Deals
Building Lasting Relationships Through Finance
July 29, 2011
By Jillian McCoy
In 2009, the RSF Mezzanine Fund, L.P., provided mission aligned growth capital to Guayaki, a social enterprise that imports certified organic, rainforest-grown yerba mate from South America. This funding relationship was designed to provide Guayaki with the capital to grow without requiring a liquidity event, such as a company sale or IPO, which could ultimately compromise its mission and values.
Two years later, Guayaki has indeed grown. With a strengthening brand, and the launch of a new canned maté line, the company’s sales have grown 25%, to $12 million in 2010. As Guayaki has matured as an organization, their financing needs have changed as well. We at RSF are pleased to continue this journey with them and recently closed a second loan to Guayaki, this time from the RSF Social Investment Fund. As a more established organization, Guayaki is now ready for senior debt and we are proud to provide them with a line of credit to support their continued path to success.
At the heart of Guayaki’s success is its innovative business model, Market Driven Restoration. This model links customers’ purchases to its partner farming communities in the rainforests of Argentina, Paraguay, and Southern Brazil. These indigenous farmers, using sustainable practices, harvest the yerba maté, generating a renewable income stream that enables their communities to improve their lives and restore their lands. Guayaki works closely with the farmers, and encourages the cultivation of the plants under the native rainforest trees. The company also provides technical advice on how to create nurseries, and helps with managing the organic growing process from cultivation through harvest. Guayaki then buys what is produced at fair trade prices. Farmers are able to repopulate their rainforest with native trees, while earning a living wage in fair working conditions.
http://youtu.be/-mA4lwRd7Z0
The company is ultimately working toward a mission to steward and restore 200,000 acres of South American Atlantic rainforest and to create at least 1,000 fair wage jobs by 2020. To date, they have restored some 20,000 acres of rainforest.
Since the start of this relationship, RSF has deeply believed in the mission of Guayaki, especially under the leadership of its CEO, Chris Mann. “The General Partner believed in Chris’ integrity and capability to drive higher revenue and profitability levels that would eventually allow them to attract a lower cost of capital—whether through RSF or another outside financing source,” said Joe Avenatti, Managing Director of the RSF Mezzanine Fund. “Fortunately, Chris was successful in doing just that and decided to stay within the RSF community.”
Guayaki will use some of the funds from this loan to pay off the remainder of their debt from the original Mezzanine financing. Not only is this a great step forward for Guayaki, it also marks the second realized investment for the RSF Mezzanine Fund.
Preserving the company’s mission and values has always been of great importance to Guayaki’s leadership team when seeking capital to help finance the company’s success. At RSF, we seek financial transactions that are direct, transparent and personal, based on long-term relationships. Our continued relationship with Guayaki exemplifies our commitment to these values and we are proud to partner with this incredible organization through their next phase of development.
To learn more about Guayaki please visit their website at http://guayaki.com/.
This loan was made possible by the investors of the RSF Social Investment Fund. To learn more about how you can help RSF make more loans to social enterprises like Guayaki, please visit http://rsfsocialfinance.org/services/investing/social/.
Jillian McCoy is Communications Associate at RSF Social Finance.
Direct vs. Indirect: The Case for Purposeful Partnerships
December 7, 2009
By Joe Avenatti
Why does RSF have a strong preference for direct relationships in its lending and investing activities? There are several reasons for this preference, which are all rooted in our desire to make transactions direct, transparent and personal:
- A 1:1 relationship is formed with the borrower
- There is greater control of the loan or investment
- The assets and income are not shared with another lender
However, there are advantages to partnering either through loan participations or equity co-investments. Some of the advantages are:
- Protect assets through risk-sharing
- Increased capacity through operating efficiencies
- Sharing of best practices
The RSF Mezzanine Fund, L.P., entered into its first non-direct loan recently with Rustic Crust. Rustic Crust (based in Pittsfield, New Hampshire) is an organic certified manufacturer and wholesaler of all-natural and organic artisan quality pizza products (see RSF Newsroom for more info). RSF’s initial approach was to provide a separate, stand-alone senior subordinated loan to Rustic Crust. However, there were compelling reasons to structure our loan as a “reverse participation” with Vested for Growth being the lead lender. A reverse participation is when a lender purchases a portion of a loan from the lead lender, whereas a participation loan is the term used for when the lead lender sells a portion of its loan to another lender.
Vested for Growth (VFG) is a part of the New Hampshire Community Development Loan Fund and provides similar lending products as RSF, but solely to companies in New Hampshire. VFG had already provided a subordinated loan commitment to Rustic Crust by the time RSF became involved. However, there was still a need to raise additional capital for Rustic Crust, in the form of debt or equity. What was the best way for RSF to proceed?
Upon reviewing the situation, I collaborated with the various parties to find the best solution for all: a reverse participation with VFG in equal partnership. RSF provided Rustic Crust with its needed capital in the same amount and on the same terms as VFG; the equity investors were able to leverage their return by using debt instead of equity; and although we received warrants, there was less ownership dilution for management and the other equity holders as a result.
In all lending and investing relationships, whether direct or indirect, there are important factors to consider as in any personal relationship – clear communication, fair expectations, aligned objectives, and mutual trust are of paramount importance if the relationship is going to succeed. At RSF, we believe we can achieve this with our partners and that we can all benefit from collaborating with one another in order to help organizations with strong social missions achieve their greatest impact.
For information on how to invest in the RSF Mezzanine Fund, click here, or for information on mezzanine financing from RSF, click here. To learn more about Rustic Crust, visit www.rusticcrust.com.
Joe Avenatti is Managing Director of RSF Capital Management.
New RSF Borrower HappyFamily: Pleasing Baby Bellies and Easing Parents’ Minds
November 16, 2009
By Elizabeth Bracco
RSF recently extended a loan to HappyFamily, the innovative social enterprise that provides a nourishing alternative to processed baby food. Happy Family has a complete line of organic and delicious choices for babies and toddlers that are as nutritious as home-cooked meals but take a fraction of the time to prepare - and the world has taken note. The company recently came in second place in “Shine a Light,” American Express’s highly competitive program which calls on the public to vote on inspiring small businesses.
HappyFamily, the rapidly growing and socially responsible brainchild of Shazi Visram and Jessica Rolph, launched its premium frozen baby foods on Mother’s Day in 2006 . The freezing process is one example of the intention that goes into each product: flash-freezing food after cooking to a low temperature preserves the health benefits while the high-heat process used with jarred baby food depletes the nutrients. The product line has since expanded to include pro-biotic, DHA-enhanced cereals (Happy Bellies), melt-in-your-mouth finger foods for the baby’s introduction to solids (HappyBaby Puffs), and hand-held frozen meals for the toddler (Happy Bites).
Every ingredient in every product is chosen to create the healthiest formulations possible for growing bodies. HappyFamily doesn’t want parents to take their word for it - the company aims to educate them on nutrition through a community of experts and parents online and with the book HappyBaby: The Organic Guide to Baby’s First 24 Months. The book is a collaboration between HappyFamily and Dr. Robert Sears of the famous Sears pediatrician family. Dr. Sears, or “Dr. Bob” as his young patients call him, has written several books on raising healthy children, and appears regularly on TV, offering advice on parenting, behavior, and health issues.
HappyFamily’s impact reaches beyond the baby that eats the Puff, Belly or Bite; the company gives back to the earth and to children less fortunate than their customers. For every unit sold, 2.5 cents (enough to feed one child for one day) is donated to Project Peanut Butter, a nonprofit that provides a protein-rich supplement to malnourished children in Southeast Africa. As for the earth, HappyFamily uses creative packaging solutions that reduce waste. For example, HappyBaby Puffs are packaged in containers that were discontinued by another brand, minimizing the waste involved in disposing of the otherwise useless vessels. All of HappyFamily’s packaging is recyclable and devoid of harmful chemicals.
RSF’s loan to HappyFamily will help the company meet the soaring demand by customers such as Babies R Us, Whole Foods, and Target. With this loan, HappyFamily can continue to help parents feed their babies the very best, and pave the way to a healthier world.
For more information, visit: happybabyfood.com. For information about the RSF Core Lending Program, click here. To help RSF make more loans like this one, click here to find out how to invest in the RSF Social Investment Fund.
Elizabeth Bracco is Senior Documentation Associate at RSF Social Finance.
RSF Loan Finances Better Diapers for Baby and Mother Earth
September 14, 2009
By Ted Levinson
It’s hard to believe, but the average U.S. baby goes through 3,800 diapers. That’s a lot of diapers, a lot of money, and a lot of waste. One of RSF’s newest borrowers, gDiapers, is gaining market share with a flushable hybrid diaper that strikes a happy medium between the convenience of disposable diapers and the environmental benefits of cloth.
The diaper debate truly is a “messy” affair. Disposable diapers are tough on the environment from start to finish. Seventy percent of the average disposable diaper comes from trees, and the remaining 30% is derived from petroleum. After a briefly useful life, the diaper winds up in a landfill where it rarely obtains the light and air required for biodegradation.
Cloth diapers, on the other hand, are cumbersome. Although the diapers can last for a long time, the water and soap used to wash the diapers has a significant environmental cost – so great, in fact, that the EPA is unwilling to state if they are a better option than disposable diapers.
gDiapers’ answer is a biodegradable insert (which can be flushed, composted or tossed) inside a reusable, plastic-free, cotton outer shell. Cookie magazine calls it the “virtuous, eco-friendly” option. At RSF, we think it’s an innovative solution to a permanent challenge. gDiapers squarely delivers in our ecological stewardship focus area. The company is equally impressive when evaluated on its supply chain oversight, treatment of its workers (including Waldorf-inspired daycare!) and management’s commitment to all their stakeholders – advertised as “fair dinkum” in a nod to the company’s Australian roots.
RSF’s loan to gDiapers will help the company manage its cash flow during its robust growth phase. Sales for 2009 are expected to be four times larger than 2007 and there’s still plenty of room for growth in this $3.6 billion domestic market. The company’s success (major accounts include Babies ‘R Us, Whole Foods, Diapers.com and London Drugs) was putting a strain on gDiapers’ cash as each new order tightened working capital. With a loan from our Core Lending program, gDiapers is ready to swaddle America in goo goo blue, golly molly pink and grasshopper green little gPants.
For more information, visit: www.gdiapers.com. Also, you can see Jason Graham-Nye, CEO and co-founder of gDiapers, speaking on a “Social Finance” panel this fall at the Social Venture Network conference.
Ted Levinson is Senior Lending Manager at RSF Social Finance.
Social Enterprise, Exits, and Liquidity Events
September 7, 2009
By Elizabeth Ü
True Confession: while studying toward my MBA in Sustainable Management, I was baffled by the concept of an “exit plan.” I just couldn’t understand why a social entrepreneur – especially one who poured her heart and soul into building a mission-driven business – would ever want to leave that business in the hands of others… others who probably did not share her passion, commitment or values. Wouldn’t the founder’s exit lead to a dilution of those values?
Since then, I’ve gained a better understanding of the need for exit plans. Of course there are several reasons why a social entrepreneur might want to move on from a company she birthed and nourished: she might be ready to retire or turn her energy toward other projects. She may be called to take care of herself (or family) in the event of illness. Or perhaps the founder is truly an entrepreneur at heart, and navigating the waters of a mature business just isn’t as exciting to her as starting up a brand new social enterprise.
In order for there to be enough cash on hand to repay the exiting founder for her investment in the business, a succession plan requires some kind of liquidity event. If there are outside equity investors involved, the liquidity event is when they would see their return as well. (See Terri Spath’s recent blog post: rsfsocialfinance.org/2009/08/revenue-participation-notes, which outlines the benefits and drawbacks of traditional loans and equity financing, and what RSF is doing to offer alternatives.)
Historically, a social entrepreneur has had two choices with regard to liquidity events: 1) Offer up the business for sale to another business (in this transaction, known as an acquisition, the purchaser provides the liquidity), or 2) raise cash through a public offering (also known as the IPO, or Initial Public Offering).
Both of these events can be problematic when it comes to maintaining the values of a mission-driven business. There’s no guarantee that the acquiring company will honor the environmental or social practices of the original social enterprise; there’s also the possibility that the smaller company’s offices may be shut down altogether, with any remaining jobs moving to the acquirer’s headquarters. In the case of taking the company public… well, suddenly there are quite a few shareholders who can exert their voting power in whichever direction they please.
Whether you believe that the sale of Odwalla, Ben & Jerry’s, Stonyfield, Tom’s of Maine, or Burt’s Bees to much, much larger — and in some cases, multi-national — corporations has had a positive or negative effect on the social responsibility of the acquired (or acquiring!) companies, we consider it part of our mission at RSF to champion new and meaningful options for community ownership, wealth creation, and social impact. Here are a few examples for social entrepreneurs seeking alternatives to the usual exit or liquidity events:
One option is to transfer ownership of the social enterprise to its employees, rather than to another company or to the public. When employees have played key roles in developing and implementing the company’s social mission, they can be well-positioned to steward that mission over time; there are also tax benefits to this plan. (For more information about employee stock ownership, read this article by Esther Park, RSF’s Director of Lending: rsfsocialfinance.org/2009/06/employee-ownership-for-social-enterprise.)
Another promising model is that of Upstream 21, which is essentially a holding company for small, independently owned companies with products or services designed to benefit their employees, communities and environment. Upstream 21 does more than just talk about values; its founders have written them directly into its corporate charter, mandating that the “best interests” of the company include consideration of employees, the environment, and both the short- and long-term interest of customers, suppliers, and the communities in which the company and all subsidiaries operate. In other words, the risk of mission dilution usually associated with acquisition is extremely low! Focusing within the Pacific Northwest, this is an example of a truly place-based approach.
If you’d like to learn more about the truly innovative work of Upstream 21, visit their website (www.upstream21.com) and watch this video featuring Upstream 21’s chair (and member of RSF’s investment advisory committee) Leslie Christian, from last year’s Summit on the Future of the Corporation.
Finally, it should come as no surprise that Judy Wicks, chair and co-founder of the Business Alliance for Local Living Economies and inspiration to countless social entrepreneurs, blazed a new path when she decided to transition leadership of her iconic White Dog Café in Philadelphia. Rather than sell the business outright, she drafted a detailed social contract for the new owner. She also retained ownership of the name White Dog Café, which she licenses to the new owner. If the social contract (which details operational standards such as the procurement of local ingredients and equitable pay scales, and requires ongoing leadership in socially responsible business practices) is breached, she can revoke the license. A passionate advocate for all things local, Wicks of course drafted the contract to stipulate local ownership of the Café. (Read more in this GreenBiz.com article, written after Judy spoke at the Investors’ Circle conference last spring.)
If you have experience with either traditional exit plans and liquidity events or their alternatives, we’d love to hear your stories in the comments section below.
Elizabeth Ü is Manager of Strategic Development at RSF Social Finance.
How Pickles Are Preserving the Skagit Valley
August 31, 2009
Craig Staffanson in front of some brine tanks at Pleasant Valley Farms
By Terri Spath
The RSF Mezzanine Fund recently provided $1 million in a combination of debt and revenue participation to Pleasant Valley Farms, a social enterprise that was established in 1996 to market western Washington pickles and sauerkraut. Located in a fertile river valley between the Puget Sound and the Cascade Mountains in the state of Washington, the Skagit Valley is home to about 70 different crops. Third, fourth, and fifth generation farmers there use a four-year crop rotation method to harvest potatoes, cucumbers, and cabbage, melons, corn, and sweet potatoes. With a year-round cool marine climate, the valley is perfectly suited to producing some of the finest quality cucumbers and cabbage in the world.
Until 2001, the Skagit Valley produced several thousand acres of top-quality cucumbers for big name regional producers. Over the next few years, those well known family-owned Northwest companies were bought up by a large food conglomerate. Unexpectedly, the big pickling producers began leaving the Skagit Valley and turning to Sri Lanka and India for cheaper product and processing. Craig Staffanson and his fellow farmers saw an opportunity in the U.S. market for a top-quality, local, old-fashioned, and fair-value product.
In 2001-2002, Craig and his business partner launched a plan to turn the Staffansons’ small family farm and processing facility into a regional facility to process product locally, including the production for all of Skagit Valley. Pleasant Valley turned to fellow cucumber and cabbage growers, who invested capital into the operations. Growing market share was challenging as the major food player in the region sold its acquired brands aggressively on price, something Pleasant Valley Farms was unable to match. Instead, their pickles and sauerkraut are positioned on quality, and this has been successful in landing customized product accounts at restaurants and food service establishments that care about the quality of the food they serve. The mission of the Enterprise is stated as follows:
“Pleasant Valley Farms is dedicated to providing the highest quality food product to the market with cornerstones of old-fashioned production, a healthy and affordable line of products, a sustainable legacy for its employees and the community at large, and a quality product with a commitment to its customers.”
Despite flat industry sales, Pleasant Valley’s wholesale sales of pickles, relish, and sauerkraut have grown sharply while a focus on costs has driven solid margins. Today, Pleasant Valley Farms is a community of farmers dedicated to being a vibrant part of the 100-year plan to keep the Skagit Valley sustainable. The Valley’s 100-year plan refers to the “Cascade Agenda,” adopted by a coalition of 750 community leaders and 100 businesses, organizations, and government agencies. The Agenda advances two goals: conservation of 1.3 million acres of farmland, forests, shoreline, parks, and natural areas; and promoting its communities in the King, Kittatas, Pierce, and Snohomish counties in Washington State. Supporters range from farmers, foresters, and tribes, to housing, arts, and cultural interests.
The effects that Pleasant Valley’s efforts have had in the region are remarkable. In 2008, their ten farmers in the Skagit Valley grew 1,000 acres of cucumbers and 50 acres of cabbage for pickle and sauerkraut production, producing 20 million pounds of cucumbers and 4 million pounds of cabbage that would have been eliminated without the efforts of Craig Staffanson and his team.
Upon hearing that the RSF loan had closed, Rich Weight, Head of Sales at Pleasant Valley, expressed his gratitude by saying, “I can’t thank you and your organization enough for the tremendous confidence you have shown in our project. We will continue to work hard every day to make the best products, and service our new and old customers alike, to make Pleasant Valley Farms a success for our people, the community, and the land we farm.”
It’s this kind of commitment that makes RSF proud to have provided $1 million in capital to Pleasant Valley Farms, to help them deepen their impact in the Skagit Valley.
For more information on the innovative loan structure of debt and revenue participation designed exclusively for mission driven enterprises like Pleasant Valley, click here to read a blog post that I wrote on the topic earlier this summer.
Terri Spath is the Managing Director of RSF Capital Management at RSF Social Finance.
Revenue Participation Notes: What are they, and why are they an innovative social finance tool?
August 10, 2009
By Terri Spath
Traditionally, enterprises receive capital in one of two ways: they get a loan, or they sell equity in the enterprise. Sometimes, however, neither of these options provides the right fit for an enterprise’s needs and goals, which is where revenue participation notes can provide an innovative solution. But before diving into what revenue participation means, let’s look at the benefits and drawbacks of traditional loans and equity financing.
Traditional loan
With a loan, an enterprise receives cash, and enters into an agreement to repay that cash with interest. The tradeoffs for a loan:
Less Expensive Financing: It is generally less risky for someone to lend money than to extend equity. With a loan, there is usually a valuable asset (a guarantee, a piece of land, or machinery, etc) that the lender could legally take if the loan isn’t paid back. Since lending is less risky, it usually carries a lower price than equity, thus being a less expensive choice for financing.
Promise to Pay: With a loan, there is a legal obligation to pay the money back with interest. Also, lenders will only provide so much – at some point there aren’t enough assets to secure the loan and/or the ability to pay the interest.
Equity financing
By selling equity, an enterprise can raise cash by offering the investor some ownership of the enterprise. There are tradeoffs with equity financing, too:
No Short Term Cash Flow Constraints: In exchange for a cash investment, the investor owns some of the enterprise and the investor’s return is expected to come through the growth of the enterprise. Generally, there are no cash interest payments, and no legal obligation to ever give the money back.
Ceding Some Control: Since the investor now owns part of the enterprise, they have a right to some amount of control over the investment – and, therefore, a voice and frequently a vote about business decisions. The investor’s point of view may or may not align with the founder’s. This ownership gives the investor control over the enterprise that a lender does not have.
“Exit” Requirement: The new owner will want their money back plus handsome profits. This generally involves selling the enterprise to a new party, who will want to run the show (usually without the original founder).
An alternative – Note (i.e. loan) plus “Revenue Participation”
The traditional options don’t always fit for emerging social enterprises, entities built to grow profitably around an important social vision.
Case study: A Great Beverage Enterprise (GBE) that has created a healthy beverage to sell in the U.S. that supports sustainability in the Amazon rainforest.
GBE could sell more product if they had more money to spend on marketing (sales people to get into more stores, creating more products to put on more trucks for delivery, free products at sporting events, etc). However, the founders’ vision does not include the eventual transfer of ownership to a Big Giant Corporation that may dilute GBE’s mission in a drive for high profits (e.g. by creating cheaper formulations that no longer support the indigenous farmers of the Amazon).
Equity providers don’t have a clear way to recoup their original investment (no “exit strategy”), and are therefore hard to attract. GBE can try to borrow money, but the risk for the loan is high – many lenders are unwilling to lend as much money as GBE needs. What should GBE do?
One great solution is a note (typical loan with a coupon) plus revenue participation. With this structure, GBE gets a loan and is responsible for the interest and repayment of that loan. Revenue participation is attached to the loan, and defined as a percentage of the sales. As the revenues of the enterprise grow, it is in a stronger position and its revenue participation payments increase (the percentage stays the same, but the total dollars grow). The note plus revenue participation structure gets capital to the enterprise without affecting its ownership, goals or mission. At the same time, the lender/investor is properly compensated for the risks involved.
The RSF Mezzanine Fund is using this innovative tool to meet the needs of social enterprises, while earning a solid return for its investors. Ensuring that mission-driven companies can retain ownership and continue to have a high level of social impact while expanding their business was the key consideration for RSF in creating the Mezzanine Fund. We hope to see this type of financing become more common as an alternative for triple-bottom-line social enterprises whose priorities are not just profits, but people and the planet as well.
To learn more about the RSF Mezzanine Fund, click here. To find out how you can apply for financing from the RSF Mezzanine Fund, click here.
Terri Spath is the Managing Director of RSF Capital Management.
Sustainable and Local Food Investing Resources
July 27, 2009
By Elizabeth Ü
I frequently field requests from individuals, foundations, and institutional investors seeking investment opportunities in sustainable and/or local food systems. One of the best ways to learn about specific companies seeking capital in this growing field is through participation in investor networks that are active in this area. Below is information on several of the most prominent networks plus a few investment funds as you start your own explorations in this growing field.
Investors’ Circle (IC) is the oldest and largest national network of angel investors focusing solely on companies and small funds addressing environmental and social issues. This group’s national conferences have featured plenary panels, speakers, and workshops on the topic of investing in food and organics for the last five years, and they have helped connect investors with sustainable ag-related enterprises for longer than that. IC’s 2009 Fall Conference and Venture Fair will take place November 15-17 in Washington, DC. In addition to food- and ag-related businesses, they also consider companies in the areas of Energy & Environmental Solutions, Natural Products, Education & Media, Health & Wellness, and Community & International Development.
If you’re a social entrepreneur seeking capital in these areas, see if you meet the Investors’ Circle criteria and submit an application to have your executive summary circulated amongst their membership of individual and institutional investors; apply by July 31st to be considered as a presenter for the November Venture Fair.
Golden Seeds Angel Investor Forum is a woman-friendly investor group that provides early stage and growth capital to women entrepreneurs across all sectors. Though they do not have a specific focus on social enterprise, they do consider sustainable food companies, and to date have invested in two such companies, Sweetriot and Dancing Deer Baking Co. (also an RSF borrower).
Several triple-bottom-line institutional equity funds, such as Greenmont Capital and TBL Capital, include sustainable ag-related ventures (primarily food) in their portfolios. The RSF Mezzanine Fund is the only debt fund designed specifically for social enterprises seeking a growth capital alternative or complement to selling equity; to date, all the investments from this fund have been to companies that are helping build a sustainable food economy.
Finally, a new entry to the space to keep an eye on is New Seed Advisors. They will be hosting a conference, Agriculture 2.0, on September 17 in New York City, and we’re looking forward to learning more about their approach and philosophy.
One thing to note is that the networks and funds mentioned above are designed primarily for accredited investors, which means that they are not appropriate for a large number of people who would nonetheless like to use their investments to support sustainable and local food systems. We are very proud of the fact that the RSF Social Investment Fund is open to anyone, regardless of income or assets. Over 20% of this particular fund is currently loaned to sustainable agriculture companies; the rest of the loans are to nonprofits and for-profit social enterprises in the areas of Education & the Arts and Ecological Stewardship.
It also bears noting that the investment networks and opportunities above relate primarily to companies that are beyond the start-up phase. Ideally, the company receiving the investment is profitable (or nearly so), has revenues of $1mm or more, and has the capacity to “scale,” or grow at a significant rate.
“Wait a minute,” you might be thinking, “many of the companies that make up a sustainable, local food system do not intend to go national.” Or maybe the entrepreneurs do not want to take capital from investors that do not live in the local area, or maybe the companies are brand new, having sprung up recently in response to the specific needs of their communities. And it’s true, the traditional capital markets have had a hard time responding to the needs of many food and agriculture companies that are approaching things on a community scale or grassroots level.
Here’s where the Slow Money Alliance comes in. A project originally incubated at Investors’ Circle, the Slow Money Alliance is a network of investors, donors, farmers, and activists committed to building local food economies. In recent years, this group has hosted several local institutes around the country, convening sustainable agriculture investors, entrepreneurs, and other stakeholders to discuss the unique challenges and opportunities in investing locally, with a focus on food; the name of the group is a nod to the international Slow Food movement. Slow Money’s inaugural National Gathering, From the Ground Up, will take place September 10-11 in Santa Fe, New Mexico. For more in-depth exploration, Slow Money chairman and president, Woody Tasch, recently wrote an excellent book entitled Inquiries into the Nature of Slow Money: Investing as if Food, Farms and Fertility Mattered.
I hope you find these resources useful, and encourage you to share others using the comments section below.
Elizabeth Ü is Manager of Strategic Development at RSF Social Finance.
Cold Hard Cash for Social Impact
July 13, 2009
By Kelley Buhles
Ever wondered what your money is doing while it is sitting in your bank account? Currently the world’s largest banks are funding the world’s most destructive industries. What that means is that the average person’s checking account helps to finance dirty coal plants, destructive oil extraction, and unsustainable logging operations. What are the alternatives to using these large banks, you might ask?
RSF is faced with this same dilemma in deciding where to keep our cash accounts. Currently, RSF primarily banks with Citibank. They have offered us the flexibility and service we have needed to build our organization. In addition, Citi was the first bank in North America to adopt environmental policies addressing biodiversity, indigenous rights, and climate change. Unfortunately, Citi is also one of the leading funders of the coal industry and coal is the single biggest cause of global warming.
At RSF we are committed to becoming 100% invested in mission-aligned companies and funds. As we work toward this objective (currently, our portfolios are about 60% mission-aligned), we are constantly looking for ways to make our financial transactions more direct, transparent, and personal. To further these goals, our investment committee recently voted to move roughly half of the cash deposits in our Donor Advised Fund Liquidity Portfolio from Citi and into community development and environmentally oriented banks. After conducting rigorous due diligence, we have identified eight banks and credit unions around the country that are low risk, offer competitive returns, and are mission-aligned.
We are happy to announce that we recently made investments in four of these institutions. Our accounting team, who facilitated the investments, had their own personally transformative experience while going through this process. They reported at a recent staff meeting that while Citi doesn’t blink an eye at a few million here and there, these four banks expressed joy and gratitude for receiving our investments, making the transactions and new relationships much more meaningful to our staff members.
Below is more information about our four recent investments:
$1 Million CDARS* with Southern Bancorp
Southern Bancorp Mississippi is operating 23 banking centers in Mississippi and Arkansas. It was formed out of an initiative to end decades of economic decline in rural Arkansas by creating new trends of investment in people, jobs, business and property. The bank launched nonprofits to address affordable housing, grassroots community development and asset creation in order to build resources in the rural communities it serves. The bank currently focuses on the fast growing crop market and offers mostly small business and consumer loans (over 40% of its loans are less than $10,000).
$2 Million CDARS with OneCalifornia Bank
OneCalifornia is a hybrid bank/foundation created with the OneCalifornia Foundation acting as the bank holding company. This innovative structure allows the Bank to pursue programs that benefit the community, such as credit enhanced loans to less-proven borrowers, by having the foundation act as the program sponsor. The Bank engages in programs and grants to eliminate discrimination, encourage affordable housing, alleviate economic distress, stimulate community development, and increase financial literacy. To date, OneCalifornia Bank has financed the largest private solar installation in the state.
$250,000 account with Latino Community Credit Union
The Latino Community Credit Union was created to address violence against Latinos in North Carolina. Without access to savings or checking accounts, Latinos were essentially “walking banks” and were frequently targeted by robbers. Since its formation in 2000, the Latino Community Credit Union has grown to $65 million in assets with 51,000 members. And since launching its mortgage lending program in 2004, the credit union has had zero delinquencies in its mortgage portfolio and keeps all its loans on its own books. The credit union has also identified new ways to assess risk without utilizing a formal credit rating and offers credit builder products to its users.
$1 Million CDARS with Legacy Bank
Legacy Bank is the only certified community development bank in Wisconsin and the only bank in the country to be founded and led by African-American women. The bank concentrates on distressed neighborhoods in Milwaukee, one of the top cities for subprime and predatory lending. Additionally, Legacy focuses on serving the unbanked, particularly minorities and women in areas of high economic distress, and provides financial education services and workshops. Legacy Bank is one of the fastest growing community development banks in the country!
*CDARS stands for Certificate of Deposit Account Registry Service. These investments allow organizations to place deposits up to $50 million and still enjoy full FDIC protection of their funds. For more information, visit: www.cdars.com.
RSF is proud to have begun moving our cash investments into mission-aligned banks and credit unions such as the ones mentioned above. We will continue to transfer our funds into similar vehicles until we achieve our goal of having 100% mission-aligned investments. Reaching that goal is part of RSF’s daily efforts to transform the way the world works with money at every level of our operations, and we are excited to see the impact these and future investments will create.
Click here to learn more about the RSF Donor Advised Funds and click here to learn more about the DAF Investment Portfolios.
Kelley Buhles is the Program Manager of Philanthropic Services at RSF Social Finance.
RSF’s Lending Process As Inspired By Rudolf Steiner
July 6, 2009
By Esther Park
At a recent RSF board meeting, I was asked to provide some detail on how our lending process is inspired by the work of Rudolf Steiner. In RSF’s early days, board members were often intricately involved in our lending process, so they never had to wonder how we imbued our values into our work. But today we operate under policy governance, which means that the board is less involved in our day-to-day operations. While we strive to wear our values on our sleeves, I thought readers would benefit from a glimpse into how we operate differently than other lenders.
1. Because we seek two levels of impact – direct impact of our borrowers and our own impact – educating prospective borrowers about the structure of our loan fund is an important part of our work. There is a unique and distinct story behind our pricing (it’s based on the return we provide to our 900+ individual investors) and our loan products (some specific products are meant to intentionally build community behind a project) that we like to share with potential clients.
2. With regard to our borrowers’ social impact, we believe we hold a high bar for what qualifies as a “social enterprise.” For example, it’s not enough for us if a company gives away a percentage of their revenues or profits to charity. While we consider this activity to be admirable, we insist on seeing social values embedded in all areas of the operation, from what is publicly seen, to what happens behind the scenes. This is the first hurdle for us, before we even go down the path of financial analysis.
3. Further to the previous point, we find that mission alignment is an important part of our discussion in credit committee, and sometimes we spend more time on that than on the financial feasibility of a project (though the latter is always given rigorous review).
4. We have adopted a “work-through” policy for when loans become troubled. For many traditional lenders, this is otherwise known as a “work-out” policy. We named our policy thus in order to better reflect our intention of working through problems with borrowers instead of just trying to find the fastest way out.
There are also a number of other unique practices that are close on the horizon. Some examples include:
1. Pricing – Our medium term goal is to convert to a “community-based” pricing model that would be driven collectively by our investors and borrowers.
2. Social Covenants – Just like financial covenants, social covenants would be hard-baked into loans, which means that non-compliance could trigger a default. A handful of our loans currently have these, but as we progress on the social impact work, we hope to institute these covenants broadly across the portfolio. These are not meant to be aspirational, but would be intended to act as minimum thresholds.
3. Peer-driven social impact goals – We hope to address the aspirational part of improving an organization’s social impact by offering our borrowers a carrot rather than a stick toward achieving greater social impact over time. In the future, this will likely be done collaboratively through a peer-review process, and outstanding work may be financially rewarded via a borrower’s interest rate.
4. Creating more community among our borrowers – Some recent ideas that have surfaced include a peer learning network, online bartering/advantageous sale platform, a closed listserv.
Although it may not always be explicit, each of the above ideas and practices is directly influenced by Rudolf Steiner’s insights and teachings on economics – many of which are rooted in the theory that money and finance are ultimately meant to connect people in relationships of service. As a result, we seek to carefully assess the impact that we and our borrowers are having at every step of the lending process, and to create opportunities for partnership and collaboration with our borrowers. We also place great importance on Steiner’s core belief that economic processes should be transparent, and hope that our actions in lending reflect these values on a daily basis. In that spirit, I invite your questions and comments, and look forward to continuing this dialogue.
To find out more about how RSF is inspired by Rudolf Steiner, visit: rsfsocialfinance.org/values/inspiration/
Esther Park is the Director of Lending at RSF Social Finance.
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