Request for Proposals to Administer the Pioneer Valley Grows Community Food Fund July 2013 The PVGrows Finance Working Group (FWG) seeks an administrative partner (or partners) to assist in the design, development, and rollout of a new $2.5M investment fund that is intended to replace the existing $750,000 PVGrows Loan Fund. PVGrows expects the new, larger fund now called the Community Food Fund (CFF) to provide flexible, Mezzanine-style investment, and more traditional investments, typically ranging from $25,000 to $250,000, to businesses in the seed to growth stages. PVGrows also anticipates using this flexible capital to partner with existing local lenders involved in traditional investment to realize collaborative opportunities. Capital will come from a mix of institutions, accredited investors, and unaccredited investors, with a primary objective of enabling community members to invest between $1,000 and $10,000 a portion of their investment or retirement portfolios in their local food economy. 1 What the Administrator(s) Will Provide: Lead effort to raise an initial $2.5M in funds from institutional and individual investors with support from PVGrows FWG Collaborate with the FWG to finalize the plans for the structure of the fund, building on the outline provided in the RFP, including a complete business plan, terms for investors, terms for borrowers/investees, plans for financing administrative and outreach work, and long-term vision Partner with the FWG for mission review of prospective investments and with the Slow Money Pioneer Valley Chapter for equity investment when appropriate Conduct all traditional roles of a lending institution, including business review and due diligence Based Upon Interest: The possibility to continue to raise investment funds from institutions and individuals on an on-going basis, either by converting the initial fund into a revolving, on-going fund, or by partnering in future funds Co-invest as a percentage of all deals that include investments from unaccredited investors What PVGrows Will Contribute: ~$100k in grant funding for administrative purposes, based upon an estimate of the funding required to launch and staff the initial phase of the CFF Partnership with PVGrows, a professional network of 500+ people dedicated to creating a healthy and sustainable Pioneer Valley local food economy 1 PVGrows broadly interprets the range of businesses in the local food economy to include the full cycle of production; farm-to-table connections such as processing and distribution; marketing and sales; waste management; businesses that support these endeavors, such as agricultural inputs; and agricultural viability enterprises such as fiber, forestry, or energy conservation or production. 1
Our Selection Process: The PVGrows FWG will select the administrative partner based on the following criteria: Deep commitment to and expertise with entrepreneurial development and business assistance Experience with and focus on lending inside the Pioneer Valley Experience with community-based investing, deploying both traditional and innovative investment capital, and lending into the local food economy Capacity to develop, implement, and measure the impact of the fund, deploy existing resources or supplement them; and to innovate and share lessons learned Connections to local municipalities and other government resources, plus a commitment to collaborating with and strengthening existing system resources Background PVGrows What is PVGrows? PVGrows is a collaborative network dedicated to enhancing the ecological and economic sustainability and vitality of the Pioneer Valley local food economy. The network was formed in 2008 to amplify the existing network of individuals and organizations already involved in this work. PVGrows holds twice-yearly forums, convenes working groups, such as the Finance Working Group, which meets monthly, and provides space for stakeholders to connect, share, and match goals and expertise. From agriculture finance to policy formulation, from Farm-to- Institution to job creation and food justice, PVGrows helps partners build on each other s strengths. Current working groups exist for finance, higher education, race and the food system, Slow Money, entrepreneurship, and job creation. What is the PVGrows Finance Working Group (FWG)? The FWG is a group of PVGrows members representing nine lending partners and partner organizations, including lenders, foundations, non-profits, and government agencies, who recognize that a variety of investment vehicles will be needed to scale up the growing local food economy. In 2009, these organizations launched the PVGrows Loan Fund, which provides loans up to $250,000 to Pioneer Valley businesses involved in the local food economy, as well as access to business development assistance through member organizations and a partnership with the Fair Food Network. Who are the nine Partner Organizations in the FWG? Loan Fund Lending Partners: Common Capital, Inc. The Cooperative Fund of New England Equity Trust Franklin County Communication Development Corporation 2
Loan Fund Partner Organizations: Community Involved in Sustaining Agriculture (CISA) Massachusetts Department of Agricultural Resources New England Small Farm Institute Lydia B. Stokes Foundation Solidago Foundation Background Community Food Fund What research has been done? Grant funds provided by the Lydia B. Stokes Foundation, Solidago Foundation, and the Frances Fund allowed PVGrows to retain Michael Shuman and Jenny Kassan in research and design for the Community Food Fund. Their work included a scan of national models and a thorough review of the legal constraints to launching a community-based, local-food-economy-focused investment fund. With the research phase complete, the core funders have maintained their commitment to support the organization and development of the CFF. Why is $2.5M the target scale for the fund? This project is viewed by PVGrows as a pilot-scale fund. In the attached report, conducted by Michael Shuman, very rough data is used to estimate that it will take roughly $56M of impactfocused capital to leverage an additional $200M+ of more traditional money to help create a 25% local shift in the Pioneer Valley, or getting 25% closer to being able to completely satisfy local demand for various foods with local production. 25% is a starting point and not the end goal for PVGrows. This project seeks to raise an initial $2.5M, or about 5%, of the $56M. What is the timeline for this project? March 2013: Research completed - COMPLETED April 2013: Fund design and target structure established COMPLETED Q2 2013: Seed grants ($50K) raised for CFF admin/fundraising COMPLETED Q3 2013: Project coordinator hired and administrator relationship established Q4 2013: Balance of grants raised ($50K) for year two operations To YE 2013 & Q1 2014: Funds raised into CD rate-bearing escrow account Q2 2014: Escrow target met escrow broken Q3 2014: First investments placed 2014-2024: Further investments are placed; new capital is raised as necessary/appropriate from community investors, patient capital investors, and first loss investors Q3 2019: Repayment of principal for some non-accredited investors 3
Q2 2024: Initial patient capital investors repaid Goals for the Community Food Fund What is the overall goal for the CFF? To aggregate flexible investment capital from accredited AND unaccredited investors to generate improved access to capital for farm and food entrepreneurs. What is the short-term objective for the CFF? To connect an initial set of institutional and individual investors eager to put their dollars to work in their local food economy with pre-qualified businesses seeking capital and operating support, and to coordinate these first-generation investment dollars under a form of professional management. What is the long-term objective for the CFF? To develop and maintain a well-educated pool of investors to grow the food-focused local economy by filling an important niche in the capital marketplace on an on-going basis. Investments from the Community Food Fund PVGrows and the CFF administrator will work together to craft the terms of the fund. Based on early research, the FWG anticipates some blend of investing strategies, designed to balance impact with risk, while recognizing the need to reduce administrative expense. Does the CFF expect to focus on businesses at certain stages? Yes, the CFF will devote a significant portion of the funds to early-stage businesses involved in the local food economy, including those ready for expansion, and a small portion of funds to pre-revenue businesses. What size investments might the fund typically make? Our expectation is that the CFF will fill a gap in enterprise financing by investing mezzanine capital in most deals, generally in the range of $25,000 to $250,000. What other opportunities might the CFF consider investing in? 4
In order to address other gaps in the local food economy, the CFF would consider allocating a percentage of its funds in a variety of focus areas, including, but not limited to, the following examples: Short-term bridge funds to local land trusts and other organizations dedicated to land preservation Enterprises with a demonstrable impact on providing quality local foods to underserved communities within the Pioneer Valley Seed-stage enterprises that have completed training in business planning coordinated by the FWG. Please note that we will accept specialized proposals to administer one or more of these separate, smaller-scale funds, in addition to funds in other focus areas not included here. An administrator may propose to only manage small funds, and/or the entire CFF. The CFF might also offer a local partner the opportunity to conduct micro lending or provide small loans (i.e. under $25,000) to less documented early-stage businesses. Does the CFF expect to limit investments to businesses within a certain area? Our expectation is that the CFF will invest at least 60% of its funds within the Pioneer Valley. Recognizing that a truly revitalized local food economy is going to be nested within a revitalized regional food economy, the CFF would also consider investing the remainder of funds within a 100-mile radius, and/or within New England, where the funds would be specifically directed to existing investment partners who have conducted their own due diligence. Investors in the Community Food Fund What terms will be offered? The investment terms will be dictated, in part, by the terms offered to the community investors, who, as proposed, will be offered the positions shown below. These terms should be viewed as only preliminary concepts for how participation might be structured. We expect to collaborate with the administrative partner to further develop and refine the terms described. Additionally, we expect to work with the administrator to create a business plan for how this fund can carry forward, potentially growing, while still providing the fixed terms needed for investors. 1. First-Loss Investors (i.e. philanthropic investors): 0 to 4% Annual Interest Repaid Principal by the end of a 10-year cycle 2. Patient-Capital Investors (i.e. longer-term investors): 0 to 3% Interest Only Years 1-7 Amortized Repayment Years 8-10 3. Community Investors: 0 to 3% Interest Only Years 1-5 Repaid or reinvested at end of Year 5 (Minimum Investment $1,000 Max $10,000) 5
What would be an example of a deal? PVGrows works to coordinate all aspects of the necessary capital layering for financing significant system revitalization in the local food economy. Currently, businesses that apply to PVGrows may be eligible for limited grant assistance, support in business assistance from its members, loan dollars from the PVGrows Loan Fund, and referrals for direct investment from the PVGrows Slow Money Chapter. Recent experience shows that finding the right capital fit is critical to business viability. We anticipate that some businesses will need different types of investment at different stages, or even at the same stage of seeking investment, and hope to be an efficient link to the right capital. The CFF, as described, will have different types of investment capital, with different risk tolerance. These funds will be lent out on different terms, potentially to the same borrower. As an example, consider a deal where $100,000 is needed for an expansion-phase investment in a local farm-to-institution distributor: $25,000 securitized loan from the community investors into PVGrows CFF $25,000 securitized matching loan from the host administrator $25,000 longer-term, patient capital, revenue-based loan from the accredited investors into PVGrows CFF $25,000 of equity, secured through PVGrows Slow Money Pioneer Valley Chapter How will any profits be distributed? As currently proposed, the CFF may be a fixed life Fund 1, or it could operate as a revolving, standalone fund within an organization s set of offerings. The CFF will provide first-loss money to absorb losses, should any occur. The CFF administrator will be charged with balancing risk, rate setting, and the overall allocation of the funds to maximize impact, while striving to ensure the return of principle. At certain phases of the fixed life fund, after first-loss providers were made whole the administrator will distribute any profits, if generated. Distributions will be based upon a predetermined formula to be decided by PVGrows and the administrator. If the fund were to launch or transition into a revolving loan fund, profits would be retained by the fund. Raising the Initial Investment Pool What are the targets? The FWG has developed the following preliminary targets for raising the initial investment pool. These are preliminary estimates, designed to illustrate the scope of the project: 6
Fundraising Targets Pool 1 Loan Loss PRI Dollars Pool 2 Patient Capital Investment Pool 3 Community Investment Year 1 Year 2 Year 3 Totals % of Capital $50,000 $100,000 $100,000 $250,000 10% $150,000 $1,000,000 $750,000 $1,900,000 76% $25,000 $200,000 $125,000 $350,000 14% Investable Funds $175,000 $1,371,500 $2,215,570 Less Carry Fees $3,500 $27,430 $44,311 Funds Available for Investment $171,500 $1,340,570 $2,171,259 Administration How will the project be staffed? PVGrows Funding partners have committed funds to launch the CFF, and have committed to bringing on the necessary philanthropic partners to raise the entirety of the funding required for administrative purposes. At this time, we envision a half-time fundraising professional, a quarter-time investment professional, and a quarter-time administrative support role. The administrative partner(s), however, may structure staffing as they see fit. The funding partners have developed a pro-forma budget and estimate the fund will need grant funds between 50 and 100K per year, for the first three years of its operation. Additionally, PVGrows will fund and staff a Project Coordinator who will work approximately 9 hours per week on efforts related to the CFF. What is in the operating budget? The FWG s funders are committed to providing development assistance for the fundraising of the administrative costs, and have already pledged 50% of the grant dollars required. Responding to the RFP 7
If your organization is interested in partnering with PVGrows FWG as outlined here, please respond to this RFP by July 26, 2013. Responses should include: 1. General description of your organization 2. Your candid response to this offer, including the suggested scale, budget, and complete wish list, as presented. Feel free to share your own best thinking on how this all will work, and what aspects you think are viable, and what areas you would suggest modifying. 3. The aspects of this proposal your organization is interested in participating in or managing. Remember, a single organization could manage the full scope of work, or a specific area. Responses can take any form that your organization deems appropriate, and members of the PVGrows Finance Working Group will be available for further discussion during the response process. Direct responses and questions should be sent to Sam Stegeman, PVGrows Coordinator (info@pvgrows.net; 413-665-7100 Ext. 15) by July 26, 2013. 8