Becoming the Impact Investor an Equitable Food and Farming World Needs

Six Truths to Know Before Investing in Food System Change

The onus for creating a new vision of a healthy, equitable and vibrant food and farming system can't be on just the scrappy and hard-working farming and food entrepreneurs. They need investors to help them grow.
But not just any investor. They need investors that support their vision of a fair and healthy food system and understand that profit can be measured in more ways than dollar signs.

Truth One – You Can Leverage Your Capital to Help Fix the Food System

The traditional investment landscape has long focused on 'extracting' profit from our natural resources — and the people that have farmed and produced food with those resources. Countries built their economies on the wealth of their natural resources. But while creating our current eight trillion global food and farming economy, some critical steps were skipped along the way. We forgot to take into account the soil, the health of ecosystems, the people and communities that grew it, the nutrition of the food we produced, and ensuring that all humans had equal access to healthy, nourishing foods.

That system has been showing ominous signs of vulnerabilities for years, heightened by the coronavirus pandemic, the growing impact of climate-change catastrophes, and shifting and burgeoning global populations.

And yes, impact investments are making a difference, as responsible investors step up to finance the world they want to see. ESG (environmental, societal and governance) assets have grown by more than 274 percent since 2012, according to the US SIF The Forum for Sustainable and Responsible Investment.

Still, added up, impact investment has merely been a "rounding error" in the overall investment landscape, says Allison Kelly, CEO of ICA Capital, a Bay-area accelerator and investor in FS6 Portfolio company, Firebrand Artisan Breads.

So much more capital is needed for significant change.

Not only do those with the means have a responsibility to invest, they need to get it right this time around. Impact investors can do things traditional financing can not. They have the flexibility to seek out the "opportunities to be transformative," Kelly says, and find "ways that you can use your capital to demonstrate a new model of capital transactions."

Truth Two – It’s Time to Shift Your Investment Mindset

For mission-driven food and farming entrepreneurs like Jacqueline Smith, of Central Grazing Company, finding the right investor is challenging. They must be willing to understand her vision that "it all starts with the soil.”

Smith, an entrepreneur in the FS6 Accelerator's fifth cohort, is creating new opportunities outside of the commoditized agricultural economy for the devastated Midwest farming culture. Her business purchases humanely and regeneratively-raised lambs at a fair price from Midwest ranchers and sells them through a direct-to-consumer subscription box service.

From her perspective, investors who built their wealth by extraction must embrace a "fundamental mind shift" if they want to support transformative food system opportunities. They need to look at the entire "ecosystem" of the business they finance — including the animals, the soil, the environment and the community.

"Those things don't exclusively mean that the investor won't get a return on their investment," Smith says, "It just means it comes slower and it comes with care and patience."

Her investors, Smith says, get a return on “every single person in that ecosystem. It means better health, better stewardship for the land and eventually a return on their money."  

Truth Three — Understand, and Embrace, the Complexity of the Food System

A healthy, vibrant food system that supports its environment while feeding its people and bringing healthy returns to its producers isn't just a sum of its parts. It's more.

Food and farming is a fundamentally different sector compared to many others. And impact investors need to understand the complexity of how food production works, and just how entrenched our current food system is — or be willing to learn — before they invest.

Many angel investors coming into food systems cross over from tech, bring a "move fast and breaking things" mentality that worked in that sector but doesn’t mesh well in food. The whole structure of food is bound by complex layers of regulations, competition, decades of system building, tradition, culture, and mother nature herself. The food system isn’t something we can simply break apart and build back up with a “Food System Version 2.0.”

However, that doesn't mean there aren't plenty of potential pressure points where change presents opportunities; it just means that food and farming start-ups have to work around and within the very complex current system. A challenge made even more difficult when those entrepreneurs are focused on not just profit, but impactful change beyond the scope of their business.

Smith’s company is a good example. Her profit is based on the sales of the lambs she purchases. But by providing Midwest ranchers with a reliable, profitable outlet for their livestock, she has created a new market stream, and new farming possibilities, for far more than just the Central Grazing Company’s bottomline. And that’s the whole reason she started her company in the first place.

Truth Four - Food System Change Takes Time

Successful financing of transformative mission-driven businesses is built upon clear and realistic expectations between investors and entrepreneurs. Especially when it comes to profit and time on returns.

Farming and food production systems answer to mother nature's time-frame, not fiscal calendars. Food and farming systems frequently need longer-term commitment than is typical in many early-stage investment opportunities.

A new idea for annual crop production typically takes at least one season for the concept to be tested and analyzed. A second year to see how it works with the changes made from the first year. And another to refine and execute. The Earth takes 365 days to complete her rotation around the sun, no matter how impatient entrepreneurs (and their investors) are to see results.

Truth Five - What Do You Expect In (and for) Returns?

How much return is expected — including what is counted as "profit" — must be clearly communicated before investing. That said, there are many food system opportunities that can be competitive with early stage investment opportunities in other sectors.

Impact investors have been saying this for years but, with ESG investments outperforming traditional investment in 2020, we are seeing these chickens come home to roost.

But, there are also brilliant concepts that struggle to find early-stage financing. The idea may be solid, but it won’t yield traditional high-risk investment returns and be viable.

In these cases, impact investors should ask themselves – Is seeing the change you believe in worth it, if it means getting less return on your money than if invested elsewhere? And, what other "returns" are not easily quantified, yet make the investment worthwhile to you in the broader scheme of your ideals?

Matt Kreutz is CEO of Firebrand Artisan Breads, an Oakland, California-based bakery that bakes bread to change their employees' lives. They hire homeless and formerly-incarcerated individuals, breaking the cycle of recidivism.

Working to help empower marginalized persons to improve their lives is "messy," Kreutz says. His investors need to be on board with that and see the extra "profit" in what they do from day one.

Kreutz has learned that it helps to show investors exactly where profit that doesn’t appear on his bottomline, ends up. For instance, he takes five percent

cut off his annual profit and  donates it directly to his local community and employees. But, bottomline, his investors need to realize that while his model is profitable, going after higher returns would mean sacrificing his company’s mission and that’s not what he went into business for.

"They need to understand why they are invested," Kreutz says. "And why you are invested.

Truth Six — Be a Mentor Not Just an Investor

A successful impact-driven food system investment is the result of more than just financing. Mission-driven food system entrepreneurs need the guidance of savvy investors who understand what it takes to build a successful business from the ground up.

Investors should come to the table offering mentorship and relationship-building for the CEOs they support. It is their help that guides new entrepreneurs in making prudent decisions and building reasonable milestones for resiliency. Especially in those crucial early years.  

There's a balance between offering advice versus micromanaging, and entrepreneurs need to have the confidence to trust their judgment. But building a relationship they can lean on, a place for honest conversations and reliable advice, gives early-stage entrepreneurs the confidence to push forward knowing they have not just money, but time and human-support, behind them.

The Entrepreneurs are Ready, Let’s Fund Them

At Food System 6, our vision is to transform the way we grow, produce, process and distribute food. We help guide entrepreneurs and educate stakeholders and investors on the unique capital opportunities required for our entrepreneurs to succeed.

We believe that impactful food system investing can be rewarding in a way that traditional investing is not. It builds wealth that creates capital and assets far beyond individual pocket books.

We have the entrepreneurs ready to make the change. Now we need the investors willing to empower them to do so. Let’s all step up to the plate and create the food system we’d like to see.

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Caesaré Assad is the CEO of Food System 6 (FS6), a non-profit based in the San Francisco Bay Area whose mission is to support impact-driven entrepreneurs as they transform how we grow, produce, and distribute food. The organization runs a comprehensive accelerator program that mentors entrepreneurs by coaching them through a wide range of business and organizational needs. FS6 also works to educate stakeholders on the unique capital needs related to redefining the food system.