Farming out investors

Farming out investors
Dan Gibbs, CEO of Home Town Farms LLC stands at the site in Vista where a new retail store and greenhouse will sell and grow local organic fruits and vegetables. Gibbs is turning to accredited investors to get the new venture off the ground. Photo by Tony Cagala

How new SEC rules are helping one retail farming business to sproutVISTA — On the 4.6-acre dirt lot where Dan Gibbs is standing, there’s not much to look at save for weeds, a lone shrub and a couple of squirrels scurrying into holes in the ground.

But Gibbs can see clearly the growing potential (literally) of the lot on East Vista Way.

“The driveway will be right here,” he said, gesturing near where he stands. “We’ll have a 2,100 square foot retail store, and then a 53,000 square foot greenhouse behind it.”

By next spring he plans to begin planting and in the summer open the very first Home Town Farms in the heart of the city, which will give people a chance to buy locally-grown, vine ripened and organic food at non-organic, everyday pricing.

Gibbs, the 50-year-old CEO of Home Town Farms, estimates that he and his business partner Mike Castro will be able to produce around half-a-million pounds of vegetables and berries per year, using a technique called urban vertical growing.

He described the technique as a “high-efficiency growing system,” that’s used on millions of acres all over the world.

It’s a technique that’s been around for about 50 years, he said, but what they’re doing is scaling down how it’s being used worldwide specifically to fit within the urban city environment.

“There’s no more economical way to grow vegetables and berries than this model,” he said. “So I think once people find out that this is doable, most vegetable and berry production is going to come into the city; and outside the city farming is going to be your field crops, your tree crops.”

The rendering above shows the planned façade of Home Town Farms. It’s expected to open next summer. Courtesy rendering

The rendering above shows the planned façade of Home Town Farms. It’s expected to open next summer. Courtesy rendering

Not only is their growing model something that may soon gain attention, but also how Gibbs is getting the Home Town Farms business venture off the ground.

Gibbs is, in part, advertising for investors.

He’s started running ads in various publications, including the Rancho Santa Fe News (a sister publication to The Coast News).

In 2012, President Obama and Congress passed the JOBS (Jumpstart Our Business Startups) Act. With that, the SEC (Securities Exchange Commission) adopted new rules to allow private or public businesses to advertise for accredited investors, in what’s become known as Rule 506(c)

Advertising for accredited investors can be done anywhere from print to the Internet, social media, radio and TV broadcasts, according to the SEC.

Gibbs is relying solely on accredited investors for Home Town Farms.

Because of the expense of starting a new venture like this (it’s costing about a $1 million per acre to start this kind of farm, he said), turning to the smaller crowdfunding methods as say a kickstarter or indiegogo website wouldn’t be able to produce the amount of capital needed to get the business going.

“I needed to go after the larger investors that could see the vision and the possibility and the benefit of this,” Gibbs said. “But it hasn’t been done, so it’s risk capital.”

Accredited investors are legally defined as people having an income in excess of $200,000 to $300,000 for the past two years and expect the same for the current year, or someone that has a net worth of $1 million or more.

“Those people play a really, really big role in the startup community, and really in fueling entrepreneurship in the United States,” said Dr. Bennett Cherry, an associate professor of entrepreneurship at Cal State San Marcos.

What the accredited investor brings to a new venture is not only the money, but also possibly access to all sorts of networks — reputational, information, social — that gives the business access to resources they may not originally have had access to, Cherry explained.

Two of the investors that Home Town Farms could mention, Bill Scripps and Greg Horn, have been involved with the company since early on.

Horn, the ex-CEO of GNC (General Nutrition Centers), has been an accredited investor for at least 10 years, and said he’s been involved with Home Town Farms for more than a year.

He discovered the investment opportunity not through one of Gibbs’ advertisements, but through a concerted effort to identify businesses in the local and organic foods area with the highest potential, he explained.

“I think that the local and organic food movements are converging and I have been on the lookout for investments in this area because I think that the trend is so strong,” Horn said.

As an accredited investor, you’re owner of part of the equity, Horn said. “You’re sharing in the rewards of the company.”

Cherry said he knows there are a lot of people that aren’t happy with the idea of equity crowdfunding.

“But I also think it tends to be the people who have historically made money off of the traditional ways of seeking and finding equity investments,” he added.

Horn said the seeking out of new investors makes sense.

“It kind of democratizes matching investors who are on the lookout for businesses to invest in — just in a much more efficient way of matching them to the opportunity,” he said.

Though with more businesses being able to go out and seek more investors, one concern, says Cherry, is who is going to be watching over them? Who’s going to be making sure that there’s not a bunch of schemes going on or a bunch of fraud?

There are a couple of websites that help to verify those businesses looking for investors, Cherry said. Sites like Crowdcheck.com, founded by entrepreneurs and business lawyers, help provide some oversight of businesses seeking out equity investors for the public.

The SEC also offers some background information on the companies and private funds that have filed notice of sales with the commission.

With Gibbs’ business background as an entrepreneur, CEO and vice president, he envisions the spread of Home Town Farms to be really quick based on people’s reactions to it.

His intent is to take Home Town Farms national. While keeping their corporate stores in Southern California, he’s envisioning the countrywide stores to be run as franchises.

 

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