Christina Oatfield: After the 2008 economic recession, banks were more conservative about lending and the general public was more aware of the flaws in our financial institutions and related regulations. Since then, small businesses, start-ups, nonprofits, investors, and ordinary folks with modest savings have shown growing interest in fundraising strategies such as crowdfunding, crowdinvesting, direct public offerings (DPOs), and community capital. These strategies all involve raising money from a large number of supporters, through donations or investment dollars from the business owner’s friends and family, customers, and members of the broader community who want the business to succeed. Community members who have a personal interest in or see the value of a local business are often willing to take more risk or a more modest return on their investment than would a financial institution or investment professional who seek to maximize profits above all else. This is just one reason why beginning farmers might find community capital attractive.
So we keep pondering community investing as a capital-raising strategy for farmers, ag. co-ops, and other food and farm enterprises, especially beginning farmers who often strive to implement sustainable agricultural and fair labor practices.
Although “direct public offerings” and other community investment campaigns have successfully raised capital for many community-based food enterprises including grocery co-ops, restaurants, artisan breweries and creameries, they are less common among farm enterprises. These strategies work well for local food businesses because, for one, people who don’t think much about investing often feel a strong personal connection to their local cafe, eatery, or grocery store and will invest in a local owner’s business because of that connection. Most people have less connection with their local farm.
We don’t actually know of many agricultural enterprises that have successfully raised money directly (not through a national or global exchange) from the public in California recently. One example is Farm Fresh to You, a multi-farm community supported agriculture (CSA) business that operates multiple farms, and aggregates produce from many more farms, to deliver organic produce boxes to consumers throughout California.
So why aren’t farmers and agricultural cooperatives using community financing options more? We’re not really sure but we have a few guesses. One is that farming is a ton of work even and crowd-financing campaigns are also laborious. It might just be too much for one or a few beginning farmers to do both simultaneously. Another guess is that it may be more difficult to raise capital from the community in rural areas where people are more spread out. Another issue is likely rural poverty. There may be other reasons. In any case, we’d like to find out if community investment campaigns have the potential to transform financing for the beginning farmers of today and tomorrow.
What types of agricultural enterprises or farmers might be good candidates for community investment campaigns? Here’s a list of indicators:
- Farm enterprises seeking to raise roughly between $200,000 and $1 million for purchasing land, equipment, supplies, or for working capital;
- Farmers with experience in farming who can instill a sense of confidence in prospective investors;
- Farmers committed to organic, diversified, pasture-grazing, and/or other sustainable farming practices;
- Farmers who are active in the community and well-connected to their customers (i.e., through sales at farmers’ markets, CSAs, or on-farm tours and events);
- Farmers who are enthusiastic about the idea of asking their customers and community to become investors in their farm business;
- Farmers who can develop a clear and concise business plan, either working alone or with a business advisor;
- Farm enterprises seeking growth capital over a 2 to 3 year period (because community investment campaigns take some time to plan and execute they are not suitable for urgent funding needs);
- Farmers with strong communication skills. English fluency is not essential, but farm enterprises need at least one one person who can communicate, orally and in writing, in a compelling way about the business); and
- Farmers dedicated to the farming enterprise for a long period of time.
Like what you read here? See our Grassroots Finance page for more about what we’re up to and sign up for our newsletter here to get updates in your inbox. Also, coming up September 10 through 13 is the annual ComCap Conference in Monterey, California where members of the Law Center’s staff will be speaking along with other thought leaders, movers, and shakers in the community capital movement.
Photo by gmtbillings