Vermont Lowers Barriers to Small Local Investments

Vermont Lowers Barriers to Small Local Investments

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2007 was an eventful year for both Clean Yield Asset Management and the Slow Money movement. Clean Yield made its first alternative investment in food and agriculture that year, buying preferred shares in Organic Valley, the Wisconsin-based cooperative whose farmer-owners stretched all the way to Vermont. Our first direct-placement investment in a Vermont company happened that year, too. In October, Tom Stearns of High Mowing Seeds cold-called Rian Fried, our late founder, about investing in his Wolcott company. Rian was intrigued. “I felt that this was a rather perfect investment for many of our clients,” he noted, “particularly since I could keep a very close eye on it. I also felt that it was the kind of investment that would appeal to our clients’ desire to support and invest in securities that supported local communities and sustainability.” Just a few weeks later, at the annual “SRI in the Rockies” conference, Rian attended an Investors Circle seminar where he spoke with Woody Tasch about High Mowing Seeds. Woody, then chairman of Investors Circle, was interested in the business for a prospective fund he was aiming to launch, called Slow Money. A few months later Clean Yield invested $295,000 in High Mowing seeds on behalf of seven clients. And one year later the Slow Money organization was founded.

VT Statutes clipClean Yield now has almost $9 million invested in alternative and community investments. More than half of that is invested in New England enterprises, and $3.4 million is invested in Vermont, including over $2 million in direct private placements. Slow Money has expanded into 19 local networks and 10 investment clubs, and has helped catalyze the investment of over $35 million in more than 300 small food enterprises. The demand for direct local investment in small-to-medium size enterprises (SMEs) in food and agriculture is growing from both the entrepreneurs and the investors.

It’s a tribute to the dedication of patient investors that so much money was placed despite the inability of small investors to participate in the investment market for SMEs. Under federal securities laws, these types of investments were limited to qualified or accredited investors – that is, those who met high-net-worth or minimum-income requirements. But on June 16, 2014 state regulators approved changes to the Vermont Small Business Offering Exemption (VSBOE) that will allow all Vermont investors to support Vermont SMEs through direct equity offerings. The modifications will simplify the process and reduce costs associated with securities registration, allow businesses to raise more capital, and allow for a broader base of investors.

The federal securities laws that govern public offerings are complex. By limiting Vermont companies to selling stock in their businesses only to Vermonters, the new legislation is not subject to federal law. Provisions under the new law protect individual non-accredited investors by limiting their stock equity investment to $10,000. (Accredited investors, as before, will not be subject to such limitations.)

With the new regs, Vermont businesses and start-ups can now raise more capital by selling shares in their companies to in-state investors. When a business needs capital to grow but can’t obtain traditional debt, one option is to raise venture capital, but this can entail losing control of a company. Or it can raise capital through an equity offering, which avoids the immediate costs of servicing the debt and eliminates pressure to repay the investment. Equity also allows the owner to retain control, and depending on the structure, can provide income for the investor. Prior to this year’s changes, Vermont’s businesses were limited to a $500,000 raise. That lower ceiling has been raised to $1 to $2 million, conditional upon the completion of a financial audit and meeting specified financial reporting standards.

A number of Vermont businesses in which Clean Yield invests have come back in 2014 for a second capital raise to expand to meet rising demand. Just over 30% of Clean Yield’s alternative investments are equity, with the remainder debt or convertible debt.

 

Related Reading

Seed Capital,” a profile of High Mowing Seeds by Rian Fried.

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