Capay Valley Farm Shop, FarmOrders B2B / Food Hub, Esparto, CA
Capay Valley Farm Shop (“Farm Shop”) began in 2007 when farm families and community members who cared about the local agricultural economy came together to fund a specialty foods market near the Capay Valley that would source products directly from their local farms. The business plan evolved into a multi-farm CSA where produce boxes were delivered to customers throughout Northern California. In 2012, the Farm Shop began offering "FarmOrders" for institutional buyers such as online retailers, tech companies, universities, and other institutions with large cafeteria orders to fill. Eventually, in 2016, the CSA ended as the success of the "FarmOrders" continued. Capay Valley Farm Shop today focuses on the "FarmOrders" which involve helping its farmer suppliers with packaging, transportation, and storage facilities.
Over the course of its business development, the Farm Shop has used several different creative financing strategies, many of which relied heavily on relationships with friends and customers.
One phase of fundraising involved a Kiva Zip campaign which raised $5,000 by collecting tiny loans from 100 different people around the world. These tiny loans, as is typical of Kiva Zip loans, are zero interest loans. Thomas Nelson, a co-founder of the Farm Shop, pointed out some advantages and disadvantages to Kiva Zip campaigns: “It's obviously great to get zero interest loans and it feels very encouraging to get financial support from so many different individuals, however, there is still a cost to this financing strategy because it typically requires time intensive outreach to lots of individuals, so the amount of effort per dollar received is quite high.”
The Farm Shop applied for a USDA local food promotion grant which they received in 2014 to lease a refrigerated truck, purchase a walk-in freezer, and conduct food safety training. This was a very useful form of funding, since it was a grant, not a loan or other investment that needed to be repaid. Nelson noted, however, that the application process for this grant was very time consuming: it took two people and a combined 40 hours to apply. In addition, after the grant funds were received, extensive bi-annual progress reports had to be prepared and submitted to USDA.
The business also received two institutional loans to buy trucks: one from a customer food distribution company, Good Eggs, and one from the nonprofit revolving loan fund, RSF Social Finance. Loan funds such as RSF typically have stricter criteria than individual investors, so this loan was only possible after the business was in a more mature stage and seeking growth capital.
Finally, the Farm Shop was one of the early recipients of investment from members of Slow Money Northern California. Nelson worked with a group of Slow Money investors to discuss the business plans and possible terms of an investment deal. Next there was a period of time for "due diligence" when investors learn about the business and assessed the risks and merits of the investment deal, before deciding whether to invest. That process yielded a group of five individuals who made equity investments in the Farm Shop totaling $80,000. These funds were used to move to a larger facility. Slow Money members made equity investments in the business but were only eligible for dividends when the business was able to pay dividends. The process from the initial contact with Slow Money Northern California to the day investors wrote checks took close to a year. Nelson said he is grateful that Slow Money members see their investments as long term investments, and accommodate the capital needs of a growing business by agreeing to invest on flexible terms. He also said it was great to build relationships with these investors, even though it took a considerable amount of time.
Another important benefit of working with Slow Money members was the alignment of values among all parties involved. Nelson thought that this alignment of values was critical in every decision made by his business to accept money from investors, both institutions and individuals. The Farm Shop is dedicated to working with farmers, ranchers, and food producers within 20 miles of their food hub in Esparto. Most of their fresh fruit and vegetable farms are certified organic and their ranchers raise animals with ample access to pasture, among other good environmental stewardship practices. Investors in the Farm Shop are generally similarly passionate about local and sustainable agriculture, which facilitates mutually beneficial investment deals.
Some additional words of wisdom about financing for beginning and growing farm enterprises from Thomas Nelson:
- Limit the amount of money that you borrow up front. Be conservative with your projections. It's good to boot strap up front to avoid involving friends and family in excessive risk.
- As you develop confidence in your business, it will be easier to instill confidence in your investors.
- Don't be shy about being creative about financing. It's not just friends and family who want you to succeed, but also your customers.
- Be cautious about borrowing money for new equipment. Make sure you can afford the debt service.
- As you gain experience, maintain a business plan. Business plans always evolve, but keeping a business plan updated is a great way to clarify your thinking about where you are going with your business, and it helps communicate with potential investors.