[MUSIC PLAYING] TODD SCHMIT: Sorry. All right, guys, thanks for sitting through all these presentations. But today, Thomas, Fred, and myself will be presenting on the Hudson Valley Farm Cooperative, which is a proposed venture involving the Park Slope Food Coop as well. So diving right in into what the Hudson Valley Farm Cooperative is going to be, it's going to be a regenerative agriculture-based venture that raises money through an investment vehicle called a direct public offering, similar to an IPO, which I'm sure you've all heard about, which we'll get into more detail later. But a little bit more detail on what exactly the proposed venture is.
So first, it's based on regenerative agriculture. And I'm going to read a quote from the business plan that our client, Jonathan, gave us. And it says-- sorry, give me one sec. Yeah, the Hudson Valley Farm Cooperative will guarantee farm practices that build healthy soil and biodiversity, mitigate climate change, and prioritize animal welfare and social justice. So a big part of this venture is making sure that it's sustainable and regenerative. Jonathan has told us multiple times that regenerative agriculture is the core and what's going to be important in moving forward with this venture.
The second part, after all the funds have been raised, which, again, we'll get into more detail later, we'll be acquiring farms. So Jonathan is focused on acquiring the mid-sized, farms which have actually seen a 10% decline every five years in the past few decades. So the mid-sized farm is declining, but we want to bring it back with this new venture. The idea would be to raise $30 million and use those $30 million to buy 15 mid-sized farms for around $2 million apiece. Finally, where Park Slope comes in is that they're going to be kind of the co-sponsor of this venture.
So for the Hudson Valley Farm cooperative the plan is to use Park Slope's network and their expertise in this industry to create a board that manages, and then go to their members and use their network to raise all this money and execute the plan. And then, at the bottom, you can see, once all of these things are combined together, the regenerative agricultural piece, the Park Slope management piece, and actually acquiring the farms, you will get a competitive advantage to other farms and other investment vehicles. And this is one of the few opportunities where people can invest in a solely regenerative agricultural-based venture.
So then, moving on to what our task was so. As most projects, and I'm sure as all of you guys experienced, our end goal changed multiple times. From the beginning, we had a very grandiose idea of we're going to create an investor deck with a full financial model, but then, realizing that this is such a new venture, and while all the ideas are not fully fleshed out, there's still a very good outline there, our idea moved from creating a presentation deck that we could give to investors and the Park Slope board to focusing solely on research.
Our job, as you can see, was to fully gain a holistic understanding of what a DPO is, what its potential pitfalls are, and why it is such a perfect option for the Hudson Valley Farm Cooperative, and then present our findings to Jonathan, who's our client, who's kindly on Zoom today. Once we were able to do this and articulate everything to him, it would be very important that he has all the knowledge necessary or know the right questions to ask, know the right steps to take so that he could go to his board and pitch this idea to them to finally gain their approval. So I've talked a lot about the DPO now, but I'll pass on to Thomas to get a little bit more detail about it.
THOMAS: So I'm just going to give some more detail on the DPO, which we discussed briefly. So first off, it's a capital raising method. So it's another way to raise equity capital through the-- to raise equity through capital markets.
The second biggest point is you're avoiding the middleman. So instead of using an investment bank or a third party to market those securities and handle that process, you're selling those securities directly to the public. And with that, you have the ability to really control the process from marketing to the term sheet, and as well as the ability to reverse the process.
So if you don't get the expected demand or fulfill the amount of orders that you would have liked, you can reset and kind of go a different route and get those, bring those securities back in and not actually sell them to the public. And then, on the right here, we have some of the advantages as they relate to Hudson Valley Farm Cooperative. So from our research, we found that the DPO was really well-suited for HVFC given the ability to choose the marketing options and having less regulation from ICC, and controlling other important aspects of the process.
And that kind of goes into the pros and cons of the DPO. Some of these are more general. Others relate more specifically to the Hudson Valley.
So first thing, marketing discretion. You can choose how you want to market these securities, who you want to market them to, and kind of who is able to buy these securities. And with Hudson Valley, we talked about making the security accessible to everyone. And that's kind of a benefit of the DPO, especially the interstate DPO, which we were focusing on, is that you can have as many unaccredited investors as you'd like.
So, additionally, other pros are much lower cost insurance to IPOs, cutting out the middleman and not having to hire investment banks allows for those lower costs. Much quicker go to market speeds. Less regulation through the ICC allows you to go through that DPO process and raise that capital faster.
And then average investment holding period is longer. So typically, people invest in DPOs are more, I guess, invested in the company in the sense that they're going to be there for a long time. They have faith in the company to generate returns at some point in the future.
Some of the cons, which we discussed with our client quite a bit to figure out how we could present these issues to the board and how we can try to address these issues. The first one was liquidity. So since it's-- since the DPO is a less regulated product and it goes directly to the public, these securities often can't be sold in normal exchanges, like the New York Stock Exchange, unless they're above a certain threshold.
I think it's like, 50 million. So like Spotify, which we'll talk about, was able to sell their shares in the public. But for us, around 30 million, we wouldn't be able to do that. So figuring out a way to kind of solve the liquidity problem was something we've discussed, and are still kind of-- we're exploring with Jonathan.
And then, the DPOs are complex, and investors may not understand them. So they're slightly different from IPOs and they're not as well-known. There's different regulations that are-- different regulations you have to go through to fulfill the DPO and interstate DPO requirements.
And then, transparency was the last issue. So given that they're less regulated, and they're sold in over-the-counter markets, there's less information that's kind of delivered from the seller of the securities to the investors.
FRED: All right, thank you. So in order to further produce a generative dialogue for HVFC's future board of directors, our group conducted a series of case studies to better envision the DPO process. And as we know, the DPO, it can have some risks, such as liquidity issues and not being able to generate sustainable returns.
So we looked at success stories that would show how these sustainable returns can be generated. And it is important to note that with the DPO, you are able to make the laws and regulations and terms for the DPO on your own without the interference of a government entity or the trading platform. So here are some examples of DPOs in the agriculture sector, first of all.
First, we have Iroquois Valley Farm Land, and this is a public benefit corporation. They set a clear minimum on the investment process which was comprised of 17 shares at 5.99 per shares, and they also set this clear term that investors should not have a purchase that exceeds 10% of their annual income. And redemption prices are seen after five years. So this indicates that you're controlling some of the investment activities and you don't have one investor that's overwhelmingly controlling this whole process.
And in addition, Iroquois Valley, it's grown into what HVFC can develop into, hopefully, within the next several years, maybe within a decade. They now have a large diversified portfolio of organic farmland. They've grown from 10 farms now to 95 plus farms. And they have a gross market value of over $73 million. So this is very attainable if we have a sustainable business model with HVFC.
Now, with Real Pickles, this is a smaller investment, but we also wanted to show you how a financial entity could be present in organizing the capital raise and making sure that the community is involved. This is the message seen with HVFC as well. And you see this message with Iroquois Valley with regenerative farming. So we thought that this was appropriate as well. This was a smaller operation, but we found it very promising that they were able to raise half a million in capital within just a few months.
And now, if we refer to historical examples of successful DPOs, here, again, are some basic principles they followed and how they worked out successfully. So the first one we really see is Ben and Jerry's, where they had 3/4 of a million worth of funds needed to open their store locations. And again, they set a minimum investment requirement.
This is something that HVFC must consider and also pursue in the future, maybe, what's the investment requirement that would create sustainable returns for them? And they can ensure that each member's buy-in would make them interested in the business. So that's the purpose of this minimum requirement.
Now, with Slack, because they pursued a direct listing on the Stock Exchange instead of pursuing an IPO, this proved successful. And the stock actually opened 50% above the IPO price. With Spotify, we see that they went with one of the main reasons that companies want to avoid IPOs, and that's because they don't want all this publicity. They don't want all these fundraising and all of this planning that goes into the IPO process.
This was done in a quick way so that they would have liquidity, and they would-- those that wanted to be involved could stay, and those that wanted to jump ship could. They had the ability to sell their-- share their sells right away. So they didn't have to wait to take out their investment.
And then, lastly, this is a true success story, Amplitude, most recent. And it reached a market value of $7.1 billion after one day of trading. Now, this startup is in the tech and data analytics, but just goes to show if you organize and develop a good network of private investors that are ready to shell out capital and ready to support your business, such growth is very attainable.
SPEAKER 1: All right, and just to wrap it up quickly, we thought it would be useful to get some color on what the next steps are for the Hudson Valley Farm Cooperatives. The first is, obviously, board approval. This entire venture goes nowhere unless the board agrees to it. So this will consist of meetings with Jonathan and his team to pitch what we've given you, just a brief overview of to the board in much more detail, much more defined with actual numbers.
And then, once that's approved, you can eventually go into the capital raising part. That's, again, where that $30 million price tag comes in for the 15 farms, around $2 million each. And then, using Park Slope's expansive network and connections to raise this money. And finally, the execution of the entire plan, going and buying 15 farms and starting production.
Yeah, that's all we have for you. Just like to thank Jonathan-- I think he's on Zoom now-- for taking the time. Todd, Anastasia, everyone for listening. Thank you, guys.
TODD SCHMIT: All right, another example of pivoting during these types of projects. You guys pivoted well. Jonathan, any comments for the group? Jonathan's on?
SPEAKER 2: Yes.
FRED: We're having trouble hearing him.
TODD SCHMIT: Yeah. We're having trouble hearing you, Jonathan. Sorry.
SPEAKER 1: You could type your question as well, if possible. Yes.
TODD SCHMIT: Just speak louder.
JONATHAN: I think the biggest question I have is, when these three move to New York City, how does Mark move up?
TODD SCHMIT: So if you didn't hear that, he said, the main question he has is, when these three move to New York City, if you'll go to work for him as well to continue it.
FRED: We definitely want to buy some of these products in the future. I'll be heading over to Park Slope. I want some nice, fresh, juicy fruits. Whatever you got.
TODD SCHMIT: So a quick question here, actually, again is another example of not having to start from scratch and looking at some really good, applicable examples of others that have done it, which I think helps inform things. The one question I have is, do they see-- Park Slope is not a small food co-op, by any means. Do they see their members as a primary investor to pitch to? Their individual members?
THOMAS: I think their-- a bit of their members, but mainly the kind of network they've built out through the Park Slope Food Coop, like other food cooperatives, other agricultural areas.
FRED: If you don't mind, I just also wanted to add on that, within in our written report, we started exploring the option of pitching to like, sister industries of agriculture, whether it be fertilizer and seeds, or farming equipment, or anything else that has a symbiotic relationship with agriculture. This can create good returns and just expand the investor network further.
TODD SCHMIT: Those that would be types of services or products that would be utilized in this sort of venture would be a likely co-investors.
FRED: If this partner industry, they have a seat at the table through their investment, this could just create better deals, better opportunities for creating shared equipment, maybe getting better rates on equipment for the season.
TODD SCHMIT: All right, so are you guys going to keep all of us aware when the DPO goes live? You guys ready to--
FRED: Give you a promising investment opportunity.
TODD SCHMIT: Member of an investive shares co-operative.
FRED: Very lucrative.
TODD SCHMIT: All right, thanks, guys.
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Part of the
Grand Challenges curriculum, Cooperative Business Management (AEM3260/5260) focuses on engaged learning with community and cooperative clients.
In May of 2022, ten student project teams presented the results of their semester-long work with community partners. Professor Todd Schmit evaluates.
Project title: Hudson Valley Farm Cooperative DPO and Worker Equity
Community Partner: Park Slope Food Co-op
Student Team: Nikhil Iyer, Frederic Minzberg, Thomas Mocorrea