Last Friday, Civil Eats published an article I wrote encouraging local food activists to see their work in the context of a wider local economy movement. Chock full of links to pioneering organizations and resources highlighting the hows and whys of supporting local economies, the article also stresses the importance of supporting independent, local retailers selling any types of products, from food to books.

You can read the full article here.

In addition to teaching financing workshops for food entrepreneurs directly, one of the most powerful things that Finance for Food does is “Train the Trainers” financing workshops designed for people and organizations that work with food entrepreneurs. The workshops empower a much wider range of service providers to give good financing advice to their clients.

These organizations might be membership organizations (such as local, independent business networks and Slow Money chapters) that want their members to understand the most effective ways to connect investors to local businesses seeking capital. Or they could be organizations that provide technical assistance to food businesses (such as extension agencies, business incubators and accelerators, and sustainable food and farming organizations) that want to provide more effective technical assistance and financing referral advice based on the unique needs of their clients. I also work with organizations that provide some form of financing (such as banks, credit unions, USDA field offices, and foundations) and are interested in helping their borrowers or grantees leverage other sources of capital in addition to the loans and grants they can provide directly.

As an example of this work, I recently gave a presentation on community capital to the Business Alliance for Local Living Economies (BALLE) Local Economy Fellows; BALLE realizes that educating community leaders in the various ways of financing locally-owned businesses is crucial in building a healthy and thriving local economy. Presenting with me were kindred colleagues Michael Shuman (local economist extraordinaire and author of several books, including his most recent Local Dollars, Local Sense: How to Shift Your Money from Wall Street to Main Street and Achieve Real Prosperity – he also wrote the foreword to my book Raising Dough) and Jenny Kassan (the pioneering securities law and investment/financing attorney who helped draft and review the legal sections of Raising Dough).

BALLE made the presentation available for free online; check it out below, and I hope you will be in touch if you would like to learn more about putting together a workshop for your organization.

The question I heard over and over at my little display table when I described the work of Finance for Food was, “How did you get into this?” At first I thought that people were asking for my credentials, ie, “what authority do I have to write a book on financing food businesses?” But I quickly realized that people were less interested in my resume, and more interested in hearing what inspired me to get into this field of work in the first place.

Perfect timing: Slow Money has just posted a video of me describing what inspires me — and what frustrates me — into doing what I do. It’s their most recent Slow Money Minute:

Some of the best conversations I had at the Local Food Lab event had to do with how we make difficult personal choices to pursue work that truly fulfills us. We shared stories about the challenges that come from deciding to do what you are called to do, rather than what you are expected to do, or what might be the most lucrative career path… though these may not be mutually exclusive, of course.

I have been very fortunate to have spent the last ten years of my professional life working with socially responsible food entrepreneurs, helping them identify and access the most appropriate types of capital for their ventures. One of the best events for getting your head around just how complex and exciting this field can be is the Slow Money National Gathering, happening this year in Boulder, CO, from April 29-30. (If you haven’t already registered, you’d better do so soon!) Perhaps I’ll see you there, and we can compare notes on staying inspired?

You can order through your local, independent bookseller; direct from the publisher; from any of the big online retailers (not my preferred option as I would prefer you support your local, independent bookstore for a number of reasons); or in bulk.

Professors and other qualified instructors interested in reviewing Raising Dough for educational use can also request examination copies.

There are many ways to access discounted copies. Please visit this page for the complete list of ordering options.

It’s exciting that the USDA realizes that smaller loans — up to $35,000 for this program — can really make a big difference for small family operations, beginning farmers, and farmers that have not traditionally had access to capital resources. Other good news about this new program is that the application process is meant to be much simpler than applying for other FSA loans. Plus, the interest rates are very, very low.

Unfortunately, I have heard of at least one case in which a farmer with 17 years of experience on her CSA farm has had a hard time with her local FSA office when attempting to apply for one of these microloans.

It’s more common than not to experience challenges of some sort with federal applications, whether these challenges are related to difficult personalities in your local office, confusing program criteria, the piles of documentation required, or the Grants.gov system crashing at the exact moment that everyone is trying to submit in time for the deadline (it happens all the time!). Raising Dough has a whole chapter of tips on identifying and working with federal grant and loan programs, but frankly, I recommend using other forms of financing instead of federal programs if you can swing it.

“True” CSAs

The earliest CSA agreements in the United States were based on models already popular in Europe and Japan. Farmers and a community of eaters add up the farmers’ total costs of living for one year, including operating the farm itself, and divide that by the number of members who had committed to being part of the community. (This is the only model in Raising Dough that contradicts the suggestion that you must separate personal from business expenses!) Each member pays their share of the farm’s costs, usually in advance of the growing season, and receives a share of the farm’s produce every week. In some cases, an association of eaters has come together with the concept of supporting farming and agriculture before recruiting a farmer to provide the important service of growing food. In other cases, the farmers would express their intentions to farm in a community context, and build a community around their farm.

“True CSAs operate outside of a market-based system,” explains John Bloom, senior director of organizational culture at RSF Social Finance. “The food itself is de-commodified, because nobody is buying it.” Rather than purchasing produce, the fruits and vegetables are almost a byproduct of the real work of the farmers, which is more about increasing the productivity of the soil.” He points out that labor in true CSAs is no longer a commodity either, because the community supports the farmers’ work rather than paying for it. “As a member of the community of eaters in the association,” he explains, “you share in the budget of the farm, and in the resulting fruits and vegetables.” In true CSAs, the farmers have no other source of income outside of the cost shares contributed by the association of CSA members. These days, only a very, very small percentage of CSA farms, many of them farmed in accordance with biodynamic principles, operate this way. The great majority of so-called CSAs operate as subscription programs (see below).

John was part of the team that helped facilitate the first CSA conversation at Live Power Community Farm in Covelo, California, in the early 1990s. The resulting agreement between farmers Gloria and Stephen Decatur became the first CSA in the state; John and his family are members of this CSA community to this day. “When a group of us first sat down with Gloria and Stephen to tally up the total costs of running the farm, we suggested that they include costs that weren’t directly related to the farm,” John recalls. “As members of their community, we felt it was important that they be able to afford not only to farm, but to have health insurance and be able to put some money away for their retirement.”

One benefit of this model for farmers is that the community members share in both the seasonality and risk associated with farming: what you include in members’ boxes will reflect exactly what your farm has available. You may only be able to offer produce during limited months of the year, depending on the length of the growing season and which varieties of fruits or vegetables can keep for longer. Early in the season, there may be plenty of greens but nothing else, and later on, lots of squash and root vegetables. If the farm’s entire crop of, say, berries or carrots or apples fails entirely due to a pest infestation or an untimely storm, then by design, your community of CSA members will make do without these products, or seek them out elsewhere; they will have already supported you in your efforts, regardless of what they receive.

Letting your community support you entirely may seem like a foreign concept, but this may be because our current market-based food system has shifted so far from its community roots. “How did it happen,” John wonders, “that the risks associated with the vagaries of the marketplace have become more acceptable than the risk of being in community?” It’s a great question. You may be the type of person that is much more comfortable shouldering known risks outside of your control — such as shifting commodity prices and weather patterns — than with opening yourself up to an ongoing community dialogue, in which case this model is probably not the right model for you. A true CSA model might be a good fit for your farm if the following statements are true:

1. You are part of a close community that is committed to a shared set of values. Remember, true CSAs are not about selling food as a commodity. They are about supporting farmers to do their work, in much the same way that a congregation supports the work of a local religious leader. For instance, you may be friends with people who are passionate about organics, but they still prioritize getting the most food for their money, rather than wanting to support, both philosophically and financially, the vocation of farming. If you are a part of such a community, you will know it.
2. You — or someone on your team — has excellent communication skills, and is interested in working in community.Of course, a successful farm needs a competent farmer. A CSA also needs an excellent communicator who will be the main point of contact for its association of members. “This need not be the same person as the farmer,” John points out, “and in fact, they usually are different people.” In the case of Live Power Community Farm, Stephen is the lead farmer, and Gloria is the one who is passionate about community. If you do not have someone on your team who can effectively take on this role, other forms of marketing your produce will probably make more sense.
3. Your farm can support enough crops to provide sufficient variety to satisfy your members. Just how much variety is enough? This will vary depending on your community, and is beyond the scope of this book, although you can find many resources online about the details of starting a CSA. (In most cases, these resources are actually referring to subscription programs rather than risk-sharing models, so keep that in mind.)

If the above are true you will then need to determine:

• Whether members will contribute to the work of producing or delivering the goods. Some farm-based CSA programs encourage members to visit the farm to help out on occasion. Others offer discounted shares to members who participate in the process of harvesting, cleaning, packaging, or delivering the shares. Still others require that all members contribute elbow grease in some fashion or another. You might see member participation as a great way to keep costs low and further build community, or you might see this as too much to manage. Just be clear about expectations up front to avoid any potential misunderstandings.
• The farm’s total budget for one year, including the farm family’s (or families’) costs of living, plus the full costs of operating the farm. Take into account any savings from volunteer work that members may contribute. In essence, this step involves creating a business plan that includes personal expenses as well as those of the business.
• How many shares to offer. A number of factors may contribute to this calculation, including the amount of land available to farm, the size of your community at large, and the number of people who have already identified themselves as being interested in supporting a true CSA. Once you have this number, divide the farm’s budget by the number of shares to determine each member’s contribution.

You will also need to work out details such as a pick-up and/or delivery schedule, what happens if a member cannot pick up their share, and how all parties will communicate with each other. Once everyone has agreed upon a structure, draw up a document that clearly describes what the farmers and eater members have agreed upon, which everyone can review and sign. It is inevitable that situations will arise that your agreement has not taken into account; meet with a core group of your association of eaters at least annually to evaluate the previous year’s budget and overall experience to identify any necessary changes to share prices, crop plans, the member agreement, or any other aspects of the program. In the meantime, communicate with your community of eaters regularly. Clear communication in the event of any problems or necessary changes to the agreement will also go a long way toward building goodwill and preventing hard feelings.

Pre-paid Subscriptions – Not Just for Farms

These days, it’s rare to find a farm that operates solely as a CSA as described above, wherein the entire farm’s expenses are covered by CSA members, and everything that the farm produces is shared amongst the members. Most farms have a variety of sales channels, which may include farm stands, farmers markets, and wholesale accounts in addition to a subscription box program. Indeed, many people who have never considered the shared risk component think of a CSA as nothing more than a pre-paid subscription for weekly box of produce from a specific farm, or even from a group of several farms that collectively provide the goods that make up members’ boxes. In this model, members generally expect that you will deliver a box with a certain quantity of food inside, regardless of any unforeseen challenges to growing conditions. Even though the entrepreneur or farmer shoulders the risk of not being able to deliver goods due to unforeseen circumstances, the cash-flow benefits of collecting payment ahead of time (for the whole season, quarterly, or monthly) can make all the difference between whether you might need to dip into your credit cards or home equity for the money you need to get through the next season, or not.

In addition to being a helpful financing model for farms, any retail business can sell pre-paid subscriptions to raise money to cover cost of goods sold before you actually need to purchase inventory, giving you a helpful cash cushion. Depending on your business, you might encourage people to subscribe to, for instance, a certain quantity of meat, baked goods, or other product every month. Might a Cheese, Beer, or Salumi of the Month Club work for you? If your products are rapidly-consumed staples (such as bread or milk), you could even offer weekly subscriptions. I have friends in San Francisco who subscribe to seltzer water delivery services; if you can find a market for your products at a retail location, you might be able to find people wiling to pre-pay for a subscription.

***

Raising Dough covers CSA and pre-paid sales in much more detail, including tips for raising money for your business by selling pre-paid subscriptions, gift certificates, and stored-value cards. I give advice for avoiding potential pitfalls — from losing track of a customer’s pre-paid balance, to facing a financial crunch when all your customers on day one pay with gift cards instead of cash — and alert you to a few laws that you need to keep in mind. The book also has chapters covering a wide range of community supported fundraising models, from crowdfunding online to direct public offerings.

If you don’t want to wait for the book, or if you’d rather learn more about these options in person, I will be covering many of these topics in the upcoming Financial Permaculture & Local Business Summit in Miami, January 21-25. If you would like to attend, please let me know so I can arrange a discount for you!

Today the California Financial Opportunities Roundtable (CalFOR), a group of over 90 experts and activists representing large banks, small financial institutions, wealth advisors, fund managers, the business community, and economic development organizations as well as local, state and federal government agencies, released their guidebook Access to Capital. 

I am proud of the role that Finance for Food played in helping develop this very useful tool for California entrepreneurs seeking capital, and those that would support them! It was a fascinating process, and I only wish I could have spent more time working with the excellent group of people that made it all happen.

The tools in the guide are organized into two main categories of interest to anyone currently seeking financing for their business: 1) Capital that one can currently access from existing sources; and 2) capital that is “available with substantial work” (which is to say, in theory you could raise money in this fashion, but you would have to do some serious legwork to establish and organize such an effort).

As a capital-raising entrepreneur, you will have to sort through several sections of this guide that don’t always relate directly to the experience of actually raising capital. That said, everything in Access to Capital’s 105 pages — including several pages of references — will help you understand the current state of capital markets in California, and this information can help you be more effective in your fundraising efforts.

The comprehensive recommendations in this guide will appeal to audiences beyond fundraising entrepreneurs, including economic development professionals who want to encourage the proliferation and success of small businesses, and would-be “locavestors” who want to invest their money in local ventures.

Funding for this guidebook came from USDA Rural Development in partnership with the California Association of Resource Conservation & Development Councils. It certainly never would have happened were it not for the leadership of the formidable Glenda Humiston, USDA Rural Development’s State Director.

In February, I co-presented two hour-long sessions on Crowdfunding for Local Food Businesses at the Progressive Opportunities Conference in Berkeley, CA. The East Bay Express ran a great review and recap of these sessions, which were filmed, and I look forward to sharing the footage when it becomes available.

I am continually inspired by the people who joined me as panelists at this event, all of whom will be featured in my upcoming book, Raising Dough: The Complete Guide to Financing a Socially Responsible Food Business. Here is a bit more about them, and I hope you will check out their work:

Jenny Kassan is a principal at both Katovich & Kassan Law Group and Cutting Edge Capital. Her expertise with regard to the laws surrounding financing is unprecedented, and she’s helped many food entrepreneurs with direct public offerings and other capital-raising campaigns.

Arno Hesse is a super-engaged member of Slow Money Northern California, and one of the masterminds behind Credibles. This the new crowdfunding platform connects helps food businesses seeking financing raise money by encouraging people to pre-pay for the company’s products. What’s particularly exciting about this model is that the edible credits (“credibles”) can be transferable between other companies using the platform, so that instead of trying to eat through $200 worth of artisanal sauerkraut from a business you really want to support, you can spend your $200 in “credibles” credit on artisanal sauerkraut AND pasture-raised chicken, for instance. Credibles is currently functioning in beta mode, though you can see previews of how the system works (and sign up for updates) by visiting their website.

Mary Rick is on the team at The Hoop Fund. In addition to their crowdfunding work with international projects, they’re building a place-powered and “hyper-local” fundraising platform for entrepreneurs, businesses, and nonprofits that are creating environmental, social and economic benefits in their communities here in the US. I’m looking forward to reporting on this in more detail as they get closer to launching the project!

—- UPDATE —-

Sadly, as of early May 2012, The Hoop Fund closed its doors, a decision explained on their website… the good news is that Mary Rick is still keeping us up-to-date on some interesting topics relevant to social enterprise on her blog.

Can’t wait until then? Check out another exciting book, just out this month from the same publisher, by Finance for Food friend and colleague Michael Shuman: Local Dollars, Local Sense: How to Shift Your Money from Wall Street to Main Street and Achieve Real Prosperity. (I’m quoted in the Introduction, which you can read here.) Geared primarily toward people interested in investing in their local communities, there is plenty of wisdom for capital-raising entrepreneurs in this important new book.

We covered the many conventional and unconventional ways food hubs can secure needed capital. Three hubs from across the country, each quite different from each other, described their operation and their capital needs. Then we advised each hub in turn on how to best access grants, loans, and other creative financing sources appropriate to that hub (and those similar to that hub)

Missed it? Never fear – the National Good Food Network, co-host of the webinar, has published the slides, audio recording, and presenter bios here.