“If you eat, you’re an investor” is the motto of Slow Money’s entry into the crowd-funding marketplace. Called Credibles – a word derived from “edible credits” – it joins Kickstarter, Kiva * , the now closed Microplace ** and others as alternative sources of capital for new or growing businesses ***. But it has important differences.
Pre-Payments Help Businesses Prepare, Plant or Expand
Credibles is based on pre-payments: you buy credits today that you’ll redeem over a number of weeks or months for whatever the seller produces – eggs, chickens, sauerkraut, restaurant meals and so on. For some Credibles purchases, you’re also rewarded with a bonus – think “baker’s dozen” – like a 10% bonus for a purchase of $200, or 15% bonus for $500. In addition, some offers include intangible benefits – Sow Juice, a juice company in San Francisco, for example, if you make a $500 pre-payment, they’ll give you a 10% bonus plus a private tasting of seasonal juices for you and three friends (presumably with the company founders, though this isn’t mentioned in the offer). I expect that we’ll see other intangible benefits for large pre-payments, like invitations to special events, special menu items, private tours of the farm or factory, and so on.
Raising capital using pre-payment isn’t a new idea – one recent example was Awaken Café in Oakland, which sold $1,250 gift cards for just $1,000 to help relaunch their business in a new location. Credibles hopes to make a difference by aggregating many pre-payment programs into one easy to use platform and providing a Slow Money stamp of approval for value-driven eaters.
With a pre-payment, the company gets an immediate injection of cash that can be used long before delivery of the goods and services. This is particularly helpful for farming operations that need to buy seeds and other inputs to plant crops that won’t yield revenue for many months; or for a restaurant that needs new kitchen equipment, or a jam-maker who needs to make a sizable deposit to rent space in a commercial kitchen, or a just-about-ready bakery that needs to handle a few more things like the last permits, a website launch, and so on.
Like a gift certificate, a Credibles purchase includes some risk. The pre-payment isn’t insured, and if the company goes out of business before you can use your credits, you’re probably out of luck. You might also not like the product or restaurant (it’s unclear if Credibles can be transferred to another person, so that you could sell them to your friend). If your investment was with a restaurant, not liking the food is not a complete deal breaker, because you can always use your Credibles on the wine list or cocktail menu (crinkables?).
Benefits on Both Sides
The pre-payment approach offers practical benefits to both sides. For a small investor who wants to put some of their money into local businesses that share their ideals, there are no securities laws to deal with, and so the program can launch immediately (note that the crowd-funding provisions of the JOBS Act of 2012 will be incubating in the SEC until sometime in 2014, and the other crowd-funding platforms don’t often work for everyday purchases). For the business, pre-payments look like gift certificates to the accountants and tax authorities, and they aren’t considered income like some other crowd-funding infusions are. Consequently, only businesses that are far enough along to be able to offer gift certificates would be eligible to participate – someone with a catchy name and snappy business plan but no product would not be eligible.
A key feature of the Credibles program is its easy-to-use interface that works on mobile phones (definitely on iPhones, hopefully on Android and tablets), so that the transaction can happen anywhere – at a restaurant table, at the Farmers Markets, at a pop-up – and without specialized hardware. In addition, participants will be able to get balance information and add new funds from their computer, phone or tablet via the web site (and probably via the App). At two recent presentations about the program, the organizers have said that they hope to add reciprocal transfers to the package, so that you can redeem Credibles purchased at Company A over at Company B (and then they’ll be transferred from A to B inside the Credibles network). And since the platform works in dollars (instead of physical goods), it could be used for business-to-business purchasing, like a yogurt maker purchasing berries from a farm at wholesale prices. The team is also working with grocery stores to enabling use of Credibles within a store to pay part of a bill, like the purchase of Farmhouse Culture kraut in a Whole Foods store.
Where Would You Like to Pre-Pay?
Right now, there are a handful of offers on the Credibles web site, with most in Northern California and one in New York. They include prepared foods as well as raw ingredients for home cooking. If you know of a business that you’d love to pre-pay, you can go over to the Credibles web site and click the “Suggest a business to join” button on the right side of the screen (or just click this link). You’ll be given a form in which you can provide multiple suggestions. Initially, and probably forever, the program is going to be “curated” to make sure that participating companies share Slow Money’s values. The convenience store in a gas station of a major oil company or a franchise for an international fast-food company would probably not make the cut.
* Kiva, an organization that facilitates person-to-person microloans throughout the world, has been facilitating loans in the USA since 2009. Originally that was though Kiva Zip, but now everything has been moved under the Kiva umbrella. (Return to text)
** Until it closed on March 31, 2016, Microplace facilitated microloans around the world, but whereas the person who lends to Kiva receives no interest, at Microplace you could earn interest on your microloans. (Return to text)
*** A “Progressive Opportunities” conference in 2012 sponsored by the East Bay Express included two sessions about funding that included panelists from Finance for Food, Cutting Edge Capital, the Hoop Fund, and Slow Money. (Details in the newspaper’s write-up.) (Return to text)
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