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Buzz in the Press
The Sustainable MBA
by Elizabeth Ü
Slow Money: Funding Sustainable Food Companies
Founded in 1992, Investors' Circle (IC) is the only national network devoted specifically to investing in early-stage companies and funds that are working to solve major social and environmental problems. Over the past 14 years, the IC network (consisting of high net-worth individuals, professional venture capitalists, family offices, and foundations) has invested an impressive $18.8 million into food and organics companies alone.
I first found out about IC in the summer of 2004. As interns with the Interra Project, a team of Presidio MBA classmates and I were mapping out food businesses and food-based community organizations in the San Francisco Bay Area. We connected with IC because of a shared interest in the success of sustainable food ventures. A few months later, I signed on as an intern with IC, helping with their food & organics program; they hired me as Program Officer when I graduated last June.
The food companies that come through Investors' Circle seeking venture capital address social and environmental issues in a variety of ways. Many purchase certified organic ingredients for their products. Some, like Wholesome Harvest, are owned (in whole or in part) by family farmers, while others (like Organic to Go) use their purchasing power to encourage large food distributors to carry local farmers' produce. Several companies in our mix (Guayaki Sustainable Rainforest Products, for instance) adhere to fair trade principles when sourcing from overseas, while others (such as Niman Ranch) sell meat produced from humanely raised animals. The list goes on, with still more companies promoting women's health, healthy weight management, reduced pollution, nutritious options for babies, and even organic pet food.
As inspiring as their myriad missions may be, however, many socially and environmentally conscious food entrepreneurs find themselves in a difficult spot when it comes to finding appropriate funding for their values-based ventures. Without return projections resembling those in, say, the technology sector -- who if not farmers understand that an ever-increasing growth rate is not sustainable? -- many food companies do not meet the requirements for venture capital from traditional sources. Even with a sound business plan and a strong management team, the majority of angel investors and venture capitalists are unfamiliar with the food industry, making them even less likely to invest in this sector. Add a non-traditional ownership structure (such as Organic Valley's farmer-owned cooperative) or a model where a percentage of profits are donated to charity (à la Pura Vida Coffee), and you can see why financing might pose a challenge.
As for-profit enterprises, such ventures do not qualify for philanthropic dollars, either, though there are a few USDA and HUD grants available for some businesses.
In 2004, fueled by a three-year grant from the WK Kellogg Foundation, IC launched the Slow Money Project in an attempt to explore the funding gap between venture capital and philanthropy. Slow Money aims to encourage more investors to fund early-stage food companies that are part of a sustainable food system. The term "Slow Money" is a nod to the Slow Food movement, which values sustainability, cultural and biological diversity, artisanal food production, pleasure and quality in everyday life, inclusiveness, authenticity, and integrity.
At the start of the project IC surveyed food company investors to identify ways to encourage venture-capital investment. The results revealed that investors would be more likely to invest in food companies if there were:
more food investment opportunities,
professional due diligence process to evaluate companies, and
more technical assistance provided to the companies themselves.
We’ve circulated a concept paper for a Slow Money fund to our most interested members, and will be seeking to determine the feasibility and principle design elements of such a fund during the remainder of 2006.
In the meantime, we’ve been working diligently to increase the funding available to food entrepreneurs through the channels that already exist at IC. We put on two venture fairs each year, each of which includes a discrete group of food companies. Over the past two years we’ve hosted several half-day workshops for a wide range of stakeholders in the food industry to focus on the unique challenges and opportunities of investing in sustainable food companies.
We’re encouraged by the tangible results of our efforts thus far. During the first two years of the Slow Money project we’ve recorded a remarkable surge in the number of investor dollars going into food and organics deals: Over $3.4 million has been invested to date in eight of the 15 food and organics companies that presented at IC’s 2004 and 2005 Venture Fairs, with an additional $975,000 in expected investments pending.
If you have ideas about how to increase access to funding for mission-based food companies, we welcome you to join the conversation. On May 12, during our Spring Conference in San Francisco, IC will host a gathering of growers, food entrepreneurs, investors, nonprofit representatives, and philanthropists to discuss Slow Money and other innovative ideas at the nexus of venture capital, social investing, for-profit social enterprise, and philanthropy. For more information, please visit the IC Web site. I hope to meet you there!