Mezzanine Fund
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.
RSF Borrower Utilizes Innovative Approach to Stress Management
November 22, 2010
Quantum Intech - HeartMath (HM) Leadership - Counter-clock-wise, bottom row: Deborah Rozman, President and CEO; Chris Jacob, COO; top row Bruce Cryer, CEO HM; Keith Corbin, CFO; Harald Striepe, CTO; Howard Martin, EVP HM; Catherine Calarco, CMO
By Jillian McCoy
Stress – we all face it. From deadlines at work to holiday shopping, the pressure of everyday life can affect us more than we realize. People under emotional stress experience a significant reduction in health, performance, and well-being. Stress impacts the ability to think, communicate, and complete tasks. Stress also inhibits the ability to change one’s behavior to improve health and personal relationships. The American Institute of Stress reports that 90% of all illnesses are stress-related; 85% of all visits to primary care doctors are for stress-related conditions; and 61% of the workforce is impacted by chronic stress. While many people seek solace from stress in any number of ways – a much needed vacation or a day at the spa – few methods truly get to the heart of the problem.
The RSF Mezzanine Fund recently provided a loan to an organization working to lead a fundamental shift in health and well-being for individuals, organizations, and their employees. Quantum Intech, Inc. (dba HeartMath Inc.) is a mission-driven organization that provides training and technology equipment to help individuals relieve stress, reduce illness, and improve human performance. The company’s HeartMath System is the leading scientifically-validated system of stress relief and mental and emotional self-management.
Through a deeper understanding of the heart, HeartMath is the first company to market scientifically validated and patented products that measure Heart Rate Variability (HRV). HRV is a measure of the naturally occurring beat-to-beat changes in heart rate. The analysis of HRV, or heart rhythms, is a powerful, non-invasive measure of neuro-cardiac function that reflects heart–brain interactions and the resulting impacts on how we feel and behave.
HeartMath offers a unique set of non-drug, non-toxic, HRV feedback solutions and training including their award winning emWave Personal Stress Reliever mobile technology and Stress Relief System and HeartMath Revitalize You! Online video-based learning program. HeartMath products utilize technology that analyzes heart rhythm patterns to discern emotional states and provides real-time feedback to users, while training programs educate users on methods of addressing this feedback to improve their response to stress, thereby decreasing its negative impacts and improving their overall health and well-being. Researched and developed over 18 years, HeartMath programs have been proven to consistently reduce clinical stress factors including fatigue, anxiety, and depression.
The socially conscious mission of the organization is apparent in the work they do for their customers as well as within their operations. Quantum Intech is a certified B Corp and has been named one of the Bay Area’s “Best Places to Work” by the Silicon Valley/San Jose Business Journal and the San Francisco Business Times for the past two years.
In addition to RSF financing, Quantum Intech recently announced that they are seeking to raise $2M in additional equity capital. Qualified investors can learn more about this opportunity through the Mission Markets private exchange site for social and environmental capital markets.
Quantum Intech is a borrower of the RSF Mezzanine Fund. To learn how you can help RSF make more loans like this one, click here. To learn more about Quantum Intech, please visit their website.
Ag 2.0 Presents the Spectrum of Sustainable Ag Investing
February 8, 2010
By Elizabeth Ü
As part of our mission to transform the way the world works with money, RSF engages with a wide variety of organizations to develop programming for their conferences related to social finance and our three focus areas: Food & Agriculture, Education & the Arts, and Ecological Stewardship. Here is a peek into the behind-the-scenes process as it relates to a couple of sustainable agriculture events coming up this March: Celebrating Community Capital and Agriculture 2.0.
The first Agriculture 2.0 conference took place last September in New York City. In just a few short months, organizer Janine Yorio of NewSeed Advisors pulled together one of the only conferences specifically focused on investing in sustainable agriculture. We at RSF were excited to see another conference with this focus coming on the heels of the Slow Money Inaugural National Conference, which RSF supported through sponsorship the week before in Santa Fe, NM.
So we were thrilled that another organization, and Janine personally, was stepping in to highlight sustainable food and agriculture investing, particularly to a wider audience of institutional investors that has not traditionally considered this sector as worthy of attention. We did have a few concerns about the focus on the potential for high returns, especially if such high returns necessitate securing significant ownership of small companies and encouraging rapid growth. In particular, what challenges might the venture capital model introduce for the social entrepreneurs seeking capital? (See this post on the limitations of various financing options, which prompted the launch of the RSF Mezzanine Fund.) What about keeping ownership within the local community? How does the pursuit of rapid growth and scale affect a company’s ability to keep the values baked into a business model? (See my post on “Social Enterprise, Exits, and Liquidity Events.”)
Unfortunately, with a board meeting scheduled at the same time, we were unable to attend the initial Ag 2.0 conference ourselves, though we were encouraged by the number of people who did attend, and have stayed in contact with Janine. When she announced plans for another Ag 2.0 in northern California this spring, I agreed to serve on the planning committee. This meant I got a sneak peek at an early version of the program, and was able to make some suggestions for additional speakers (one being the addition of RSF CEO Don Shaffer to the “Bringing Money to the Table” panel as a representative of the field of lending).
A few weeks later, RSF joined as a conference sponsor. We were excited to provide something to balance out the presence of some “Big Ag” and “Big Money” speakers in the lineup. Thus, we set to work to create a pre-conference event of our own to take place the night before Ag 2.0, in honor of the more community-oriented solutions to financing social enterprise that RSF is so committed to supporting. The event is called Celebrating Community Capital, and it features a stellar panel of pioneers in this space, not to mention local, organic, and seasonal food and beverages, and plenty of time for engaging informally with the speakers and attendees.
So! We are proud to invite you to this set of events in March, which we believe will, in aggregate, give foundations, individual, and institutional investors a complete view of the range of options available for investing in food systems that can restore our physical spaces, enliven our communities, and support local living economies.
Please join us at Celebrating Community Capital on the evening of March 23rd in Atherton, CA (near Palo Alto), and at Agriculture 2.0 the next day. We look forward to meeting you there!
Click here to sign up for Celebrating Community Capital, and click here to learn more and sign up for Agriculture 2.0.
Elizabeth Ü is Manager of Strategic Development 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.
Mezzanine Fund
