serve the processing needs of producers while supporting the profitability of their enterprise. Since producers will be paying for the operating overhead of the MPPU the cost will include mileage, staff time, a share of depreciation and insurance, and the cost of materials and supplies. At this time it is estimated that a producer with 150 birds to process per batch including, for this example, 90 miles round trip travel, cutting-up, packaging and custom labeling all product will be paying approx. $3.60 per bird. Clearly fewer birds would cost incrementally more and a greater number of birds would cost less per processed package. Aside from providing for the WSDA Food Processor License as outlined above, the producer is only responsible for delivering their birds to the back of the Unit and, some hours later, picking up their finished product at the front door of the Unit, ready to sell!

Producers will be able to sell fresh or frozen product depending on the requirements of their market. They will, of course need to provide refrigerated and/or frozen storage capacity, but the legalities and safety of product storage will be covered by their Food Processor License.

NABC is offering a Poultry Production Workshop, repeated on three consecutive Mondays, specifically geared toward those producers that intend to utilize the services of the MPPU. Please see below or the attached flyer to register at: www.agbizcenter.org, Classes and Workshops under Business Services. Shortcut: http://www.agbizcenter.org/business-services/classes-and-workshops, scroll down to the specific workshop date that you wish to register for.

NOTE: Timely Workshop registration is URGENT! Please sign-up NOW… If we don’t get an adequate response we will need to postpone these workshops and then we’ll be into your busiest spring season creating further challenges for your time.

Pastured Poultry Production Course

DATE: Repeats on three dates:
March 10 ( Skagit Farmers Burlington Main Office)
March 17 (WSU Snohomish County Extension)
March 24 (WSU Whatcom County Extension)
TIME: 9:00 am to 1:30 pm

INSTRUCTORS: Drew Corbin – WSU Snohomish County Extension, Chris Benedict – WSU Whatcom County Extension, Harley Soltes – Bow Hill Blueberry Farm, Fred Berman – NABC, Sera Hartman – NABC
FEE: General admission: $55
Workshop materials included.
***Pre-registration is required.

This workshop is for both current producers considering scaling up their production and those investigating entrance into this promising sector of the poultry industry. Presenters will discuss how to safely, profitably, and legally raise meat birds. Learn about the pros and cons associated with raising meat birds and how to effectively evaluate the enterprise before getting started!

Topics include:

  • Breeds – select the best fit
  • Chick sourcing and creating an on-farm hatchery
  • Husbandry tips for commercial-sized production
  • Poultry nutrition overview
  • Building a healthy pasture
  • Risk management, licensing, and processing requirements

Comprehensive classes to provide the tools and know- how necessary to develop and launch a new value- added product into the market place! Want to learn more? Contact the NABC office:

Phone: 360-336-3727

Email: info@agbizcenter.org or visit their website at: www.agbizcenter.org

New Report Highlights Opportunities to Increase Farm to Institution Investment

King County hospitals, schools and childcare facilities are currently spending an estimated $75 million on food purchases, and engage almost all of the county’s 116,000 low-income children at least once a day. Yet most of this food comes from outside of Washington state.

Recognizing this as a major opportunity for regional farmers to increase their sales and to combat childhood obesity, Robert Wood Johnson Foundation convened a collaborative project last spring to research how to increase the consumption of healthy, Washington grown food in King County institutions.

trayThe research provides a market analysis of King County institutions and the food production industry, assessing the challenges and opportunities for each market segment. It looks at how to align financing, proposing potential funding mechanisms and partnerships as well as technical information to help stakeholders effectively engage.

The final report, Farm-to-Institution Strategies: Impact investing in health and economic development through the value chain of healthy regional food in the Puget Sound region, is now available for public download. If you are a farmer or practioner, you will find data to support finding investments or grants for your work.  If you are an investor, you will find supply and demand data and a sample portfolio of deals to determine how to effectively target your money.

For more information about the project and highlights from the report, visit Cascade Harvest Coalition’s website.

The Farm-to-Institution Strategies report is part of a collaborative project involving the Robert Wood Johnson Foundation, Cascade Harvest Coalition, Slow Money Northwest, Public Health – Seattle & King County, Washington State Department of Agriculture Farm-to-School Program, Health Care Without Harm, Northwest Agriculture Business Center, Viva Farms, FareStart, Kent School District, UW Medical Center, Virginia Mason Medical Center and Puget Sound Educational Service District (PSESD) Educare Early Learning Center.

 

Apply to Grow Your Business with HEDI, a New Accelerator

Interested in growing your food-related non-profit or for-profit organization? Apply to participate in the inaugural class of  The Health Enterprise Development Initiative (HEDI), a training program for entrepreneurs with the mission of promoting healthy local food systems.

HEDI LogoThis enterprise accelerator will meet in-person four times across 11 weeks, and online in the intermediate weeks.  Selected entrepreneurs participate in a rapid development course in Sustainable Food & Agriculture and Sustainable Business, based on and taught by instructors from the Bainbridge Graduate Institute, plus materials from the Entrepreneurship programs of The Center for Inclusive Entrepreneurship and Kick. Through connections to mentors, MBA students, and financing organizations, they will better understand how to build a financially sustainable business and how to secure funding. See the full curriculum here.

Applications are due by February 14th.

HEDI is a collaboration between the Bainbridge Graduate Institute, Public Health Seattle King CountySlow Money NorthwestKick (the “inclusive” incubator), and GPS Capital Partners. It is funded by Public Health Seattle King County and private funders.