Scene & Herd

Category Archives: Cienega Capital

  1. Cienega Musings: Root Cause

    by Esther Park

    I’m not exactly sure how I got connected to this guy, but one day I found myself at a club in Menlo Park across the table from a very traditional tech bro/VC type who said he was interested in food and agriculture. We had nearly nothing in common. This was back in 2015, not long after a good swath of Ohio found itself with unpotable tap water due to algal blooms in Lake Erie, which were caused by agricultural runoff. Toward the end of our conversation, my lunch date casually name-drops a famous band member (whom I was not hip enough to recognize) and says that he’s interested in investing in water technologies. Citing the water issues in Ohio, he asked if I knew of any interesting and investable companies that could address getting clean water to households. I told him that if his famous friend was really interested in clean water, the better thing to do is invest in strategies that help farmers stop practices that allow huge amounts of water to run off their lands along with the chemical amendments applied there. Stunned, he just looked at me like I had an alien head.  He didn’t say it, but I could see it in his expression: “how does that kind of strategy make any money?”

    I was recently reminded of this strange interaction while in conversation with someone about investability, which is usually code for generating goo-gobs of financial return.  Many non-profits and for-profit social enterprises lead with their impact statements of the social ills or problems they are addressing with their programmatic or consumer models. The tech sector is particularly notorious for thinking they can engineer or reverse-engineer any problem society offers up. And investors get excited at the prospect of profiting from models that generate revenue off of social problems.  Take the Ohio water problem, for example. Some tech/engineering company comes along and offers a great solution for getting water from an over-phosphorated state to a potable state. It will take huge water treatment plants, or technology add-ons to existing treatment plants, or some distributed model of water treatment that every municipality or household will have to buy.  That will generate TONS of money, right?  Right.  This is happening all the time. That’s why things like cleaning, detection, and synthetic technologies, along with externalities marketplaces get so much air time. Those are GREAT opportunities to make some money. In fact, sometimes they are so great that they reinforce the patterns that caused the problems to begin with. 

    Let’s take a couple of other examples. One of the most striking models to me is a traditionally-structured venture capital fund whose mission is to address poverty by investing in businesses that will create jobs and economic opportunity in low-income communities while also achieving venture returns. Seems like a great investment thesis.  However, if we believe that economic deprivation is a direct result of income inequality, I’m not sure how an investment vehicle that extracts value from these communities and creates more wealth for already existing wealth holders does anything to actually address the root cause of that inequality. (Let me also say, as a champion of nuance, that there do exist similar-sounding funds that downplay returns in favor of utilizing strategies to retain more of the wealth in the community.)

    And let’s not let philanthropy off the hook here. If the root cause of poverty is unfettered wealth accumulation and the resulting division of power and resources, how many foundations concerned with poverty are working to curb wealth accumulation?

    Getting closer to home, in the food and ag space, another favorite set of examples are companies that are addressing food deserts.  We all know that a lack of access to fresh fruits and vegetables in minority and low-income neighborhoods are a huge problem for a number of reasons tracing back to government-sanctioned land theft, ridiculous farming subsidies, and large-scale food system industrialization, just to name a few and for which there isn’t enough space to elaborate on here (but suffice it to say all these things also point back to unfettered wealth accumulation). Nevertheless, every year I see a new business plan that proposes to address the issue by opening small scale grocery stores or fresh food pop ups, or financing corner-store modifications or what have you. Sounds great. However, these strategies do not begin to address the reason this community became a food desert in the first place. And they likely further hamper a community’s reach for food sovereignty – the ability to make its own decisions about land use and food choices, to actively take part in the production and distribution of food, along with its economic benefits. Just look at where the profits are going.

    But changing root cause behaviors? Those are great opportunities to make very little to no money, so they attract very little investment. 

    As investors and philanthropists, we like to believe that we are critical thinkers, but how many of us are truly looking at root causes? Mostly we don’t because it’s inconvenient, it’s hard to find someone working on solutions that address them, and the financial returns are paltry to non-existent. Yes, sometimes we absolutely need to band-aid certain problems and there is no shame in that. But if we are truly committed to creating real systemic change, we also need to dedicate a good chunk of our portfolio investing in lower-return solutions to root causes.


    Esther Park is CEO of Cienega Capital, an investment company utilizing an integrated capital approach to systemic change in the areas of soil health, regenerative agriculture, and local food systems. She has 20 years of experience in mission-based financial services ranging from microfinance to risk capital investments. Read more >

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  2. Cienega Musings: Efficiency vs. Resilience

    by Esther Park

    One of the assumptions our portfolio is based upon is that decentralized, local, and regional food systems are more resilient than our industrialized, international food system. I didn’t quite think I would see that theory tested out in the way that it has this year. COVID has put a harsh spotlight on the fragility of our food system in a way we couldn’t have imagined.  We saw firsthand its brittleness when grocery store shelves went empty while food was being dumped or left rotting in the fields; when restaurants closed, effectively decimating markets for items like potatoes and lamb since people typically eat lamb and French fries when they eat out, and usually don’t prepare them at home; and when meat packing plants were crippled by a susceptible workforce. 

    Our current food system is built for and designed by pure economic interests that put profit above any other outcome.  In order for a system to squeeze out the most profit, it must become hyper-efficient. That is primarily what you see today – elimination of the small players and infrastructures, and for those that survive, it is likely a matter of time before it gets rolled up into a larger conglomerate operation. As operations become larger, they can split off into specialized functions, so you can have distributors that only service restaurants and you can have meat processors that only process pigs. Any redundancies or “stray” activities are eliminated and profits are maximized. But this system is not resilient.

    While the mainstream system faltered, we also saw market attention and demand shift toward local producers. When I couldn’t find eggs at the grocery store for days, my thinking went something like this: chickens lay eggs every day – there should be plenty of eggs somewhere – I need to get closer to where the chickens are so I can get my eggs. Clearly, I wasn’t the only one thinking in that vein. In the days following grocery store stockouts, farm businesses, farmers markets, and online versions of both were quickly inundated. And people were able to get their meat, their eggs, their kale (just kidding, I don’t think kale was ever out of stock). 

    These smaller scale farm and food businesses were more resilient and much better suited to address the needs of a pandemic-afflicted population.  Their businesses were diversified enough that they could push product meant for restaurants through their grocery and direct to consumer channels. While it’s a good story, there’s another underlying story that limits the extent of this resilience. What most people didn’t see is that while these businesses, and the infrastructure they depend on, were scrambling keep up, they were being stymied at times by our historic disinvestment in the systems we look to to be more resilient. Local meat producers were now finding that wait times with their processer were longer than ever, direct delivery companies amassed waiting lists into the hundreds and thousands, and Indigenous tribal communities went hungry as last mile logistics disappeared overnight.

    We can’t just wake up one day and turn to our local and regional food producers and expect them to deliver at the scale and pace of the industrialized system. Their own operations depend on the supply chain infrastructure we have in place, which has suffered from decades of disinvestment.  The problem is that investors want two incompatible things: we want the infrastructure to stay nimble and resilient, and we want them to generate financial returns that can only be achieved by huge scale and hyper-efficiency. Something has to give and we just need to decide which one we want more.

    Esther Park is CEO of Cienega Capital, an investment company utilizing an integrated capital approach to systemic change in the areas of soil health, regenerative agriculture, and local food systems. She has 20 years of experience in mission-based financial services ranging from microfinance to risk capital investments. Read more >

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  3. Investing Out and Spending Down: Creating a Beautiful Sunset

    by Esther Park

    In the face of international reports that the world only has 60 years of topsoil left, and just 12 short years until we face catastrophic climate change, the #NoRegrets Initiative decided to accelerate the pace of our philanthropy in particular and embarked on a 10-year spend down plan of those assets.  That seemed easy enough – we took our total philanthropic dollars and divided it by 10, and thus came to our target number for what we would put out in grants each year.  The first year we came short of that number, but told ourselves that as the regenerative agriculture movement accelerated, so too would our grantmaking.

    In Year 2, we largely hit our target for grantmaking, but then were faced with the fact that we had millions of dollars in liquidity, mostly sitting in cash.  Was that really the best use of those funds?  Prior to the decision to spend down the philanthropic assets, we had invested some of that capital into third party funds – private equity and venture capital type of funds that were investing in social enterprises.  The #NoRegrets Initiative has always been about being in direct relationships with companies and organizations, but using the philanthropic assets in this way made sense as a way to leverage our capital while waiting to grant out those funds.  However, most funds average a 10-year life, which means we would not see most of that capital back for at least a decade.  In the context of a spend down, that strategy no longer made sense.  If we were to invest the millions we had in cash, we would need to make sure we could liquidate adequate number of dollars to be able to make our grants in any given year.  How could we do this in a meaningful way?

    Given my background in community development finance, I knew there were loan fund intermediaries throughout the country that either offered notes to individual investors and/or took loans from banks and foundations to capitalize their funds.  So we set out to find the most mission-aligned funds out there.  Some of these were easy to find, being in our network already, and others we had to hunt down.  We started to map them out according to ability to liquidate, and the funny thing we found was that most note programs like to liquidate in odd numbered years (e.g. 1, 3, 5 and 7-year notes).  That was great, but how would we invest in notes that matured in even-numbered years?  It turned out that we could balance the maturities of our investments with loan funds that are willing to make customized arrangements with their capital providers, and we could make those liquidate in even-numbered years.

    The result was a really beautiful portfolio of loan funds, two evergreen equity funds, a REIT, and one bank – all addressing food, agriculture, and rural communities.  Here we share with you that list in the hope of inspiring you to create your own beautiful portfolios.

    • Boston Impact Initiative – This $10MM fund is an expansion on a pilot $5MM fund founded by Deborah and Michael Frieze (father and daughter) to address closing the racial wealth gap in the Boston metro area.  The fund utilizes a integrated capital strategy, using both loans and equity to finance minority-owned small businesses.  The fund is offering notes with maturities in 3, 5, and 7 years.  The 5-year notes are “philanthropic notes”, which carry a lower interest rate and are positioned as first loss.
    • Iroquois Valley Farm REIT (IVF) – IVF purchases land that is or is transitioning to organic and leasing it to farmers in the Midwest and New England.  A past investee, IVF offers 5-year notes as well as equity positions. 
    • California Farmlink – A small Community Develompent Financial Insitution (CDFI) loan fund making operating loans and mortgages to farmers in rural communities surrounding the Bay Area.  Also a past investee and grantee, CA Farmlink offers 2, 3, 5, and 7-year notes to the general California public for a minimum of $1,000.  
    • Montage Capital – A current investee, the mezzanine debt fund has a Social Impact sidecar fund.  The fund is raising additional capital with liquidity options beginning 5 years from investment
    • Craft 3 – Craft 3 is a CDFI loan fund serving rural Oregon and Washington, primarily making small business loans and providing technical assistance.  The organization offers 1,2,3, and 5-year notes to the general public.
    • Aqua-Spark – Aqua-Spark is an open-ended fund focused on businesses (globally) improving farmed fishing operations to be more ecologically appropriate.  The fund is taking investments on a rolling basis, offering liquidity as early as one year.
    • Natural Capital Investment Fund (NCIF) – Spun out of The Conservation Fund, NCIF is a rural-focused CDFI based in North Carolina, serving Central Appalachia and the Southeast.  The fund makes small business loans, including to farmers and agri-businesses, having recently doubled their lending to entrepreneurs of color.  Of note, NCIF has also recently launched the RESEED Recovery Fund to provide low-interest, easy to access loans to farmers affected by hurricanes in North and South Carolina.  
    • Coastal Enterprises Inc. (CEI) – CEI is another rural CDFI based in and focused on small business enterprises in Maine and Northern New England.  CEI has been a strategic partner to #NoRegrets investee Dirt Capital, and has a portfolio of farms/agribusinesses as well as renewable energy projects.  
    • Mountain Association for Community and Economic Development (MACED) – Based in Berea, KY, MACED is also a rural CDFI focused on small business loans and technical assistance throughout Central Appalachia and Eastern Kentucky.  
    • Equity TrustEquity Trust is a small loan fund based in Western Massachusetts, whose mission is “to promote equity in the world by changing the way people think about and hold property”.  The organization primarily makes loans to farmers throughout the US, and has a deep interest in alternative ownership models.  
    • Native American Bank Headquartered in Colorado with operations also in Montana, the bank is primarily owned and governed by tribes, and makes loans to Native American-owned and run businesses.  This investment will be a standard bank deposit, federally insured by the FDIC.
    • Hope Enterprise Corp. – Based in the Mississippi Delta, Hope is a local credit union serving underserved communities in the area with both retail banking and commercial lending.  At this time, we have not bee in contact with the company, but are awaiting additional information from another investor making a site visit.

    Esther Park is CEO of Cienega Capital, an investment company utilizing an integrated capital approach to systemic change in the areas of soil health, regenerative agriculture, and local food systems. 

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