Investing in Your Community
Could I invest in local food?
Most of us don’t think of ourselves as investors. But if you have money in the bank or in retirement savings, it’s invested somewhere. Could some of that money help grow local food businesses in your own community? The short answer is yes. Fortunately, local efforts are changing and some new options put the dollars saved by individuals to work building the food system of our future.
How can I invest in the Pioneer Valley food system?
The Pioneer Valley Grows Investment Fund, Inc. (PVGIF) provides financing and technical assistance to local farm and food businesses through community investments. PVGIF offers an investment vehicle for individuals, institutions and foundations to invest in building a healthier food system. Investments made in PVGIF are pooled together to provide the financing that farm and food entrepreneurs need to grow their business.
- The Community Investment Pool– Notes are for 5-year terms that will pay an interest rate of 2% per year. The minimum investment is $1,000, and the maximum investment is $10,000. If the Community Investment Pool experiences losses, all or a portion of those losses may be covered by the Risk Capital Pool, as described below.
- The Patient Capital Pool– Notes are for 8-year terms that will pay an interest rate of 4% per year, but subject to the performance of this pool. The minimum investment is $10,000 and the maximum investment is $250,000, open to accredited investors and other qualified investors. Any losses in this pool will not be covered by the Risk Capital Pool, as described below.
- The Risk Capital Pool – $100,000 in PVGrows Risk Capital Notes have been fully funded. This Pool is for Foundations only and is intended to serve as a loan loss reserve for the Community Investment Pool. This Pool will be used to cover (in whole or in part) any losses on investments made in the Community Investment Pool for the first five-year term.
Together, we can all work to strengthen and grow the local food economy – more vibrant farm and food businesses, more local jobs, and more access to healthy food in the Pioneer Valley.
The PVGrows Investment Fund also supports Slow Money Pioneer Valley, a working group of PVGrows, which works to catalyze relationships between farmers, food entrepreneurs, supporters and investors to invigorate the local food system. Slow Money Pioneer Valley hosts an annual Entrepreneur Showcases in which farm and food entrepreneurs present their projects to a room full of investors and food system supporters. If you prefer to invest directly– either via a personal loan or through purchasing an equity share in the business– attending SMPV events or reaching out to SMPV directly can help match you to business owners seeking capital.
Other Pioneer-Valley based loan funds also accept investments from non-accredited investors (see definition below). Equity Trust, in Amherst, works nationally to protect farmland and retain long-term, affordable access for farmers. Common Capital, in Holyoke, recently launched the Community First Fund, that provides loans to western Massachusetts small businesses, including but not exclusive to food and farm businesses. In addition to these western Mass focused investment opportunities, the Cooperative Fund of New England, provides necessary and affordable financing to cooperatives across New England and Eastern New York State.
Complementing these local capital providers, individual businesses sometimes offer investment options directly to the public. Greenfield-based Real Pickles made a transition to a worker-owner cooperative model 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. See CISA’s case study of the Real Pickles investment campaign.
Following the model of Real Pickles, Artisan Beverage Cooperative, also located in Greenfield, launched a direct public offering open to Massachusetts residents to help further grow their business. In addition, Wellspring Harvest of Springfield recently launched a direct public offering to build a hydroponic greenhouse and agricultural education center.
What kind of financing is needed?
Anyone starting or expanding a business needs to get financing from somewhere, whether it’s personal resources, family members, credit cards, community-based lenders like Community Development Corporations (CDCs), local banks, or investors. Financing allows a business to cover start-up and operational costs until revenues begin flowing in. To be eligible for financing, a business needs to prove to lenders or investors that it is likely to succeed, and often must provide capital sources with either collateral (to protect against borrower default) or equity (a partial ownership stake in the business). Riskier business models need to find sources of capital that are willing to accept a higher level of risk.
Existing financing options for local foods businesses in the Pioneer Valley include government agencies, banks, and community-based lenders. Most offer debt financing, in which the borrower secures the loan by providing collateral, something the lender can foreclose on if the loan is not repaid.
Debt financing may not work for a business if the owners don’t have assets that can be used as collateral, if they already have too much debt, or if the business appears too risky to conventional or community lenders. Additional tools in use in some places include equity financing, in which the investor receives an ownership stake in the business, and royalty financing, which gives the investor a return tied to monthly sales or profit. The New Hampshire Community Loan Fund’s Vested for Growth Program provides good explanations and examples of financing structures on their website. Around the country, loan funds and investors are exploring and testing these and other ways to provide flexible capital to local foods businesses. Learn more about the various types of financing.
Am I allowed to invest in these businesses?
Until recently, federal regulation has limited the ability of “non-accredited investors”—generally people with a net worth under a million dollars—to make these types of investments. Enacted during the Great Depression and intended to protect people who couldn’t afford to lose their money, the regulations have made it difficult for many individuals to invest in small businesses in their own communities, and have limited the sources of capital available to local foods businesses. Recent changes in the law provide more flexibility, allowing non-accredited investors to invest in local business if they are provided with detailed information.
These changes could provide significant new funds to local foods businesses in our region. Just as important, they allow us to use our money to create the food system that we want, one that will sustain us with both healthy food and a healthy economy.
This project was supported in part by the Northeast Sustainable Agriculture Research and Education (SARE) program. SARE is a program of the National Institute of Food and Agriculture, U.S. Department of Agriculture.