3CORE help Maisie Jane’s locally grown food market in Chico expand operations. (Photo Credit: Chico Chamber
Economic development efforts in Chico face a set of challenges any small city in California can relate to: The local economy in the rural northern part of the state is made up of mostly small businesses (more than 70 percent of the area’s companies have fewer than 5 employees), and the region lacks a large venture capital community. So when local entrepreneurs have a Big Idea, they often leave town and move to a bigger city to try to build it into a business.
What Chico does have—in spades—is a local community committed to changing this state of affairs. This includes the respected North Valley Community Foundation, a philanthropic group that has developed relationships over 20 years with a group of more than 16,000 donors committed to the community’s well-being, from youth development to animal welfare. The area is also home to a regional economic development corporation called 3CORE, with an equally strong track record of providing local small businesses with the services they need to grow.
This February, the two groups decided to do something they’d never done before: Join forces to work together on Chico’s perennial economic challenges.
“We’ve talked over a number of years about how to marry economic development with philanthropic work,” says Marc Nemanic, 3CORE’s executive director. “We’re aware of the impact of both organizations on the region’s health and welfare, and we just realized we have to work together on it.”
The result is an innovative joint effort that will help local entrepreneurs access the capital they need to start local businesses that can thrive in Chico—and stay in Chico. The two groups started a philanthropic seed fund this summer with the help of a $37,500 donation from Wells Fargo that they hope to grow to $100,000 before the end of the year.
The fund will invest in local entrepreneurs, providing micro-seed capital and micro loans that can accelerate the companies’ development—and move them from a business idea to a business that can flourish.
Seeds of the idea
As in many of California’s far-flung towns, for years the two community foundation and economic development office were rarely on the same page: While one made appeals to donors to support local food banks and homeless shelters, the other focused on giving businesses what they needed to grow.
But after attending a local economic summit and the first-ever statewide California Economic Summit in May, local leaders saw a different way to approach their economic challenge.
“What became clear was that this was about access to capital, and that particularly for small and emerging businesses in our area, we weren’t bringing a full complement of tools to bear to support them,” says Marc.
There were plenty of would-be investors in Chico—the community foundation had relationships with 16,000 of them—but their donations were going to a different cause.
“We have a huge number of donors who have a vested interest in philanthropy and meeting community needs,” says Alexa Benson-Valavanis, president and CEO of the North Valley Community Foundation. “In difficult times, their gifts to charities are working to meet immediate needs. But donors also want to have impact that would move beyond feeding the homeless.”
Benson-Valavanis and her group’s donors decided to flip the usual nonprofit model on its head: “Instead of being reactive, we want to be proactive, and find new ways to use charitable dollars to stimulate the economy, create job growth, and do things that hedge off problems that nonprofits like ours are created to take care of.”
Thus, the seed fund, which will work in concert with lending institutions to directly assist local small and mid-size businesses ready for growth. Once it is fully funded at the end of this year, the seed fund will begin taking applications from entrepreneurs, who will have an opportunity to present their ideas to would-be donors, and then receive small investments of between $1,500 and $10,000. The effort is expected to support as many as 10-12 small businesses in the first year.
Ending the uncertainty
“The biggest anathema to capitalism and growth is uncertainty and the unknown,” says Nemanic. “That’s what we’re trying to get these businesses through—that valley of death for small businesses—so they can take their idea and have something to show, something tangible, where they can attract additional investment.”
Nemanic says this approach has proved successful in several other small seed funds in the Chico area. One example he points to a is a local specialty clothing manufacturer that took advantage of a micro-loan to engage a local accountant, who helped the company develop a “no-nonsense” business plan with professional financial projections that allowed the business to reach out to investors and pitch their wares.
“We’ve talked to a number of small businesses during the research phase of this, and in a lot of cases only a few thousand dollars will allow entrepreneurs to bring on a messaging or marketing team—or just put their idea down on paper in a way that shares a cohesive story around their business idea,” says Benson-Valavanis. “Sometimes that’s all it takes.”
Nemanic acknowledges that this approach may not produce any dramatic overnight success stories—but he believes this approach isn’t really a choice for an economy like Chico’s.
“Individuals who live here need to look at how they’re going to make their living in the absence of large private employers,” he says. “We’re trying to create a vehicle so people with means who live here and want to see the area thrive, they have a way to invest back into the community they live in.”
The California Economic Summit shares this commitment to increasing local businesses’ access to capital. The Summit effort includes an Action Team devoted to increasing access to capital for all businesses across the state—including scaling up local partnerships like the one between NVCF and 3CORE.