Published on ChicagoGrid.com on November 20, 2013
Say you’ve got an awesome recipe for home-grown organic pickled beets and a slapped-together business plan for selling them to Whole Foods.
Don’t expect to get your funding from SloFIG.
But the angel investment group might entertain a food business that’s a little further along, like Carl Alguire’s Smart Gardener. His company just landed $100,000 from the 20 Chicago-area angel investors who make up SloFIG, the Sustainable Local Food Investment Group.
Smart Gardener sells customizable edible gardens online and will use the funding to build an interface to loop landscaping businesses into the process. The company launched its beta site in January 2012 and is enrolled at Impact Engine, an accelerator program for socially responsible startups.
“We’re still largely in a pre-revenue stage, so this [SloFIG] funding is really important to maintaining our momentum while we develop our business model for adding landscapers to the site,” Alguire says.
Two-year-old SloFIG aims to fill a funding gap for small to midsize businesses and startups engaged in Chicago’s regional food chain. So far, the group has doled out close to $800,000 in debt and equity financing to a total of four companies — most of it in the last few months, according to Teri Lowinger, a founding member and also part of Hyde Park Angels, another Chicago angel fund.
Aside from Smart Gardener, other ventures that received financing include Erie St. Clair Restaurant LLC, partly owned by restaurateur Dan Rosenthal; Nellcôte, chef Jared Van Camp’s swank restaurant in the West Loop; and Moss Funnel Farms in Michigan, which received about $10,000 to package and freeze a bumper crop of blueberries last summer.
Since word of SloFIG’s formation hit the street, more than 60 applications for financing have poured in from smaller companies within 250 miles of Chicago. They’ve included Web-based platform creators, specialty food producers, and farmers expanding into ventures related to produce or livestock on their land.
Ironically, the bulk of investment dollars so far have gone to more established businesses — like Rosenthal’s group, which owns Sopraffina Marketcaffès — that likely could’ve found capital elsewhere. The problem, Lowinger says, is many applicants don’t have well-developed business plans even if they have terrific ideas or a promising enterprise underway.
“We want to promote the smaller companies, but sometimes there’s people who are getting into local food as a lifestyle business that’s not really long term,” she says. “Lots of companies meet our mission for rebuilding the local food system, but it’s not always clear they have a path for how they’ll pay back investors and give us a profitable return.”
For some, it’s just bad timing. SloFIG investors tell some applicants to come back when they’ve got more of a successful track record behind them. The group intends to support smaller entities when the right deals come along, Lowinger says.
It’s a Catch-22 for lots of early-stage players since they depend on outside financing to accelerate growth once they’ve used up their savings and borrowed money from friends and family, says Jim Slama, president and founder of FamilyFarmed.org, an Oak Park-based nonprofit that’s a key player in developing stronger ties in the local food network.
“Not every company is going to succeed, but there are going to be grand slams too,” Slama says. “We need investors that understand the niche and are a little more forgiving if these businesses don’t match up with typical expectations.”
Some startups in this realm have found other limited funding options. They include occasional loans from Whole Foods to its local food producers and the Frontera Farmer Foundation, a grant-making arm of chef Rick Bayless’ Frontera Grill Mexican food empire.
Many angel and venture capital investors likely shy away from local food companies because they don’t scale as rapidly as technology-based startups for a potentially quicker return on investment, explains Linda Darragh, executive director of the Levy Institute of Entrepreneurial Practice at Northwestern’s Kellogg School of Management.
SloFIG may have opted to fund more established operations as starters in its lineup for a better likelihood to show its initial investments have strong returns, Darragh says.
Lowinger notes the group is hoping to set an example and inspire other investors to jump into the local food sector as well.
“If we can put together a portfolio of companies that are profitable, it tells the investing community that investing in businesses in the local food chain is a good way to make money,” she says.
ABOVE: Carl Alguire, CEO of Lake Barrington-based Smart Gardener