Community INVESTED in Sustaining Agriculture: Building the Network for Investment in a Local Food System
Financing the start-up or expansion of farm and food businesses is an important hurdle in creating more robust local and regional food systems. In Massachusetts’ Pioneer Valley, the groundwork has been laid to direct millions of dollars to farm and food businesses by allowing thousands of consumers to invest in the same companies whose products they already enthusiastically buy. In this project, CISA and Pioneer Valley Grows (PVGrows) will work together to create an implementation plan for a “community capital” fund. At the same time, CISA will partner on an ongoing effort to connect higher-wealth investors directly to farm and food businesses in need of equity investment. Since 2008, PVGrows, a collaborative network dedicated to enhancing the ecological and economic health of the Pioneer Valley food system, has worked to create new vehicles for food system investment. These include a $750,000 pilot loan fund and a network of equity investors, created and managed by an ongoing collaboration between nine organizations. These successes have set the stage for creating something which does not yet exist in the United States—a ten-million dollar, place-based community capital fund pooling resources for investment in the local food system. A fund of this scale would lead to thousands of new jobs and a significant increase in the self-reliance of the local food system. Funding from SARE will support the continuation of the collaborative planning process already established by the project partners, resulting in the creation of a detailed implementation plan and supporting documents.
PVGrows partners are actively planning for the creation of a community loan fund, which would include investment dollars from a large number of small investors as well as large investments from accredited investors, foundations and lenders. This project’s objective is to facilitate and support the intensive planning and decision-making by the diverse partners in the PVGrows Loan Fund. This work will result in a clear implementation plan that describes the critical design features of the community capital fund.
In addition, we will accomplish related activities, including support for the PVGrows Slow Money group, documentation of the loan fund structure and process, and communication about investment and financing with peers and farm and food business owners.
We have made good progress towards these objectives, summarized in the Accomplishments/Milestones section, below.
Activities to date:
- Plan, convene and facilitate monthly meetings of the PVGrows Finance Working Group to create community loan fund implementation plan.
The PVGrows Finance Working Group and its subcommittees have held regular meetings to manage the existing PVGrows Loan Fund and to plan for the new larger fund.
- Identify additional resource people with specific expertise willing to work with Finance Working Group on creation of the implementation plan.
On 1/8/13, the nine members of our Finance Working Group held a meeting at which we asked nine outside advisors to review our plans for the new community capital fund. Advisors warned that the goals of the fund, particularly the combination of accredited and unaccredited investors, are ambitious and unusual. These advisors have continued to provide input as requested.
- Build key partnerships with other local and regional financing efforts, such as the Fair Food Network, to share expertise and resources.
We have developed a good partnership with the Fair Food Network to provide business assistance funds to businesses expecting to need financing from the PVGrows Loan Fund. The cost of business assistance services is subsidized up to $10,000, with business owners generally required to match between 25 and 50 percent of the cost of the consulting services received. To be eligible, businesses must be based in the Pioneer Valley (Franklin, Hampshire, Hampden Counties) and be engaged in aggregation, storage, distribution, processing, marketing, information technology, or other means of supporting farm viability in the Northeast. Preference is given to established enterprises. Business assistance funds have been awarded to three businesses.
We have also continued to communicate with the Carrot Project, which also provides loans to farm businesses in our region. We are discussing ways to use their expertise in small-scale loans to farm businesses in the design of our new community capital fund.
Both the existing and the planned PVGrows funds operate through partnerships with existing lenders, which provide a portion of the loan funds, as well as offering business assistance and loan review and underwriting services.
- Create detailed “Request for Proposals” for an administrative partner for the new community capital fund.
The RFP was created and applications received and reviewed. Although we anticipate that the new loan fund will be administered by one organization, there are roles for additional partners to manage sub-funds or to take the lead on certain loans. Both new and current PVGrows Loan Fund partners have expressed interest in these roles. The interest and expertise of loan fund partners and respondents to the RFP have led us to create a process for providing microloans, loans related to farmland access, and loans related to providing food in underserved communities with strong support from partner organizations.
- Draft Memorandum of Understanding with loan administrator.
We have created a draft Memorandum of Understanding and are now discussing it with the proposed administrative partner.
- Strengthen marketing and outreach for existing loan fund.
The existing PVGrows Loan Fund serves as a pilot for the new community capital fund. However, the number of completed applications to the fund was lower than expected, at least in part because the fund began at a time when many businesses were reluctant to take on additional debt. The low number of applicants led to discussion about whether or not financing is the most significant barrier to growth in local foods businesses or whether different types of financing, not offered by the current fund, are needed. Increasing the number of applicants to the fund was determined to be important in order to utilize the funds available to build local foods businesses and to increase our practical experience with the process of making loans as a partnership. During the fall of 2013, we revamped our marketing materials, increased our outreach, and focused on follow-up with businesses that have inquired about the loan fund. Since then there has been an approximately 40% increase in the flow of inquiries and applications received.
- Support work of the PVGrows Slow Money Working Group.
The PVGrows “Slow Money” Working Group provides a mechanism for connecting interested investors with individual farm and food businesses. We anticipate that it will serve as an important complement to the community loan fund. The Slow Money group includes individual investors, money managers, and business owners. They have met monthly, more frequently than anticipated. They are planning an “Entrepreneur Showcase” on January 28, where six local entrepreneurs will explain their business plans to local investors. The Slow Money group will offer coaching to the entrepreneurs in preparation for their presentations.
- Provide documentation of the loan fund development process and of related tools, if possible. Ensure that documentation is useful to other organizations interested in community financing initiatives and to businesses that may need financing.
- Project advisor Michael Shuman of Cutting Edge Capital completed Creating a Community Investment Fund: A Local Food Approach, Version 1.0. Although this document was not created using SARE funds, it provides documentation of the PVGrows loan development process.
- CISA has nearly completed a case study of the community investment campaign mounted by Real Pickles, a Greenfield, Massachusetts business. The company made a transition to worker ownership designed to ensure their long-term commitment to stay small, locally-owned, and mission-driven. They funded the co-op’s purchase of the business through a highly successful community investment campaign that raised a half-million dollars. An executive summary of the case study can be found here. The PVGrows Finance Working Group and Slow Money Working Groups provided guidance and advice on this process.
- A new summary of options for community investment in local food is available on CISA’s website.
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