planning successful capital campaigns, nfca agm 2016

“Let’s put on a show!” Planning a Capital Campaign

Presented by: Ben Sandel

540-421-6976 [email protected]

Neighboring Food Co-op Association Fifth Annual Meeting, 5th March 2016

12.$About$the$NFCA$Flyer$

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NEIGHBORING!FOOD!CO-OP!ASSOCIATION!PO!Box!93!!//!!Shelburne!Falls,!MA!!//!!01370-0093!USA!

e:[email protected]!!//!!fb:!www.facebook.com/neighboring!!//!!w:!www.nfca.coop!! !

About!the!Neighboring!Food!Co-op!Association!

The$Neighboring$Food$Co/op$Association$(NFCA)$is$a$network$of$food$co/ops$that$are$working$together$toward$a$shared$vision$of$a$thriving$co/operative$economy,$rooted$in$a$healthy,$ just$and$sustainable$regional$food$system$and$a$vibrant$community$of$co/operative$enterprise.$

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Membership!

The!NFCA!includes!35!food!co-ops!and!start-ups!in!Vermont,!New!Hampshire,!Rhode!Island,!Massachusetts!and!Connecticut!(for!a!map,!visit!www.nfca.coop).!!!

Our!co>ops!are!member>owned!and!democratically!governed!grocery!stores!ranging!from!large,!multiple!storefront!retailers!to!smaller!community!markets!and!start>up!initiatives!that!have!not!yet!opened.!!Most!of!our!co>ops!have!been!in!operation!for!more!than!20!years,!with!some!founded!in!the!1930s!and!‘40s.!!Despite!a!difficult!economy,!many!of!our!member!co-ops!are!expanding!and!new!stores!have!been!launched!in!the!past!few!years.!!!

Co>ops!have!also!been!leaders!in!the!development!of!natural,!organic,!local!and!Fair!Trade!food!movements!in!our!region,!across!the!country!and!around!the!world.!!!!Shared!Economic!Impact!

Our!food!co>ops!have!a!combined!membership!of!more!than!90,000!individuals,!employ!over!1,700!people,!and!have!annual!revenues!of!$259!million!(nfca.coop/about).!!An!independent!study!found!that!in!2007,!when!the!NFCA!included!just!17!co>ops,!our!association!already!had!a!significant!impact!on!the!regional!economy:!! Support!of!Local!Economies…!

• Aggregate!sales!were!$161!million!(2007),!with!a!median!of!$3!million!and!an!average!of!$9.5!million.!The!median!growth!rate!over!the!previous!three!years!was!14%.!

• Purchases!of!$33!million!in!local!products,!or!about!20%!of!total!revenues.!This!proportion,!related!to!current!revenues,!would!mean!an!estimated!$50!million!in!local!purchases!in!2013.!

! Stable!Employment!and!Services...!• $28.6!million!in!employee!wages!(2007),!with!the!average!

wage!being!18%!higher!than!the!average!for!food!and!beverage!stores!in!the!same!states.!

• Co>ops!had!lower!staff!turnover!(36%)!when!compared!to!supermarkets!(59%)!and!more!staff!employed!fulltime!(62%!compared!to!43%!in!supermarkets).!

• Taken!together,!member!food!co>ops!in!Vermont!are!among!the!top!25!employers!in!the!state.!

! Support!of!Local!Government!and!Infrastructure…!• …including!$7.3!million!in!sales,!excise,!and!other!taxes,!!

$434,000!by!employees,!and!$500,000!in!property!taxes.!

What!We’re!Doing!

The!NFCA!communicates!our!co>ops’!shared!impact,!facilitates!peer!collaboration!among!our!member!co>ops,!promotes!co>operative!enterprise,!and!partners!with!likeminded!organizations!to!advance!our!vision.!!Special!projects!include!Healthy!Food!Access!for!underserved!communities!and!Regional!Sourcing!initiatives!(nfca.coop/projects).!

Following!on!the!momentum!of!the!UN!International!Year!of!Co>operatives!in!2012,!we!are!working!to!promote!the!International!Co>operative!Alliance’s!vision!for!a!!!!!!!!!!!!!!!!!!Co-operative!Decade!in!which!co>ops!becoming!the!fastest!growing!business!model!by!2020!(nfca.coop/decade).!

Our!Go$Co/op!!initiative!works!to!promote!co>op!products!and!encourage!cross!sector!education!and!collaboration!among!co>operatives!in!our!region!(nfca.coop/go).!

!$NFCA$Member$Co/ops$&$Start/Up$Initiatives$(Google$Maps)$

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What do we think about money?

!   “Money doesn't talk, it swears...” ~Bob Dylan !   “Money makes the world go ‘round” ~Fred Ebb !   “For the love of money is a root of all kinds of

evil ...” ~1 Timothy 6:10 !   “Money is power, freedom, a cushion, the root of

all evil, the sum of blessings.” ~Carl Sandburg !   “Money is a needful and precious thing, and

when well used, a noble thing…” ~Louisa May Alcott

Why do we raise $$ from owners?

Capital from owners is: –  Less costly – generally lower interest than money

from conventional lenders –  Subordinate – will take second (and even lower)

position behind bank loans, mortgages etc –  More flexible – more easily structured to meet the

financial needs of your co-op –  Unsecured – one of the few sources of capital that

does not require collateral –  Friendlier – easier to renegotiate or extend, if needed

It’s a good thing to do cooperatively

Association of Members (group activity)

Business Enterprise (building economic engine)

Community Focus (providing service)

Entrepreneurship (distributing risk, educating About cooperative business)

It’s a good thing to do cooperatively

Co-ops exist to serve their members, and capital campaigns enhance co-ops’ ability to serve them by:

–  Providing another meaningful way to interact with members

–  Offering an additional service of value to members –  Demonstrating the cooperative’s principles in a

tangible way

Planning for a Capital Campaign in 4 easy steps:

Step 1: Lay the legal & financial groundwork.

Make it legal

²  Find a good lawyer ²  Check state & federal laws & exemptions ²  Review bylaws, articles & incorporation status ²  See if Preferred Shares are allowed ²  Check if filings are required ²  Have your lawyer check your prospectus, subscription

agreement & promissory note ²  Start 3 months ahead

Develop your financial story

²  Work with an expert to create pro forma financial statements ²  Demonstrates due diligence ²  Defines your financial needs – like how much from members! ²  Will yield valuable information needed for other documentation,

first position financing, ongoing planning and monitoring

²  Decide which vehicle(s) your co-op will use

Member Loans or Preferred Shares?

LOANS !   Fixed payback dates !   Debt !   Easier ‘sell’ !   Members have more

control !   Established and

proven




proven

SHARES !   Buyback at board

discretion !   Equity !  More challenging

‘sell’ !   Board/ops have

more control !   Innovative with less

track record




proven

SHARES !   Buyback at board

discretion !   Equity !  More challenging

‘sell’ !   Board/ops have

more control !   Innovative with less

track record Both may require state or federal registration, and/or bylaws revisions.

Consult an attorney experienced in cooperative law AND securities!

A blended approach? Offering both member loans and preferred shares

PROS !   Offers options to members and board/operations !   Balance of equity and debt !   Shares portion is more flexible

CONS !   Increases paperwork, legal costs, complication !   More challenging ‘story’ to members !   Additional burden on operations !   May require more filings, registrations

And what about…

² Direct Public Offerings (DPOs) ² Private offerings ² Crowdfunding ² Crowdinvesting ² Grants ² Donations ² Co-op to co-op financing ² Economic development funding



Step 2: Build the campaign team.

Build the campaign team

q  Coordinator q  Callers q  Collectors q  Communicators q  Large investor connectors q  Administrative help and gofers q  Legal, regulatory, financial and campaign

expertise – Don’t underestimate the time commitment!

Coordinator

Callers

Ø A small group (2-5) of people who: Ø Like to ask people for money and are GOOD at it Ø Can instill credibility in 15 seconds over the phone Ø Are able to make a commitment for substantial time

for the duration of the campaign

Collectors

Ø Follow up with members who have made a verbal commitment, to: Ø Complete the paperwork, correctly Ø Answer any questions about the campaign Ø Finalize the details, including term and interest rate, if

applicable

Communicators

Ø Oversee the creation of all promotional materials Ø Establish a communication schedule designed to build

momentum Ø Coordinate communication across all platforms

Ø Postal and e-mail Ø Social media Ø Press releases and interviews

Ø Ensure members and the community get frequent updates on campaign progress and members get additional appeals

Large Investor Connectors

Ø Create target lists of potential large investors Ø About 2x as many targets as intended large investments

Ø Establish a customized strategy for each target Ø Gain audience with potential large investors Ø Work with the coordinator to craft materials tailored to

the target investors



Step 3: Target sources and develop strategies.


Sources and strategies ü  Pre-commitments – 10 to 15% ü  Large investors – 25 to 30 % ü  General membership – all the rest!

Pre-commitments from your board, volunteers and a few key supporters should make up

of your total capital campaign goal.



Step 4: Develop systems & materials.

Step 3: Target sources and develop strategies.


For legal compliance •  Risk & disclosure documents •  Promissory notes •  Share certificates •  Subscription agreements

Whatever else your lawyer says you should have…

Tracking systems

To monitor and assess all aspects of campaign progress and caller

performance.

Robust and tested… before you need them

Internal systems and materials

•  Call lists •  Calling scripts and talking points •  FAQs •  Accountability and org charts •  Workflow diagrams •  Thank you notes

Materials for communication and promotion

•  Brochures •  Appeal letters •  Testimonials •  Email updates •  Press releases •  Tracking systems •  Yard signs •  Confirmation letters •  Share certificates

Help is available !   In addition to the legal expertise, using professional

support for planning, implementation, marketing and other components can help ensure a successful campaign. CDS Consulting Co-op can help: http://www.cdsconsulting.coop/start_coop/

!   More information on planning capital campaigns can be found in the Capital Campaign Workbook on the Food Co-op Initiative website: http://www.foodcoopinitiative.coop/FinancialTools