Domonique Juleon Emily Kanter

Dorothy Mitchell Colby Ochsner Anna Richter Sash Sunday

Business Plan

Acknowledgements

Thank you to the following people that supported us along the way and made this business plan possible:

Bert Loosmore, Michael Shuman, Amy Pearl, Jenny Kassan, Shaula Massena, Travis Williams, Keith Antonsen, Caleb Dean and Parker Oschner.

Also thanks to OlyKraut in Olympia, WA for supplying us with sufficent spicy garlic chi to get the creative juices flowing.

~ The Dirt Road Capital Team

Table of ContentsI. The Team...............................................................pg. 4

II. The Model..............................................................pg. 6

III. The Data.............................................................pg. 11

IV. External Environment.........................................pg. 14

V. Implementation Roadmap...................................pg. 19

VI. Risk Analysis.......................................................pg. 20

Appendix A (The Dashboard)Appendix B (The Financials)Appendix C (The Milestones)

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The team at Dirt Road Capital is plant-ing the seeds for a new system of place-based financing and investing in the Pacific Northwest food system. We see access to affordable capital as a critical leverage point in allowing food producers to thrive. Our role is to facilitate opportunities for food business owners to find financing by providing a mechanism for members of the community to invest directly in their businesses. Unlike more tradi-tional methods of investing, Dirt Road Capital’s offerings are rooted in the community, forged through personal connections, and driven by a shared desire to grow a healthy food system.

Our team includes active farmers, food processors, and food systems builders. From seed to retail, we have first-hand experience of what it takes to make it as a small business owner turning food into a livelihood. In our day-to-day operations, we will draw upon core competencies in community engagement, marketing, financial analysis, program evaluation, and organizational leadership that we bring from previous careers.

Moreover, with decades of combined experience working in the food com-munity in the Pacific Northwest, we have connections to the people and organizations that will help us identify the entrepreneurs and investors we need to make our business a success. Our knowledge of the non-profit, government, academic and for-profit spheres will help us engage a variety of stakeholders who have a part to play in creating a strong regional food system.

Our advisors and mentors are promi-nent movers and shakers in the local investing and food systems commu-nities. Michael Shuman, nationally known local investing activist with Cutting Edge Capital and Mission

Markets and author of Local Dollars, Local Sense: How to Move Your Mon-ey from Wall Street to Main Street and Achieve Real Prosperity is supporting our efforts around local investment mechanisms. Jenny Kassan, CEO of Cutting Edge Capital, is a resource for all things legal and provides a wealth of information about the market land-scape. Other mentors include Amy Pearl of Springboard Innovation and ChangeXChange Northwest, a local investing and trading platform; Shaula Massena - impact investing expert and member of Investor’s Circle; and Bert Loosmore - BGI faculty member, entre-preneur, and Slow Money Northwest management committee member. With their guidance, we have access to expert perspectives on multiple facets of our value proposition.

Our approach to our work is ground-ed in the systems thinking perspective we have learned through our MBA coursework in Sustainable Systems at the Bainbridge Graduate Insti-tute. The heart of our businesses is our commitment to reforging a food system based on strong community connections. By providing community members with tools to invest in their food-producing neighbors, we aim to transform how entrepreneurs raise capital while shifting mental models of what it means to make an investment. Dirt Road Capital helps people to truly “put their money where their mouth is.”

Grounded in our knowledge of the Northwest food system and with an abiding passion for seeing food pro-ducers live their right livelihoods, Dirt Road Capital is ready to blaze a trail between food and finance.

I. The TeamTeam MembersAnna Richter, Chief Managing Lead

Dedicated to help-ing the good caus-es of the world and to creating resilient food systems, Anna’s curiosity and drive have led her to Dirt Road Capital, where she contrib-utes to the strate-

gy and community of regional farms and investors. She has experience getting her hands dirty at a small farm start-up, Old Portland Farm. Anna’s leadership experience was honed through her work as the Director of the Nonprofit Technology Network, where she educated nonprofits in how to use technology to further their mis-sions and causes. Prior to her work in the nonprofit technology community, Anna lived and worked for three years as a Peace Corps Volunteer in Hondu-ras. She used her engineering skills to design gravity-fed water systems and honed her tech-for-good skills as the director of a local nonprofit, Guaruma, which focuses on environmental edu-cation through computer and photog-raphy training. Anna graduated from Michigan State University with a BS in Applied Engineering Science. She also serves on the board of Focus the Nation, a nonprofit working to create the next generation of energy leaders.

Sash Sunday, Financing and Account-ing Lead

Sash Sunday studied food and sustain-able agriculture at The Evergreen State College. She is a founding own-er of OlyKraut LLC, a raw sauerkraut company in the South Puget Sound whose mission is to grow the regional food system through farm-processor

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p a r t n e r s h i p s and establish raw, fermented foods as a sta-ple in the Amer-ican diet. Sash is the vice-chair of the Thurston Food System Council and a

member of small food and ag financ-ing organization in the Pacific North-west. She has led workshops and spoken on topics ranging from sauer-kraut making, to regional food distri-bution channels, to finance manage-ment in women-owned businesses. The challenges of the small food busi-ness owner are close to her heart and building strong, regional food systems is her bailiwick.

Emily Kanter, Business Development and Marketing Lead

Emily has a background in sustainable food systems strategy, non-profit management, community engage-ment, marketing and website design. She was former-ly the Assistant Director at Urban Glean-ers, a non-profit food recovery organization in Portland, OR from 2011-2013. Emily moved to Portland in 2010 from Boston, MA, where she was Program Director at the Sustainable Business Network of Greater Massachusetts. She also worked as the Outreach Coordinator for the Boston Local Food Festival, an event that attracted over 40,000 peo-ple in its first year. Prior to working for SBN, Emily lived abroad in the bus-tling metropolises of Buenos Aires, Argentina and Taipei, Taiwan, teach-ing English immersion classes to both

Team MembersAnna Richter, Chief Managing Lead

Dedicated to help-ing the good caus-es of the world and to creating resilient food systems, Anna’s curiosity and drive have led her to Dirt Road Capital, where she contrib-utes to the strate-

gy and community of regional farms and investors. She has experience getting her hands dirty at a small farm start-up, Old Portland Farm. Anna’s leadership experience was honed through her work as the Director of the Nonprofit Technology Network, where she educated nonprofits in how to use technology to further their mis-sions and causes. Prior to her work in the nonprofit technology community, Anna lived and worked for three years as a Peace Corps Volunteer in Hondu-ras. She used her engineering skills to design gravity-fed water systems and honed her tech-for-good skills as the director of a local nonprofit, Guaruma, which focuses on environmental edu-cation through computer and photog-raphy training. Anna graduated from Michigan State University with a BS in Applied Engineering Science. She also serves on the board of Focus the Nation, a nonprofit working to create the next generation of energy leaders.

Sash Sunday, Financing and Account-ing Lead

Sash Sunday studied food and sustain-able agriculture at The Evergreen State College. She is a founding own-er of OlyKraut LLC, a raw sauerkraut company in the South Puget Sound whose mission is to grow the regional food system through farm-processor

children and adults. In both countries she studied local food cultures and witnessed firsthand the detrimental effects of western globalization on native diets. Emily has a deep under-standing of the local and organic food industry - her family has owned and operated a natural foods grocery and health care business for over 38 years. Emily is passionate about creating strong local food systems that benefit the entire community.

Dorothy Mitchell, Operations and Management Lead

Dorothy brings to Dirt Road capital a combination of community connec-tions and professional experience relevant to the work of creating invest-ment opportunities tieing community members to local food producers. Through her former work with an agri-cultural gleaning program in Whatcom County, WA, she has formed many relationships with farmers in North-west Washington and the organiza-tions that support them. Her time as a program coordinator at the Oregon Food Bank honed her program eval-uation skills and facilitated additional connections to important players in the Northwest food system. She also brings experience analyzing reve-nue-generating projects and creating dashboards for the City of Portland’s Transportation Bureau. Dorothy’s pas-sion for connecting people in the food system and helping food producers operate more successful businesses drives her work with Dirt Road Capi-tal. With her analytical nature and eye

for detail, Dorothy helps DRC’s food producer clients make the most of current SEC secu-rities exemptions while staying on top of emerging opportunities in the

dynamic alternative financing arena.

Domonique Juleon, Sales and Cus-tomer Service Lead

Domonique is passionate about empowering indi-viduals through food. When people are con-nected to their food, they become connected to their own personal health, their community, and their environment. Domonique received her undergraduate degree in Economics from the University of Washington and for the last 12 years has worked with a variety of organi-zations in bookkeeping, finance, mar-keting, and general administration. Domonique has also worked with urban farmers and communities to find ways to bring food back into the cities. She brings both broad business experience and a passion for food and community to the DRC Team.

Colby Ochsner, Sales and Informa-tion Technology Lead

As a lifelong farm-er and rancher in rural Wyoming, Colby knows what it takes to manage a farm and under-stands small rural communities. He has new venture experience as a founder of Amped Strategies, a market research firm. Colby has also worked as a construction project esti-mator and knows firsthand how to cre-ate project takeoffs and analyze cost drivers. This experience complements his deep passion for building local food systems and for rural community development.

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Vision and PurposeWe believe that the presence of a local sustainable food system in every community is a key element in creat-ing positive social, economic and envi-ronmental conditions for all people, and that local investing is a key mech-anism in strengthening and growing these food systems. Dirt Road Capital aims to support local food investors as they determine the best places to invest their wealth, and to support local food businesses as they seek affordable capital.

MissionOur mission is to grow sustainable and healthy regional food systems by connecting producers and processors to affordable community capital.

Our Values1. We support sustainable, local-ly-based food systems that nourish the whole community.

2. We believe in access to affordable, locally-grown food for all people, and fair wages for all farmers and food workers.

3. We take a systems-based approach to solving complex challenges.

4. We believe that place-based invest-ing is an essential tool in creating strong local living economies.

5. We are practical dreamers. We use finance as a tool to fix some of the deepest problems within the food system.

6. We embrace fun, laughter and cel-ebration as essential elements in a successful business relationship. Our team works and plays together. Our

Value Proposition

Dirt Road Capital combines expertise in sustainable, local food systems with strong business acumen to provide investors and food businesses with a viable alternative to traditional investing. Our comprehensive, tailored financing con-sulting and Direct Public Offering design services help food businesses obtain much-needed capital to grow their operations. Our simple, easy-to-use invest-ment mechanisms and due diligence reports allow conscious investors to feel confident putting patient, purpose-driven capital directly into their local food system and realize positive returns.

II. The ModelOur Business Model

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Marketing PlanOur marketing plan will be carried out in multiple steps in order to support each phase of the business plan.

Launch Period:

During Phase 1 of the Business plan, marketing efforts will consist of a staff person calling and meeting in person with Local Investing Opportunities Network (LION) and Slow Money members currently pursuing financing projects. The original LION group is based in Port Townsend, WA; there are at least 4 other LIONs in Washing-ton and one in Portland, OR, as well as Slow Money chapters in Washington State and the Willamette Valley region in Oregon. The goal at this point in time is to establish our reputation by finding existing projects that could benefit from further due diligence reporting. Marketing will focus on out-reach about DRC services; specifically, determining if our due diligence ser-vices might be of use to current active investors considering local projects.

We will also begin the multi-stage pro-cess of building our website for our various stakeholder bases. Beyond the website, non-personnel expenses will be mainly limited to travel and phone costs.

Business Recruitment Stage :

Once we have produced and sold at least 3 due diligence reports to investors, we will have more credi-bility to begin engaging with food businesses that we believe would be strong candidates for an assessment of financing options, possibly leading to a next step of helping the business launch a Direct Public Offering. DRC has decided to specialize in creating DPOs because, although there are many types of financing that busi-nesses could pursue, we believe that we can build a strong reputation by focusing on one specific option. Giv-en the relative novelty of DPOs, we can create a niche for ourselves by offering this service. DPOs are flexi-ble (they can be used to create equity or debt), and local investing experts believe that they will play a key role in rejuvenating place-based investing; for these reasons we see them as a tool worth pursuing. In Phase 2, we will begin working with businesses to go through the paperwork and legal arrangements needed to launch the offering. Our goal is to have 20 DPOs ready to go before unveiling our online platform for investors in the next stage (see below).

Our marketing efforts will continue to focus on in-person relationship build-ing. We will send a staff member to ag-related conferences and events in the Pacific Northwest to participate and/or speak, as well as to farming and food business training and incu-bation programs as a guest speak-er. These training programs include WSU’s Cultivating Success program,

Target Markets

Our business engages two type of clients: community investors and local food entrepreneurs. Accred-ited or unaccredited, our investor clientele consists of people who care about their communities, believe in a strong food system, and want their investments to reflect their values. The left column shows the channels through which we will seek out these investors.

On the food business side, we will work with entrepreneurs who are already engaged in considering the next step for their businesses. Some of these businesses may turn to us because they have had difficulty get-ting the financing they need through more traditional mechanisms. The right-hand column describes the channels we will use to reach out to entrepreneurs. Our greatest focus will be on in-person presentations to individuals already pursuing business planning through classes, incubators, or other mechanisms.

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Slow Money Northwest’s business incubator program, Viva Farms’ farmer incubator program, and BGI-associated business incubators such as Fledge and Kick. This staff member might also conduct basic outreach to vendors at farmers markets. Communication with Slow Money mem-bers, LIONs, and other stakeholder organizations such as the Northwest Ag Business Council will also continue, including attending relevant meetings and conferences.

Our web presence will become more robust at this stage in order to provide a clear, consistent message to the busi-ness owners with whom we are starting to build relation-ships. The site will describe our services and provide infor-mation to help businesses determine whether they would be a good fit for what we have to offer. This will also be the stage at which we begin to pitch stories to the news media to raise awareness of our efforts.

Expenses will grow to include the cost of attending rel-evant conferences and their related travel, as well as the ongoing web development expenses.

Investor Recruitment Stage:

This stage of marketing aligns with the third phase of our business plan, in which we launch an online tool for unac-credited and accredited investors alike to invest in local food-based businesses.

The outreach to potential business clients described above will continue during this stage. In addition, we will ramp up marketing efforts to engage the general public and spread

awareness of our new local investment opportunities. Our website will gain new content, most importantly the web tool that allows for investments to take place. Social media outreach, especially for potential investors, will become an important part of our marketing toolkit. In addition, we will set a budget for search engine optimization (SEO) so that searches related to local investing in the Northwest point people in our direction.

In-person outreach will continue to be crucial, including attendance at relevant conferences and outreach to “loca-vores” at farmers markets. We will expand our aware-ness-raising to include announcements on popular food and farming listservs, while continuing to pitch stories to the news media. We will begin to advertise in relevant location-based periodicals, such as the Edible magazines, Sunset, and Grow Northwest. We will also work with retail-ers and restaurants that currently purchase products from the food businesses seeking financing, with the goal of finding creative ways for these partners to advertise the investment opportunities to their customers.

Online tools such as Food Hub could serve as a “rolodex” of existing food businesses for us to contact with informa-tion about our services. Expenses will ramp up again during this phase. Website development costs will continue, and we may engage an intern to take on some social media and other marketing duties. Conference and travel expenses will also continue. New expenses will include the development and printing of marketing materials, the cost of paying for advertising in the print media, and SEO expenses.

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Key Resources and Activities

Summary of Dashboard Indicators Dirt Road Capital’s dashboard is crucial to achieving our purpose of growing a sustainable and healthy regional food system by connecting producers and processors to affordable community capital.

The DRC Purpose Dashboard is divided into internal indi-cators and external indicators. The internal indicators are meant to help management quickly see if we are meeting our financial, social, and environmental goals in the quar-terly operations of the business. The external indicators are divided into two categories, one for producers/proces-sors and one for investors. By monitoring indicators that reflect both perspectives, we can assess the impact of our services on the financial and environmental health of the food system and its stakeholders, as well as tracking the degree to which community connections are being forged.

Without buy-in from both sides, our model cannot work.

The dashboard is not meant to be exhaustive of all the met-rics DRC should and will monitor, but rather to provide a snapshot that management and community stakeholders can view to assess progress toward achieving DRC’s pur-pose.

For more information please see Appendix A.

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Dashboard Indicators Matrix

Financial Environmental Social

Metrics: Net Income, Net Profit Margin, Working Capital

Metrics: GHG from operations Metrics: Overall Happiness rating, participation in office sponsored events

Metrics: Percentage of direct community investment in relation to overall investments, ROI to investors as an average of all investments

Metrics: Dollar amount invested in community‐based businesses per year, total value of community investment.

Metrics: Number of investors that attend community events, investors self‐reported level of community connection.

Metrics: Number of projects successfully funded as a percentage of projects in sales pipeline, food businesses' net income before and after capital fundraising.

Metrics: Number of farm acres preserved as working land, number of sustainability‐related improvements made by producers and processors.

Metrics: Percentage in total revenues that were invested back into community by processors, community attendance at producer/processor, DRC, or related events, number of local jobs created in regional communities

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Pro

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res

& C

ultu

reIn

vest

ors

Pro

duce

rs a

nd

Pro

cess

ors

(PP

)

Goal: Increase the amount of sustainability‐related farming/producer practices.  Protect environmental assets.

Goal: Increase the connection between farmers/processors and their communities.

Goal: Financially sustainable business model    

Goal: "Do no environmental harm" in our office footprint

Goal: Happy, innovative, and productive owners and employees

Goal: Twenty percent of total investment in community projects, no default on securities, measured community returns

Goal: Regional investment dollars that promote and protect regional food systems.

Goal: Investors that feel connected to their local and regional communities

Goal: Provide access to community‐based financial capital and sustain community businesses

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III. The DataRevenue Sources and Sales Projections

Dirt Road Capital will achieve self-sus-taining operations in its second year because of our diverse revenue streams, along with the relatively low overhead required of a financial ser-vices business. Dirt Road Capital’s major revenue sources include the fol-lowing:

Food Producer Registration Reve-nue: Farms and food processors will pay to have their business assessed finan-cially, socially, and environmentally. The food business first completes an application so that we can determine if they are a good fit for our services and pays a $50 application fee. A con-sultation session is included in the ap-plication fee to ensure the business is ready for DRC services. Then business owners can take the next step of em-ploying DRC to carry out the due dili-gence and produce a report, for which we also charge a fee. As a final step, businesses can pay to have the report listed on the DRC website. These fees

are tiered based on the following as-set brackets for the farmers/proces-sors:

Assets between $0 and $50,000

Assets between $50,001 and $100,000

Assets between $100,001 and $200,000

Assets greater than $200,000

Due Diligence Reporting Revenue:After DRC completes an assessment and produces a due diligence report, investors have the ability to purchase one of three report packages: 1 re-port, 5 reports, or yearly unlimited reports. The price structure varies based on three classes of investor: individual, institutional, and financial advisor.Financing Coaching Revenue: DRC is able work with food producers throughout the process to help them understand what their financing op-tions are and how the due diligence and/or a DPO could help them recruit investors. These optional coaching sessions are for businesses that may require additional support in addition

to the application consultation and as-sessment to understand their invest-ment options.

Investment Services Revenue: Starting in Year 2, DRC will set the stage for our highest revenue genera-tor: facilitating investments from com-munity members to food producers through our website.

DPO Services: In Year 2, DRC will work with food producers who would like to create a Direct Public Offering. We levy an assets-based fee for the service of setting up the DPO.

Investment Transaction Fees: Once the DPOs are available online, investors will be able to review the accompanying due diligence reports and invest directly into farms. DRC will charge a transaction fee based on the investment amount.

Investor Consultation: DRC will also charge for optional consulting with investors seeking to understand the risks and rewards of investing in their local food system.

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As a financial services business, Dirt Road Capital’s major expenses are sal-aries and systems development.

Salaries

We believe in properly recognizing and compensating the efforts of our team. In year 1, salaries make up 44% of sales, which rises to 65% in year 5. In addition to the six founders, we bring on one employee in Year 1, growing slowly to 15 employees in Year 5 to match our expected increase in workload and revenues. In Year 4 , it will be essential to bring a lawyer

on staff in order to structure the DPO agreements.

Systems

DRC will develop an interactive online interface with information for pro-spective clients, a database of due dil-igence reports, and a system for inves-tors to easily and securely purchase shares of food and farm businesses. A simple website will be created when we launch, which will grow as we add services. The full robust web interface

and database will be built in Q3 of Year 2 and launch in Q1 of Year 3.

Capital Expenditures

DRC purchases 7 computers for our office in Year 2 as an initial capital expenditure. Those are depreciated over three years at which point the computers will no longer be consid-ered capital expenditures; future tech-nology purchases will be considered expenses.

Major Operating Expenses and Capital Spending

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Funding Requirements and Profitability Pro-jections

DRC plans to fund start-up costs through a reve-nue-based financing plan. DRC will seek an investor who shares our core values and brings enough financing and investing expertise to be an active contributor to the DRC team. To assist with initial operations, DRC requires a $168,000 investment, which will give the investor 8.5% equity in the company.

When quarterly revenues exceed $60,000, DRC will begin buying back equity at 8% of annual revenues until a $220,000 payback has been met. Based on our projec-tions, the

internal rate of return is 17% and full buyback will occur in Year 5.

We predict slow and steady growth, with net profit be-coming positive beginning in Year 2. All revenue streams

result in positive net income, with the exception of fi-nancing coaching. We are willing to absorb a loss for this service, because we see it as a critical educational step to ensure that food and farm business are aware of the benefits and associated risks of DPOs and other financing options.

For more information on our financials and to view our pro forma, please see Appendix B.

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IV. External EnvironmentThe Economy: Impetus for alternative financing methods

While the Great Recession and sub-sequent slow recovery dealt a blow to business owners and households across the country, the economic via-bility of many smaller food producers in the Pacific Northwest has been un-certain for some time. Earlier studies by our team found that the average net income for small and medium sized farms in 2007 was only $7,000, with 50% of the operators of these businesses working an off-farm job to make ends meet.

Dirt Road Capital will serve both farm-ers and food processors in the Pacif-ic Northwest community. Our initial research, however, was directed pri-marily towards farmers in Washington State. There are approximately 2,200 farms operating on less than 100 acres in Washington State. Farm operators at that scale will be among our prima-ry clients, along with smaller food pro-cessing businesses.

Access to capital can be a significant barrier to profitability for a food busi-ness. There are few traditional options for small businesses seeking capital. Bank loans can be difficult to obtain because of complicated application processes and a low risk tolerance on the part of lenders. Investors general-ly expect high growth and a quick re-turn, which for most food businesses, especially farms, is not usually feasi-ble. Meanwhile, complicated securi-ties regulations designed to protect investors end up creating barriers that prevent most people from putting their money directly into local busi-nesses. As smaller, regionally-based businesses form and begin to scale, they will be seeking financing options and encountering roadblocks along the way.

A recent survey of regional fruit/vege-table farmers in Washington (Thurston, Lewis, and Mason Counties) found that about 42% would be likely to use loans to expand their current opera-tions, and around 85% would choose to reinvest their annual income in or-der to grow. When presented with a list of areas in which they hoped to expand their sales, including farmers market, CSAs, and selling to retailers, approximately a third of respondents saw each potential growth area as a desirable opportunity. [1]

Demand for local food is high, and food producers and processors could stand to gain from this trend if they are able to grow their operations or find a niche where they stand out. From the aforementioned survey, we observed some resistance to debt fi-nancing as a means of growth. Similar-ly, in a survey conducted the the DRC team, only 28% of farmer respondents expressed any interest in learning more about equity-style investments. We believe that lack of understanding of new community based financing methods is preventing local growers from accessing capital and taking full advantage of the market by growing or improving their operations.

Through education and outreach, Dirt Road Capital can help small busi-nesses improve their own accounting processes, increase their awareness of financing options, and bring val-ues-driven investors into the picture. In an industry driven by relationships and community connections, we be-lieve that farmers and food proces-sors might find it palatable to move beyond their comfort zone with eq-uity and debt financing if their inves-tors and lenders are not strangers, but rather community members and customers.

Market Analysis and Key Trends: Fresh ideas for financing and in-vesting

The 2008 financial collapse was, iron-ically, a key positive turning point for community investing. As investors be-gan to truly understand the volatility of the public markets, many also be-gan to question their investments into large multinational corporations and extractive industries. Movements like Slow Money and LION investing came into existence at this moment in time, when a shift occurred in the way inves-tors view both the financial and also the social, environmental and/or com-munity return on their investments.

Since the launch of Kickstarter in 2009[2], crowdfunding has become many entrepreneurs’ go-to mecha-nism for affordable capital—and “in-vestors” are coming out in droves to donate to the launch of businesses they care about. Over its four-year history, Kickstarter participants have channeled $531 million to businesses and projects they love. According to one report, crowdfunding platforms have raised over $5.1 billion dollars in 2013, with North Americans generat-ing 59% of the funds. A cumulative to-tal of 42.8% of total investments have been placed into the Social Causes, Business & Entrepreneurship and En-ergy & Environment categories of crowdfunded projects[3]. DRC’s value proposition is not based on crowd-funding in the way the terms applies to models like Kickstarter and Indiego-go, because our investors are putting in capital that they expect to recoup, with a return. That said, the trend to-wards people supporting companies they care about without expecting a high financial return, while also en-couraging their peers to do so, is a

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powerful wave that DRC will be riding.Unlike the donation-based model of Kickstarter and Indiegogo, other emerging companies such as Solar Mosaic offer an actual financial return on investment—as high as a 6.38% an-nual return over a 5-year loan period[4]. As of this writing, So-lar Mosaic sup-porters have in-vested over $2.1 million to fund solar installa-tions on low-in-come housing and other com-munity solar projects[3]. An-other peer-to-peer investment company, Pros-per, promotes a “seasoned re-turn of 9.09%” for lenders. To date, Prosper’s 1.6 million lenders have provided over $400 million in personal loans to bor-rowers[5]. Clearly, the tide is turning for community investing—more and more, companies are finding innova-tive ways to employ SEC exemptions and investors are taking matters into their own hands and funding the busi-nesses they care about. The JOBS (Jumpstart Our Business Startups) Act, signed into law in 2012 by President Obama, will hopefully help to change the landscape for unaccredited invest-ing. The JOBS Act has crowdfunding provisions that, when finalized, will al-low small businesses to bypass the big stock exchanges and sell securities to unaccredited investors online. There will be restrictions about who they can be sold through and how they can be advertised, and due diligence will be required part of the picture - making businesses like Dirt Road Capital es-sential to the movement.

A similar trend has been occurring with investments in the food and agricul-ture sector. Slow Money, a non-profit organization focused on supporting local and sustainable food business-

es, has catalyzed investors to “act as if food, farms and fer-tility mattered” and put money into businesses in their commu-nity that uphold the Slow Mon-ey principles[7]. Over the past four years, $25 million has been invested in 210 small food en-terprises across the country[8]. More than 650 people attended

the most recent Slow Money National Gathering in Boulder, CO. Among the participants were farmers, ranchers, food entrepreneurs— and hundreds of investors. A recent online survey conducted by our team revealed that over 54% of 44 respondents would be interest-ed in investing in a local food busi-ness. With access to solid financial and sustainabili-ty metrics, these investors (both accredited and un-accredited) would be more comfort-able putting their money directly into their local food system via equity investments. Dirt Road Capital’s due diligence reports can help farmers and investors create strong financial rela-

tionships. As the graphic below indi-cates, projects under the “crowdfund-ing” umbrella that involve equity tend to attract the largest investments.

Currently, many of the options for place-based investments have been “DIY” deals. In her book Locavest-ing, journalist Amy Cortese describes the successful funding efforts of an organic New York State dairy farm, Milk Thistle, through small, individ-ual loans from both accredited and unaccredited investors. Milk Thistle originally looked for funders by put-ting out a handmade sign at their farmers’ market booth—only to learn that they were violating Securities and Exchange Commission laws. Cor-tese writes of the farmer, “Hesse has succeeded, in large part, by tapping into a powerful movement that is centered on promoting locally pro-duced goods and supporting healthy sustainable communities. But he has also bumped up against its limits. It is easier for an individual to invest in a company halfway around the world than in a small enterprise down the street… in the meantime, millions of businesses like Milk Thistle are going begging for capital, unable to expand

or hire, and holding back an important pillar of a full throttled economic re-covery.”[9} Luckily, Milk Thistle found a willing and inexpensive attorney to

Credit: Crowdfunding Behavior Over Time (via http://blog.gogetfunding.com/crowdfunding-statis-tics-and-trends-infographic/)

Crowdfunding Behavior Over Time (via http://blog.gogetfunding.com/crowdfunding-statistics-and-trends-infographic/)

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help them through the challenging securities process and legalese. Not every business interested in creating a direct public offering has this resource at their disposal—hence the need for businesses like Dirt Road Capital.

Competitor Analysis:

Other players in alternative fi-nancing and investing

At present, agriculturally-based busi-nesses in the Pacific Northwest have a few options if they wish to under-take a project that requires significant capital. One resource is Northwest Farm Credit Services, a cooperatively owned lending association that pro-vides equipment and real estate loans, lines of credit, and a various financial services to the agricultural/fisher-ies/forestry related business sector.

Business owners can also approach their own credit union or bank, but may find a loan at a reasonable rate hard to come by. They can apply for grants, some of which are quite large, although designated for fairly specific projects. For example, the USDA of-fers the Value-Added Producer grant which provides $100,000-300,000 for the infrastructure development and marketing of a value-added product for a farm operation. These grants, however, involve an extremely rigor-ous application process and are highly competitive.

Fortunately, many alternative fund-ing mechanisms are developing or resurfacing in response to a growing need for capital for small businesses. Fan-based funding in the form of do-nations, pre-sales, and memberships has begun to take off. Community Supported Agriculture shares (CSAs) are a great example of how farmers have successfully engaged their loyal customers to obtain early-season rev-

enues in order to stabilize their finan-cial operations over the course of the season.

Seeking private investment is an op-tion that has been common in many other industries. Only in recent years have community-minded investors be-gun to explore ways of lending to or obtaining equity in food businesses in their area. The Local Investment Op-portunities Network (LION) is an ex-ample of a group of people that has risen to this challenge. They bring investors together who are interest-ed in putting their money into their community and then introduce them to local businesses seeking funding. Currently, the first chapter, based in Port Townsend, WA has loaned about $3 million to small local businesses, about 1/3 of which are food business-es. These deals are forged only once a relationship has been developed between the prospective investor and the business owner. They have primar-ily consisted of debt financing, with

The Competitor Landscape

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terms that were defined by the lender and the recipient and were generally more favorable than the rates offered by the bank. Slow Money members have been engaging in private deals of a similar nature, targeted specifical-ly to food businesses.

Direct Public Offerings, as discussed earlier, are an emerging form of financ-ing that is catching on among food businesses. The DPO process is regu-lated by the federal Securities and Ex-change Commission (SEC). Different methods of creating a DPO are possi-ble depending on which SEC exemp-tion (to an official IPO filing) makes the most sense for a particular business to pursue. For these types of structures, the SEC cedes a fair amount of control to the states, which means that one’s options might differ depending on the strictness of a particular state’s regula-tions. Given the lack of public aware-ness and understanding of DPOs, and the level of time and expertise need-ed to ensure that the offering is legal-ly sound, some enterprising financing experts have begun hanging out their shingle to facilitate these deals.

Cutting Edge Capital in California is al-ready working to structure DPOs and other forms of financing so that busi-nesses around the country can obtain community capital, including some food businesses (see Competitive Advantages below for more). In the Portland, OR area, ChangeXChange Northwest is working to educate peo-ple about DPOs and local financing, one Northwest community at a time, and plans to launch a regional stock exchange in the next few years so that shares of local businesses can be purchased and traded. Mission Mar-kets, whose founders also have ties to Cutting Edge Capital, is a platform that will take advantage of the new crowdfunding regulations in the JOBS Act by serving as a “portal” for trades

to occur. Their SEC-approved trading infrastructure is likely what will allow ChangeXChange NW to operate as a trading site. These organizations offer different services and work at differ-ent scales, but are important players in a broader movement focused on redirecting the money of a given com-munity from traditional, Wall Street investments to local business devel-opment.

As these various finance alternatives gain a foothold, there is a growing need for public education around how to engage with them. Small business-es need information on utilizing them and investors and community mem-bers need to understand how they work and why and if they are worth-while. To that end, we see the orga-nizations described above as poten-tial partners rather than competitors. Each has a slightly different niche and role to play in growing awareness and interest in investing based on shared values and the desire to strengthen one’s community.

As you will see below, DRC’s value proposition combines some of the el-ements of these other organizations into a unique offering, focused on a specific community. We will likely rely on examples from the groundbreaking work of Cutting Edge Capital when we outline our services to food pro-ducers, and down the road we hope to trade shares of the DPOs we create on ChangeXChange’s platform. We firmly believe that the efforts of all of these groups is “making a bigger pie” and that collaboration, not competi-tion, will result in the paradigm shift in investing and financing that we hope to make a reality.

Competitive Advantages

Community

Dirt Road Capital stands out because we are rooted in our community. Un-like traditional investment firms and popular donation-based crowdfund-ing sites, our business is centered around the idea of place-based in-vesting. Our due diligence services and website with investment oppor-tunities are designed to allow Pacific Northwest residents to fund business-es in their communities. We aim to link eaters with producers, creating invest-ment connections between communi-ty members and the people growing and making the food that they already purchase and love. Our team’s knowl-edge of farmers and food producers in Washington State will make us a trusted resource in this arena. At the regional scale, it will be possible for our team to develop personal relation-ships with the entrepreneurs looking for financing, and we would work to facilitate opportunities for investors to meet the business owners in per-son. For would-be investors hungry to take their commitment to eating local and buying local to the next level, we are a natural choice.

Innovation

A primary component of our compet-itive advantage is our unique value proposition. Companies like Oak-land-based Cutting Edge Capital are carving a new niche by helping com-munity business find new means of financing. Our model takes that con-cept a step further by offering that financing assistance within a specific industry in a specific place, and by of-fering the resulting investment oppor-tunities to unaccredited investors on our own platform. Our due diligence for local food systems investments in

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the Pacific North-west is also a val-ue proposition we have not seen elsewhere. Our arena is a fairly small and untest-ed niche market. The ideas behind our business have not yet gained common accep-tance, and for an-other company to attempt to repli-cate our model in the same location seems unlikely. Should our mod-el prove to be profitable, other e n t re p re n e u r s would probably think twice before attempting to com-pete with the one established player in this relatively small market.

In addition, our model anticipates new opportunities that might arise as SEC regulations are finalized and potential partners build their own platforms. Ti-tle III of the JOBS Act will make it legal for businesses to sell securities online to unaccredited investors, with a num-ber of restrictions around investment amounts and how the opportunities are promoted and handled. While many crowdfunding-type companies might burst onto the scene once the rules of the game are clarified, we be-lieve that our investing and financing services will stand out due to our geo-graphical and thematic focus. Further-more, we might profit from a demand for due diligence assessments, de-pending on the strictness of the regula-tions governing the level of disclosure needed for the new online offerings. Many of these emerging start-ups will try to continue in the Kickstarter and IndieGogo mold by listing cross-coun-

try investment opportunities, but our value prop-osition caters to people who are craving a way to make a tangible difference with their investments by putting them to work in their community’s food system.

Relationships

The personalized nature of our ser-vice will be a pri-mary distinguish-ing factor. In the early stages, we will be serving

investors who already have potential investments in mind; therefore, our services will be completely targeted around conducting the due diligence that those investors need to feel con-fident in their investments. Down the road, when we offer investment op-portunities to unaccredited investors throughout the Pacific Northwest, exceptional customer service will be a

hallmark of our activities. We aim to be available to any potential investor for a phone conversation - a level of service that most unaccredited inves-tors would be hard pressed to find un-less they employed a financial advisor. Given the novelty of our model, it is important that we give investors the opportunity to have their questions answered. Furthermore, we want to bring investors and entrepreneurs to-gether as much as possible, so facili-tating visits to farms and work spaces, or setting up other opportunities for all parties to meet face-to-face will be an important element in our approach.

In working with food producers, es-tablishing strong relationships is cru-cial. We will approach our initial as-sessment meetings with the farmers from the mindset of working with them to determine what type of fi-nancing makes the most sense, rather than pushing them towards a financ-ing mechanism that generates reve-nue for us. We know that the effort of going through a DPO is only worth it for committed entrepreneurs whose businesses can stand up to the risk aversion of potential investors. There-fore, we want to get to know all of our potential clients very well and ensure

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that we take on only those with a high potential for success. Simply put - we care about food producers. We love working with them and helping them overcome barriers to profitability. We will do whatever we can to point them in the direction of the opportunity that makes the most sense for their stage of business growth, and unlike many financiers, we will not be thinking only about our bottom line.

Trust

In the early stages, our reputation will rest on the strength of our due diligence assessments. Our team’s knowledge not only of financial met-rics and sustainability measures but also of the competitive landscape will position us to conduct thorough as-sessments upon which investors can rely. Partnerships with existing busi-ness incubators and educators who are working with food producers will

allow us to narrow in on entrepreneurs who are thinking critically about their business’s operations and what it will take to get to where they want to be. Our reports will provide an honest and balanced assessment of the risks and opportunities inherent in each busi-ness. Our due diligence will be on par with that offered by an investment firm in a prospectus for any of their securities, however, there will also be environmental and social metrics that would not typically be provided. The level of due diligence will be far more thorough than any background infor-mation provided as part of a typical Kickstarter-style crowdfunding cam-paign.

It would eventually damage our repu-tation to give investors false expecta-tions; therefore, we will make it clear to any business that participates in the investment process that our job is not to sell them to investors but rather to

facilitate financing opportunities by educating community members about local investment opportunities. Trans-parency around risk and our commit-ment to facilitating face-to-face meet-ings between producers and potential investors should make it so that each business can find the right investor fit.

Cited:

[1] L. Patzek, Personal Communication, May 30, 2013.

[2] http://en.wikipedia.org/wiki/Crowd_funding#History

[3] http://en.wikipedia.org/wiki/Mosaic_Inc.

[4] https://joinmosaic.com/

[5] http://www.prosper.com/about/

[6] http://blog.gogetfunding.com/crowdfunding-statis-tics-and-trends-infographic/

[7} http://slowmoney.org/

[8] Locavesting Amy Cortese 2011

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V. Implementation RoadmapBased on our research and revenue projections, Dirt Road Capital has a plan in place for our business to grow in three phases. Each phase involves projects and milestones that must build upon one another in order to fa-cilitate the next phase’s activities. Our revenue projections and profitability depend upon meeting the outlined goals.

In Phase 1, the first year, DRC will start by developing a basic website. This website will showcase what DRC is and how our services work. During this same time, the owners of DRC will reach out to their existing food networks, leveraging connections to find initial clients among food inves-tors who are part of the LION and the Slow Money movements. The website will be completed by month two, and serve us in garnering our first appli-cations for due diligence reports in month three. In month six Dirt Road Capital will begin to pay their operat-ing owners a salary. We will have cli-ents registered for post-assessment financing coaching by month six, and

rities from our food-producing clients. As this website is completed, DRC plans to have twenty direct public offering opportunities ready to pop-ulate it. DRC will also begin to earn revenues from investor transaction fees in the first quarter of year three. By the third quarter, DRC would like to have a long-term marketing plan de-veloped for Phase 4. In Phase 4, our fourth and fifth years of operations, Dirt Road Capital will have a steady stream of DPOs available on the web-site. Meanwhile, DRC plans to inte-grate into local stock exchanges (such as ChangeXChange Northwest, cur-rently in development by Springboard Innovation in Portland) and provide a catalyst for local investment and eco-nomic growth.

For more information, please see the attachment Appendix C.

begin earning revenue from due dili-gence reporting by month seven. In month eight DRC will strategically be-gin recruiting farms and businesses for their Direct Public Offering arm of services, and begin training to earn a Broker/Dealer license.

In Phase 2, the second year, DRC will begin the first quarter by opening up a brick and mortar location in a leased facility. Opening a location will give the business higher visibility in the community. In the second phase, DRC will fully launch our services to design DPOs for interested food producers. By the third quarter of this phase, DRC will have a broker/dealer license. At this time we will kick off development of a more advanced website that will allow investors to invest directly from our website into the Direct Public Of-fering of their choice. Phase 2 also includes several marketing outreach related events.

In Phase 3, the third year, Dirt Road Capital will launch the full website that allows for investors to purchase secu-

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VI. Risk Analysis

Factors to Consider Associated Risk CountermeasureExistence of a market of potential local investors in the Pacific Northwest

Our model assumes that there are people in Washington and Oregon who wish to invest money locally, but are not currently doing so. If this assumption proves untrue, we will not have local funders for the entrepre-neurs seeking financing.

The existence of local investing clubs and Slow Money chapters in WA and OR suggests that this poten-tial investor market exists, as does the presence of many “buy local” and “eat local” campaigns in Pacific Northwest communities. Meanwhile, crowdfunding campaigns are wildly successful nationwide. Our model taps into these three trends, allowing community members to support local food-based enterprises with whom they have an affinity. Should we find insufficient interest in the Pacific Northwest, we could alter our model to help businesses seek unaccredited investor funding from other parts of the country, using SEC exemptions beyond our primary tool, the Intrastate offering exemption.

Scope of market for due diligence reporting

Our value proposition assumes that lack of available information about the risk associated with local investment is a barrier for unaccredited and accred-ited investors to putting money into local food businesses.

If this assumption does not bear out, we might not have a market for a ma-jor element of our value proposition.

If customers prove unwilling to pay for due diligence reporting, we would simply continue to offer the same in-vestment opportunities on our website without charging investors to view the due diligence reports. Since we would have to provide an informational prospectus anyway, we will continue to carry out the due diligence. To make up for lost revenue, we could adjust the fee structure of the investment tool.

Residency of investors for Intrastate Exemption DPO projects

If even one out-of-state resident invests in a DPO launched through the Intrastate Offering Exemption, it would nullify the whole project.

Obtain addresses and contact in-formation for every investor. Once obtained, check the addresses against White Pages listings.

Number of potential food businesses seeking financing

Insufficient clients seeking financing will limit our potential earnings and re-strict the available investment options for our investors.

We will conduct targeted outreach to organizations and institutions already working with food businesses in order to connect with entrepreneurs looking to expand their operations or take on a new project. Once we have a few successful client stories to share, our reputation will likely spread by word of mouth in the relatively small food/farming community in the Pacific Northwest.

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Factors to Consider Associated Risk CountermeasureNovelty of value proposition Most people have very little under-

standing of the “standard” investment system, let alone an unproven local investing model. Lack of understand-ing might lead to reluctance to try it.

Our first step is to preach to the choir by creating successful outcomes for people already passionate about the local investing movement and looking to make deals with food producers in their community, such as members of the Slow Money movement. By gen-erating good press, we can then reach out to other groups of people who already value buying and eating local-ly. Our offering could be marketed in many ways depending on the target audience, including as an antithesis to Wall Street greed.

Success of businesses receiving financ-ing

If the businesses receiving financing don’t do well, it will mean a low ROI for the investors and they might pull out or not invest again.

We will conduct extremely thorough due diligence, and provide clear warnings upfront about the risk. We will work with as many businesses as possible that have gone through some sort of formal business planning training. In addition, by facilitating face-to-face meetings and visits be-tween investors and business owners, we hope to provide investors with a better understanding of the risk they are undertaking as well as a more per-sonal frame of reference for what their money is going towards. Our targeted investors are people who already be-lieve in building up the local economy and the local food system, and might be more willing to accept a lower ROI if they find the community and envi-ronmental returns attractive. Finally, we believe that investors will become loyal customers of the business if they are not already, thus contributing to the business’s success.

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Factors to Consider Associated Risk CountermeasureAbility of food producer to pay fees for the due diligence reporting

Many producers might not have the funds available to pay us to produce the due diligence reporting that po-tential investors would see

Before due diligence reporting, an assessment visit will be conducted with prospective financing recipients. Based on this meeting, we will work with the food businesses to determine the appropriate type of financing, which might not require production of a due diligence report. If the farm-er is unable to pay for that service, they might not be at a stage where they would attract the kind of invest-ment that would necessitate the due diligence reporting. In Phase 1, we anticipate that the investors might be willing to cover the due diligence costs on behalf of their prospective investees, since they have already expressed interest in that business’s success.

Willingness of food businesses to accept equity-style investments

If farmers and food processors are un-willing to sell shares of their business, it could limit our ability to launch and market DPOs.

DPOs based on lending are also a possible offering we could create for businesses unwilling to accept equity financing. Similarly, we could create revenue-based financing deals that would create some certainty for both parties around the amount to be paid to the investor and the financial stabil-ity of the business at the time of the payments. Finally, by educating farm-ers and food producers about what equity means, we hope to make the idea less foreign and more palatable.

Unpredictable nature of farming A bad weather year or crop year could mean no dividends or rewards for investors in farm businesses.

All of our information will be extremely honest about risks and expectations related to farm investments. Creat-ing personal connections between investors and farmers so that investors understand how each business works should enable potential investors to make educated choices. Finally, we will work with a variety of types of food producers (different types of farming and food processing) to provide a diverse range of options for investors to choose from.

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Factors to Consider Associated Risk CountermeasureExpense of filing and paperwork for DPOs

For offerings like DPOs, lawyers fees very steep, possibly out of range for food businesses or for DRC.

Paying a lawyer an hourly rate will be a considerable expense. However, after our lawyer has experience creating DPOs, the process will become much smoother and less expensive for subsequent offerings. Our lawyer may even be able to create a “fill-in-the-blanks” style form for DPO offerings to make the process easier and faster.

Ability to obtain information we need for due diligence reports

Some businesses might not have an-swers for us around some of the met-rics we need to produce the reports.

First, we will focus on working with businesses involved in incubator/training programs, who already have some idea of basic accounting and finance. We will also develop a check-list for interested businesses and a website with tools to get them started in thinking about the metrics we are requesting. We intend to work closely with the businesses to get the metrics we need, and will likely be able to ob-tain some of the needed information with limited input from the business owners.

Economic Stability If another recession occurs, people’s ability to make investments could decrease even more.

Our model allows for even very small investments. Furthermore, our primary customer segment consists of people whose commitment to supporting their community leads them to make financial decisions for the greater good. Finally, we can bill our investment offerings as a panacea to the type of speculation and fiscal irresponsibility that brought about the recession in the first place.