Pacific Coast Business Times Article

 

From Pacific Coast Business Times, August 9, 2013

Appetite for local finance feeds Slow Money movement

A new form of food and farm finance is taking root in the Tri-Counties, pumping hundreds of thousands of dollars into small businesses.

The so-called Slow Money movement has chapters in San Luis Obispo and Santa Barbara. Members of the San Luis Obispo group have invested $250,000 into nearby food and farm businesses over the past year and plan to host one of the movement’s founders at an event on Aug. 12.

The Slow Money movement is based on the concept that “there is such a thing as money that is too fast, companies that are too big, finance that is too complex,” according to its website. The idea is that by diverting some money away from traditional assets such as stocks and bonds and toward financing for local food and farm businesses, everyday investors can make a big difference in fostering a healthy and environmentally sound food ecosystem.

“The whole financial system is set up in a way so that our money is funneled to intermediaries who have an incentive to maximize return and not pay attention to things that we, as the owners of the money, might care about,” said Marco Vangelisti, a former portfolio manager for foundations who left the world of conventional finance and helped start the movement. “We are not paying attention to what our money is doing out there.

We’re just paying attention to what is the risk and return. The discussion with Slow Money is about becoming aware of that and asking, ‘What is our part in the problem?’”

Jeff Wade, a Central Coast marketing entrepreneur, read the movement’s founding book, “Inquiries into the Nature of Slow Money: Investing As If Food, Farms and Fertility Mattered” by Woody Tasch. He started Slow Money SLO last year. The group is essentially an informal network of potential individual lenders and investors. It meets regularly to allow food and farm business owners to mingle with possible
financiers.

The only strict rule is that all appeals for loans and investments must be made in one-on-one conversations in order to comply with securities and banking rules. A spokesman for the Federal Deposit Insurance Corp., the nation’s main banking regulator, said the group’s activity wouldn’t violate any banking rules because the loans made are contracts among individuals.

And the U.S. Securities and Exchange Commission recently lifted its ban on general solicitation and allowed companies to raise money from a limited number of non-accredited investors, though several of the rules about paperwork remain to be worked out.

Wade said the idea is to connect people and capital at the local level while being careful to follow all regulatory rules.

“Once the conversation is occurring, anything can happen from there. It could be an equity investment or anything,” he said. “Most of the loans have resulted from a number of people coming together. Different people may have different amounts they want to invest on different terms. It’s up to the borrower to deal with that.”

While the amounts from individual investors can be small — sometimes less than $1,000, Wade said — the impact is significant. The group’s members have invested a quarter of a million dollars in seven businesses so far: SLO Natural Foods, Vert Foods, Farm2Fork, Benefit Foods, Doc Burnstein’s Ice Cream, Mama Ganache and Functional Gourmet.

“We’re unique in that we’re really focused on our food and farms and improving the food system by reducing the environmental footprint of business by having products that are hopefully primarily sourced and sold locally,” Wade said. “We typically try to find a social benefit. From an investor perspective, the concept is that you know where your money is. You can shake the hand of the person who owns the business. It’s not invested in a mutual fund where you have no control over it.”

The Slow Money movement shares common intellectual roots with the Slow Food movement, which was founded in the late 1980s as a reaction against the ubiquitous expansion of fast food. Slow Food originally aimed to preserve regional cuisine and traditional regional crops and farming but has broadened to represent a push for sustainable agriculture and more wholesome, unprocessed foods.

Slow Money builds on that concept by standing athwart the history of market finance and yelling “stop.” Modern finance often means that, through retirement and endowment fund plans, individual investors and donors often end up pumping capital to corporations they don’t agree with.  For example, while the Tri-Counties are known to have some of the most stringent environmental regulators in the country, those regulators’ public pensions are paid for in part by significant investments in oil stocks because those stocks produce a solid return.

“Even activists who are very aware of the problems with big corporations are, at the end of the day, left with no option but to invest in those same companies,”  Vangelisti said.

Part of that is because investing locally is hard. Doing due diligence and dealing with contracts isn’t as easy as an automatic monthly deduction that magically returns 6-8 percent a a year after taxes and
fees.

But Wade and other Slow Money advocates aren’t urging anyone to put their nest egg into local lending. Indeed, the movement’s stated goal sounds modest — 1 million people invest 1 percent of assets locally over the next decade. However, U.S. retirement assets were worth an $20.8 trillion — that’s with a “t” — at the end of the first quarter, according to the Investment Co. Institute. Only a small percentage of that money would equal billions of dollars.  “The vast majority of people still want the security of Vanguard mutual funds, for example, and feel Wall Street is the best place to put their money,” Wade said. “Having gone through the last five years, a growing percentage of our region is less inclined to do that and is looking for other ways to invest their money, or at least a percentage of it.”

 Posted by at 11:15 am