Fertile Ground

Cultivating a business in and around the capital city requires amending the investment soil

By Lucas Conley

It didn’t take an MBA to identify the bottleneck in Kenneth Baltz’ supply chain.

“His entire supply of eggs would be sold out within two hours of opening the Farmers Market,” Sarah Noss, the executive director of the Santa Fe Farmers Market Institute, recalls. “Then he’d just have to sit there for the rest of the day.”

Baltz needed more chickens. One year later, with the help of a pair of small FMI loans, the 60-year-old semi-retired farmer had them. Eight hundred more of them, in fact—plus a new 6,000-square-foot pen to protect his investment from the coyotes that frequent the farm he and his wife, Judy, own just north of Abiquiu.

“Not only have I doubled my flock,” Baltz says. “I’ve doubled my eggs and doubled my customers. Those loans really got me up and going.”

For farmers like Baltz, the FMI offers a welcome solution to capitalism’s classic chicken-and-egg dilemma: Entrepreneurs want money to grow their businesses, but lenders want to see a business grow before investing their money. By removing many of the typical prerequisites to getting a loan (submitting to stringent credit checks, filling out stacks of paperwork, writing a detailed business plan), in just two years, the FMI has been able to provide more than 50 farmers across northern New Mexico with a total of $127,000 in low-interest, community-funded microloans, ranging from a few hundred dollars up to $5,000.

FMI’s refreshingly utopian program has quickly assumed a vital role in the regional food ecosystem. But as the spring growing season looms and farmers look to borrow money again, Noss says FMI’s funds are nearly exhausted.

As the global economy has retracted, local growers, distributors, restaurateurs and innovators at every level have found the challenge of starting or growing a business increasingly difficult. The added economic pressure compounds a host of long-standing regional issues—from rising land costs and dwindling water rights to Santa Fe’s high cost of living and insufficiencies with local infrastructure.

Despite these challenges, entrepreneurs large and small are successfully navigating New Mexico’s investment landscape.

From subsistence to success
Kosma Channing isn’t the bookish type. By his own admission, the 27-year-old farmer barely graduated from high school. Nevertheless, Channing does know a thing or two about running a business. By methodically building up his farm and undercutting farms from out of state, he and his brother, Teague, 31, have created Gemini Farms, a Las Trampas cooperative founded with a small loan from their mother just eight seasons ago. It’s now a stove-top name around Santa Fe’s best kitchens. La Casa Sena, Santacafé, Body—in all, more than a dozen of the city’s most discerning chefs buy organic vegetables from Gemini.

Success has transformed the Channings’ operation into one of the larger non-wholesale farms in northern New Mexico, incorporating new fields and crops, irrigation systems and additional infrastructure, like hoop houses, raised beds and a cavernous storage cellar. Through it all, they’ve adhered to one basic fiduciary principle: “If we don’t have the money,” Kosma says. “We don’t buy it.”

But as their farm has grown to the point of requiring more land, the Channings have had to face the prospect of reconciling their high ideals and their low income. Even if the Channings overcome their ideological reluctance to borrow, more practical questions remain—like where they’ll find financing.

(Really) Slow Money
The search for financing is what drew some 25 small-business owners to a two-hour “Realities of Financing” workshop at the Santa Fe Business Incubator this past February. Produced by the Women’s Economic Self-Sufficiency Team (WESST), a nonprofit economic development organization aligned with the Small Business Administration, the workshop featured a panel of local lenders, among them ACCION, Capital Bank and The Loan Fund.

Advice and empathy flowed freely. Capital, however, did not. Panel members heaped on the encouragement and platitudes but, by the time the Q&A session rolled around, the “loan luncheon” left an aftertaste of rejection.

One attendee, a volunteer with SCORE, the free business counseling service, expressed his frustration. “Our clients are hitting a brick wall,” he said. “We’ve helped them prepare a business plan and sent them out to lenders to get some money, but there’s no money to be had!”

Friends, fools and family
According to Michael Schafer, managing partner at New Mexico Community Capital, many investors are more interested in good ideas than business plans. “Most of your investors are looking eye-to-eye across the table. They don’t require a business plan,” he says. “Traditional lenders are required to see one, but most start-ups get their capital from friends, fools and family.”

Such was the case with Nathan Gonzales, the founder of Southwest Bio Fuels, based in Albuquerque. A mechanic in the family trucking business since age 8, Gonzales, now 28, learned how to convert vegetable oil into biodiesel while in the Army. Using homemade biodiesel in the family’s fleet came naturally, but his dream of building a biodiesel plant from scratch was something else entirely.

“Making biofuel is easy, but making it right is hard,” he says. “There’s 1,001 ways to do this, most all of them are incorrect.”

To raise the $400,000 he needed to make his plant a reality, Gonzales turned to a variety of sources. The first $200,000 came from his father and an SBA “patriot loan,” while LANL’s Venture Acceleration Fund and an “angel investor” from Taos kicked in the rest. Now up and running, Gonzales says he’ll have a network of 300 restaurants supplying oil by this summer, enabling him to sell biodiesel to clients like University of New Mexico for 18 to 20 cents per gallon less than conventional diesel.

World class
At the upper end of New Mexico’s investment ladder is water treatment company MIOX. MIOX’s chemical-free water purification technology can be found all over the world, from hand-held units employed in disaster areas like Haiti to massive room-size units installed in luxury hotels and cruise ships.

Having raised some $42 million (including investment by NMCC), the 15-year-old firm is by all accounts the state’s largest venture-capital-backed company. Chief Executive Officer Carlos Perea notes MIOX has had to reach well beyond local “friends, fools and family” to grow.
“To be a world-class company, you need world-class investors and management,” he says. This often means finding capital and talent outside the state. And, as New Mexico isn’t the most centrally located place for a global corporation, MIOX opened a second office in Philadelphia in 2009.

Despite these issues, Perea stresses that MIOX is, at its core, a New Mexico company.

“One of our board members is a New Mexico-based venture capitalist. And we’ve always had a desire to employ people in New Mexico,” he says.

“As a New Mexican, I want to see us create an explosive economy here. There’s no reason we can’t be competitive.”

Each of these New Mexico start-ups are rooted more heavily in social capital and community wealth than in status quo financing schemes. Building a farm on a shoestring or a biofuel plant from a dream or a multinational with a mission all require that entrepreneurs first invest in their own communities before collecting returns.

That’s hatching your chickens before they’re counted.

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