Next time my friend asks me about the risk of investing in a Slow Money type investment, I promise to counter with asking the risk of not investing.
In traditional finance, many stockbrokers and financial planners talk about risk as it relates to market volatility.
On the other hand, what most individuals mean when they talk about investment risk is the likelihood they’ll lose they’re principal.
Market volatility means little in local illiquid investments like the ones we’ve done in Slow Money and other ethical investments.
I think the answer to embracing risk in ethical investment is to first wrap it in community. Simple transactions without the warmth of relationships make loss unpalatable.
But wrapped in intentioned community, we ask better questions and make better decisions.
How Inspired Investing Found Itself Attached to a Good Food Movement
Just last week I was driving a friend to Slow Money’s sister organization, Slow Food.
As we drove, our conversation turned to the relationship between Slow Food and Slow Money, good food commerce, the Slow Food Presidia project, and the risk of making values aligned, ethical investing.
With the demise of Slow Money Southern California, some of us have asked to move the learnings more formally into our regional Slow Food Chapters with the idea we might continue to encourage good food inspired investment.
Introducing Slow Food Chapter committees designed to bring ethical investing more directly to the good food movement isn’t a bad idea.
Slow Money has always found inspiration in the Slow Food movement.
Even its name.
Motivated by the granddaddy of all ‘slow’ communities, Slow Food, Slow Money came to its naming at a farmers’ market in the heart of Italy.
In front of a cheesemonger’s stand, awed by the scents, the bustle of the market, and the timelessness of the generations-old craft represented by a middle-aged cheesemonger, Slow Money founder, Woody Tasch, knew the name for his investment ideas.
With approval from the Slow Food founder, Carlo Petrini, Slow Money was born.
Slow Money positions itself at the intersection of food and finance.
Woody’s background with early impact investing moved him to find real change in our financial system at the grassroots level.
Community investors with an unquestioned stake in their hometowns would bring needed investment dollars to change agribusiness back to healthy, holistic agriculture.
The vision for Slow Money formalizes an alchemy of finance around the Slow Food ideas.
Slow Food, with its mission of place and commerce for good, clean, fair food can use the mission-aligned investments from community member investors to further their work.
Infrastructure for Artisan Food Production
I’ve increased my understanding of the role of commerce in the Slow Food community from the Slow Food Presidia.
I’ve watched as the Presidia came to life through the Russian River Slow Food Chapter’s work to bolster the Gravenstein Apple crops in the face of the growing loss of orchards to Pinot Noir vineyards.
With hard work, a local apple press and many volunteer hours, Slow Food Russian River Chapter members have made inroads to protect the old apple orchards.
Just as the organizers of the Presidia project imagined, emboldened commerce saves a heritage varietal in Sonoma County.
The Presidia is a formal project of Slow Food. Not every sustainable food project centers on a heritage varietal or will make the prestigious ranks of the rigorous standards set out for a Slow Food Presidium.
But many small food businesses support good food ideals and supporting them financially can enhance a good food commerce.
Chicken or Egg
Small sustainable food businesses seldom yield business plans that are bank friendly.
Mission-driven entrepreneurs often embrace challenging business models because they build or design their businesses to increase:
- variety in our crop output or
- to bring farming back to its roots (no pun intended) of working with nature instead of trying to control it
In other scenarios, small infrastructure builds designed for local resilience need the economies of scale to make their margins work.
With traditional finance, as I’ve heard many entrepreneurs lament the difficulty in finding funding.
It’s a chicken and egg problem.
Both at the Same Time
What happens in community investment groups (whether Slow Money, LION, Judy Wicke’s Aunts & Uncles, or some other configuration) is a willingness to fund either chicken or egg and sometimes both at the same time.
These community-minded investors carry an understanding that, whatever the result, it’ll be better than the status quo.
But, I guess that gets me ahead of myself.
Small Business Investment Risk
As I mentioned, my friend and I were driving to a Slow Food leaders’ meeting. On the return trip, after listening to the local Slow Food board members explore the idea, she asked great questions, coming around to how slowing our investment process to look to returns beyond the financial bottom line can help everyone.
As she gained understanding about the Slow Money ideas, she asked questions about the investments themselves.
They were good questions. Here are the answers to several:
- Yes, the community investments are for food only (true for Slow Money). Slow Money’s explicit mission operates at the intersection of food and finance.
- Slow Money minded investors typically invest small amounts of money. Could be $25 through a crowdraise, or $1k, $5k, $25k or more. Most Slow Money minded investors who belong to investment clubs with a Slow Money investment thesis invest around $1k per investment. A few invest $5k. None invest more than they can afford to lose.
- In Southern California, we’ve invested in salsa makers, caterers, a gumbo maker, a gluten-free bakery, and a meadery, to name a few.
- We considered investing in a used tractor for a local farmer. For a bunch of suburbanites, the tractor held the most magic.
After deliberating for a moment, my friend concluded, this must be risky for your folks.
I responded quickly.
‘Yes, it is.’
Investment loss is a risk for all investments.
Never More Than You Can Afford to Lose
In the case of Slow Money:
- The risk is less because the folks we invest in are part of our Slow Money community. We know them, we care about them, they care about us. Being local we frequent the places of business and increase our sense of the business performance.
- Even with a loss, the risk to our overall portfolio is generally small because the dollar amounts we invest as community members are typically small.
In an earlier , we covered What I Know (WIK).
WIK is a paradigm spanning idea employed by the likes of Warren Buffett in traditional finance and many in the alternative economy movement as well as Slow Money.
Investors who spend time developing their WIK sense add another approach to loosing less money on bad investments.
Slow Money Networks aren’t banks.
Entrepreneurs don’t submit an application to get approval.
Generally, not always, but often, the dollar amount of the entire investment is only several thousand dollars or less.
(…there are exceptions to this. We’ve seen several projects in the six-figure range and large groups contributing).
To receive Slow Money, you need to be part of the Slow Money community.
Folks get to know each other over time within the community.
Work ethic, character and a bent for innovation become clear as we build our Slow Money network together.
Investors, interested community members, and entrepreneurs make up a Slow Money network.
Soul Food Farms
Since I had a captive audience for our drive, I went on to share one of our more well-known Slow Money stories.
One of the first Slow Money investments in California was for a chicken laying project in Northern California. The farmer abandoned the project when the cost of chicken feed spiked due to storms and crop failure on the east coast. The increased expenses meant the margins for the burgeoning business no longer worked.
However, what should have been a loss for the investors wasn’t….
At least over the long run.
Soul Farm owners committed to their Slow Money community and the early Slow Money minded investors who’d lent money for their dream.
In the end, they paid them back. It took a business model change from egg laying to lavender growing.
And, it took five years.
Nonetheless, Soul Food farmer/owners repaid the money.
Now that’s one story, and not all are so rosy.
However, we’ve found that making certain there’s a real relationship between an investor and an entrepreneur while keeping it local makes investing a little less risky.
The community-based relationships build social capital.
With experience we’ve developed through hands-on practice in nonprofits like Kiva and Slow Money, among others, there’s a growing understanding of how much social capital helps to overcome risk.
Just as large weddings are less likely to end in divorce, investments made while surrounded by the community are less likely to end in default.
My friend mused on my story for a while and agreed with my conclusion that relationship-based trust made our Slow Money minded investments less risky for our Slow Money minded investors.
The next day, while thinking about this exchange, I realized I’d missed an obvious opportunity to consider the risk and reward inherent in our Slow Money investments.
The entire mission of Slow Money is to move money away from fast money, derivatives and a capital market that looks to wring the most profit for shareholders, regardless of the significant costs to the environment, the workers and the surrounding communities.
While driving, my friend and I discussed a narrowly defined risk for the investment.
Slow Money looks beyond this narrow definition.
What Slow Money asks, is an understanding of the risk built into the current financial system.
In fact, Inquiries into the Nature of Slow Money, the book that kicked off the Slow Money movement, was published in 2008 at the end of the Great Recession when our WIK for financial risk was high.
The more substantial risk Slow Money vision alleviates is the risk inherent in a system based on extraction, tracked by obscure metrics, and defined by profit and greed.
Slow Money and Structural Change
By bringing money down to earth, by learning to invest as if food, farms, and the fertility of the soil matters, by reconnecting our financial transactions in human relationships, Slow Money eases a systematic failure around fast money and fast food.
Slow Money is a holistic approach with room for the possibility of investment failure. Investment failure, if it happens, is still an investment win for food, farms or soil health.
The individual business might fail, but the overall state of our agriculture improves.
A broader strategic win for human-scaled agriculture is always a destabilizing loss for a grandiose agribusiness that’s too big and narrowly focused on over-fertilized mono-crops that rob us of our topsoil and spoil our groundwater.
Some Slow Money members plan for success not in their financial return, but through a more holistic context as the impact on their local food system.
Woody calls this return agnostic.
We can borrow from this idea around structural change to all kinds of ethical investment practices.
Super Positive Philanthropic Returns
I just read about Super Positive Returns on Philanthropy from Jim Cummings back in 2014. He used the term to comment on Slow Money’s agnostic returns.
I like the idea.
Some of us, concerned about our environment, social justice or any other ethical causes may be contributing to local nonprofits and advocacy groups.
We make donations to support grants because we believe in the good work.
One way to consider any ethical investment is to consider it as you might consider a grant.
A grant that you hope is recoverable so you can redeploy your money to another worthy social entrepreneur, but valuable regardless.
Risk, whether to our principle, or our principals is a matter of personal choice.
However, the opportunity to broaden our understanding to include the nature of trust, community building and impacts is a way to improve our investment thesis and help us better align our investments with our values.
What kind of risks are you willing to take to bring impact to your communities?
Let me know in the comments below!