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Q&A with Claude Arpels: Investing with the Principles of Slow Money
June 22, 2017
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by Logan Yonavjak

Slow Money was founded on a core set of principles that differ from the way most investors make decisions. These principles emphasize patient capital and investing in local community – whereas the mainstream typically highlights quarterly earnings and profit maximization.

This series of three blogs seeks to better explain why some investors – in this case angel investors – have chosen to break away from the mainstream and align their capital with these Slow Money principles (a list of the principles can be found here). Additionally, the series will showcase a number of companies that have accepted capital from Slow Money investors and what characteristics they exhibit.

For this first article, we interviewed Claude Arpels, an angel investor and activist based in New York City. He’s a Founder of Slow Money NYC and also a current Board Member. As part of his role, he has done a lot to facilitate the flow of angel investment capital into companies that exhibit the principles of Slow Money.

 

SMNYC: How did you initially get involved with Slow Money NYC?

Claude Arpels: I started my career in an industry that I was born into because of a family business. When my family sold the business, I continued working in it as an entrepreneur. However, after I sold my last business, it occurred to me that I didn’t enjoy working in the industry and actually had some strong ethical issues with it.

I decided to look for other ways to apply my business experience and came across SMNYC through my own research. The group seemed like an almost-perfect convergence of my interests in business/finance/environment/food. After I attended a Slow Money gathering in San Francisco in 2011, I became more formally introduced into the national network.

Shortly after that, the NY group founded the angel investors network, which was originally called LION and later became Foodshed Investors NY (FINY) – we merged last year with another impact-oriented angel investors group called Investors Circle.

SMNYC: How did you get up to speed on how to think about investing in this space?

Arpels: At the time, it seemed challenging to begin something new, especially with no formal training in farming or the food industry writ large. However, there is no shortage of conferences/gatherings in this space. Also, we work within a pretty small and fragmented sector and a lot of people are making it up as they go, so this has made it easier for me to educate myself along the way.

A lot of the practices and principles of agriculture and growing food are age-old, but in terms of a sector for investment opportunities, it is very new. But again, there are a lot of people learning together, through trial and error.

In terms of investing my own money, I see now that our group fills an important a gap in the funding landscape. As impact angel investors, we are very much impact-first and very focused on a niche, which is the local sustainable food companies.

I started at first very small with my own money. The first deal I ever did I learned about through a national Slow Money gathering. To ease into it, I went in with a group of other aligned investors each putting in a relatively small amount of money as an easy way to minimize risk.

SMNYC: How is it different being an investor that bases decisions on the principles of SM?

Arpels: Slow Money investors tend to be very focused on two main variables like any other investor – risk and return. However, we tend to be more focused on risk than other angel investors. In other words, I will look at companies that are less growth-oriented and have longer track records, rather than ones that are aiming to grow rapidly.

The SM crowd also tends to differ from not only conventional angel investors, but from a lot of other impact angel investors. We really have a double focus: one is on sustainable food and ag businesses, and the other is on local businesses.

This makes the market for opportunities very narrow, and the focus on local does tend to have an impact on returns as it limits our opportunity set, but also what the entrepreneurs can do with scaling up their businesses. All of us are in this pretty much for environmental reasons, and that makes us very impact-first focused. Unfortunately, there really aren’t many investors who have been willing to fill the gaps we discussed; often, we take a lower return. Our approach tends to be closer to philanthropy than most impact investors.

SMNYC: Does the focus on food change the way you have to think about investment?

Arpels: The food sector can be a tougher sector to invest in than other impact sectors. If you compare other impact sectors like renewable energy or clean tech, these are areas in which you can definitely go in with high return expectations and find deals that will satisfy this. Once you get into food, already the sector will limit this. For one, there are just more layers in the value chain (retail, distribution, marketing, etc). Structurally, food businesses are typically going to be lower margin businesses.

Then, when you consider entrepreneurs who make a commitment in our part of the country to source locally, they are taking on significant economic challenges. For instance, raw materials are significantly more expensive than if you source them from large farms, farm belt, etc. (where there are much longer growing seasons and cheaper real estate).

However, one of the upsides you get from investing locally is a community variable. That’s what makes our approach to angel investing different from your typical angel investor who is in it for mostly the financial return. We look at community as part of the impact. The proposition is more about how you are going to invest in a company that doesn’t have an exit strategy but that you will interact with as a neighbor, or as a consumer regularly.

We don’t tend to invest the way most angel/venture groups do. In these portfolios, the typical approach is to bet on 100 companies and maybe only a few will be home runs. We instead aim for a small group of solid successes instead of one Unicorn.

SMNYC: How do we get more investors involved?

Arpels: Being very focused means that most of the investors in this space know each other well. Most of our investors and deals come through word of mouth. Our recent merger with Investors Circle allows us to be part of a larger network of angel investors.

Our pipeline still mostly comes from networking and being present in the sector, through conferences, doing deals, and so forth. However, I’ve found that building a community of investors who will do impact and are also open to potentially lower returns is challenging. Once people are actually confronted with a project and the prospect of a lower return, they typically won’t move forward.

With all this being said, growing this community of investors is one of the primary missions of Slow Money NYC, and one of the biggest challenges. In the coming months, we are planning to discuss many of these issues in a dinner series called “Jeffersonian Dinners” where people can talk openly about their concerns/aspirations as investors in the Slow Money Principles. My dream as an impact investor is to make a catalytic investment that can really accelerate change, both in the food system and in how people think about money and investing.

Please note: more information about these dinners can be found here.

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