The Silicon Valley has nothing on its little sister to the north when it comes to innovative laws for connecting small businesses with the investment they need to make a big step. Deep within Oregon’s Silicon Forest, laws passed earlier this year have opened the flow of investors to varied businesses throughout the state.
Hatch Oregon, a nonprofit incubator founded by Amy Pearl, worked with state lawmakers to develop Community Public Offering (CPO) rules that promote innovative, online investing engagement, similar to crowdsource funding that has become all the rage. Hatch Oregon’s CPO is similar in that the far reach of numerous small investors can mean significant investment dollars for Oregon businesses looking to grow. However it’s unique in that investors aren’t donors; they are given a return on investment either through loan repayment or equity in the company.
“It’s just a more balanced approach to economic activity,” Pearl said during a gathering of the first wave of businesses seeking funding through the new program. “The CPO creates a real stakeholder economy.”
Under the law, Oregon businesses can raise as much as $250,000 through crowdfunding on the Hatch Oregon site. Each individual investor can donate a maximum of $2,500. Like the company itself, the investor has to be based in Oregon. It’s Oregonians investing in Oregon business at the purest level.
Taking the leap
Two Eugene-area businesses that represent the state’s ethos of local sustainability—Red Wagon Creamery and Agrarian Ales—are among the first round of companies seeking funds through Hatch Oregon.
Red Wagon Creamery Co-founder and Director of Sales and Marketing Stuart Phillips said the investment program beats the traditional lending model of “going hat in hand to the bank and taking its terms.”
“The difference between this and traditional lending,” Phillips said, “is you get to decide if you want to do debt or equity or combo thereof. The entrepreneur is the one driving the train. Also, the entrepreneur is the one to set the terms of the deal.”
The owners of Red Wagon Creamery, an exploding ice cream company that started with a cart and is now developing expansion plans into southern California, wanted to limit debt during the large expansion of its operation. Taking on small investors allowed that, while also boosting local interest in the company’s success.
“We will end up getting more than a hundred Oregonians becoming brand ambassadors of our ice cream,” he said of those who have bought CPO shares. To date the company has raised more than $70,000 toward the $120,000 sought.
“They have invested in us and own a little piece of the company. They have a vested interested in our success. We like that. It ties into our local food ethos,” Phillips said.
Agrarian Ales has also gotten off to a strong start in its CPO. To date the company has raised about 36 percent of the $165,000 offering that the unique farm-based brewery will use to build the region’s first micro-processing facility specific to the brewing industry.
“We are ready to put down even more roots in Oregon by setting the stage to revitalize on-farm, micro-processing to make our endeavor absolutely local,” the company states in its offering document.
A strong start
Since launching at the end of January, Hatch Oregon has topped more than $200,000 in total investment. Though not the first, Oregon’s CPO has quickly become the model to follow compared to other states that have yielded more lackluster interest and investment.
“Oregon may not be the first state to pass such a law—it followed at least thirteen other states that have allowed investment crowdfunding within their borders. But it’s easily the fastest out of the gate,” wrote Bruce Melzer in an article on Locavesting.com
The secret sauce may well be the spirit of the businesses more than anything else. Those seeking funds are steeped in the cultural ethos of best practices, local investment, local vendors and healthy products.
Riding the wave of its initial success, Hatch Oregon will host a nationwide conference in September in Portland to help spur other states based on what’s working in Oregon.
Made in Oregon
Ever since the migration of Californians fleeing urban commutes and exorbitant real estate prices a generation ago, pride of place in Oregon has been a staple. Oregonians still discuss with a small measure of pride the famous quote in the 1970s from then Gov. Tom McCall who encouraged Californians to visit but, “for heaven’s sake, don’t move here to live.”
The often mythologized statement spawned a bumper-sticker and T-shirt craze stating, “Welcome to Oregon. Now go home.”
Most of the businesses to use Hatch Oregon’s funding platform are similarly old school – they are product, not tech, driven—but cutting edge with the type of products they offer. They want to scale, but do so with a focus on sustainability.
“We are not only buying our ingredients locally and supporting local farmers,” Phillips said of Red Wagon Creamery, “but now our profits are going to Oregon investors.”
Red Wagon started when the owners recognized the value of the growing interest in food carts and trucks, which Phillips says “was just becoming a thing.” It dovetailed nicely with the model of Ben and Jerry’s Ice Cream—in its early, privately owned years, Phillips stresses—who started selling artisan ice cream in Vermont.
“They took their traveling road show around to get Vermonters to invest. We really liked that. We liked that part of that story,” Phillips said.
The company’s ice cream cart has grown to a retail store in Eugene, two carts, a tricycle that sells popsicles and Oregon’s smallest certified dairy plant, which is just 200 square feet.
Revenues grew from just under $100,000 in 2011 to more than four times that in 2014. But the former lawyer turned ice-cream vendor says the true value of the business remains the joy of the product itself.
“There aren’t a lot of jobs you can have where you give someone the product and they immediately look happy,” said Phillips.
Rather than expand its distribution network to ever increasing distances from the Eugene operation, Red Wagon has decided to re-create the entire operation in other locales so as to both invest in the local business climate and community — and to reflect the local flavors. Since Eugene covers Oregon and Washington, the company will next expand into southern California.
“We did a lot of brainstorming on how we can take what we’re doing and essentially scale local food and have it still be local,” Phillips says. “An ice cream company back East makes local ice cream then ships it all over the country. By the time it gets out here you’ve kind of lost that local connection.”
He calls the added expense a “necessary sacrifice of profit to make the company what it needs to be, which is really a showcase of what’s local.”
In Palm Springs, California, the company has already identified its local farmers, the farmers markets it will sell from, and the products that will offer distinctive local flavors not offered in its Oregon location, like avocados and citrus.
The five-year plan is perhaps five locations along the West Coast.
“Beyond that, we just gotta see,” he says.
Central to that plan has been the public offering through Hatch Oregon. He encourages other businesses to pursue it, but to understand the work that’s involved, which includes crystallizing your company’s vision and promoting that at all times. Phillips says he talks up Hatch Oregon while scooping ice cream.
“It’s a great program as long as you come into it with your eyes open,” he says. “It’s a rare business indeed where people are lined up willing to give you money.”
Red Wagon now has 25 employees and a goal to create hundreds of jobs moving forward.“It’s daunting for us as we think back to two of us in a kitchen,” Phillips adds, which wasn’t all that long ago.
It’s hard to get more “old school” than an Oregon farm and it’s hard to get more Oregon than craft beer making. But it’s truly trendsetting when you take those two elements and combine them on the same location, creating what may be the first completely local farm-to-pint brewing operation.
“Agrarian Ales has solidified our position as one of Oregon’s most unique breweries, growing 100% of the hops, herbs, fruits and vegetables used in our beers and sodas,” states the company’s public offering. “In time, Willamette Valley farm-grown crops will comprise 100% of the raw ingredients processed at the facility…Oregon’s first, true estate brewpub (and potentially the first in the entire country).”
In addition to a working farm, Nate and Ben Tilley spent the past eight years renovating the old barn on the property that dates back to World War II into a vibrant microbrewery. The operation now includes a “table-at-the-farm” restaurant, as they refer to it, which is open Fridays, Saturdays and Sundays and touts a menu “comprised of 98% Oregon-grown ingredients, most of that within five miles of the brewery.”
“When I met the Tilley boys and came out to this farm for this first time it was kind of a dream come true,” says brewer Tobias Schock. “The driving philosophy behind the creation of this business is to keep a family farm alive and well and thriving into the next generation.”
Nate Tilley started brewing in his garage and said the growth from sales of the beer took off through word of mouth praise.
“It seemed very simple to take that to the next level,” Nate Tilley said. “My dad proposed the idea of using the barn. We hadn’t had the thought of putting a brewery out here in this rural setting.”
It’s an innovative idea that works as the farm has turned into a similar destination experience not unlike people who venture into rural areas to visit a winery. In short, it’s very Oregon, which is the point of the CPO from the outset and perhaps the most telling reason why the CPO has, at least so far, become the envy of states all across the country, including the Silicon Valley itself.