NBJ Editorial: 'There's a whole industry there that's gone'

NBJ Editorial: 'There's a whole industry there that's gone'

Crowdfunding & triple bottom lines push the spotlight off the Street

It starts with a web video from Big Think featuring Clayton Christensen, the famed professor at Harvard Business School and author of the seminal book on disruptive innovation in the modern era, The Innovator’s Dilemma. When asked this question—“Who will be the biggest losers in the next economy?”—Professor Christensen gives the following response:

“I think the big losers on the other side of the recession will be Wall Street. It’s easy for me to see that the locus of money and the decisions that are made on how to finance the world’s business have been migrating, and are now almost being pushed, to places like Singapore and Hong Kong where they’ve had regulations that kept the financial institutions much stronger. So I think Wall Street is never going to come back to what it used to be.”

To hear Christensen speak of it, commercial banks have disrupted the investment banks following repeal of Glass-Steagall, and the reaction of the investment banks to abandon their asset-backed businesses led them straight toward collapse. Referring to the transaction-based models built around derivatives, collateralization and synthesized securities, Christensen puts it quite succinctly: “There’s a whole industry there that’s gone.”

The story then cuts to Kickstarter and Indiegogo, leading sites in a burgeoning wave of crowdfunding platforms seeking to provide seed capital in small bills to the entrepreneurs hungry to realize a creative vision. In 2011, Kickstarter launched more than 27,000 projects and raised just shy of $100 million in pledges. Specific to its food category, 30,000 folks backed 241 successful projects with more than $2.8 million pledged. A quick scan of current campaigns on the site includes an urban farm startup in Raleigh—“we’re growing food made from local rain, local compost & local sunshine”—and an Emeryville, California company making fruit jams and spicy pepper jams from organic produce. At press time, Indiegogo’s food category featured open campaigns for plant-based milks, kale chips and five acres of farmland along the North Saskatchewan River where “integrity” and “transparency” mean much more to the farmers involved than that tired ol’ label “organic.”

There’s also crowdfunding for grownups, with two Stanford MBAs launching CircleUp to connect consumer goods entrepreneurs with accredited investors, all sub-scale. The platform targets companies and funders too small to register well in the current financing world, but still maintains the disciplines of that model with standard equity documents signed online and funding held in third-party escrow until the round closes. CircleUp is looking for companies with $1 million to $5 million in revenue, and investors looking to drop $1,000 to $25,000.

What’s happening here? Should the bankers be worried? Is there a scenario worth considering wherein consumer activism, food reform and this onslaught of transparent technologies marginalize that all-powerful investment banker to a supporting role? We asked a friend deep in the finance world and he readily admits that the glory days are over. To hear him put it, “Our fee structures are coming down. Those paychecks won’t come back any time soon, if at all.”

There’s no point in suggesting that crowdfunders with $7,200 pledge campaigns can accomplish the equity financing necessary to launch the next big healthy snacks player on a mass scale ... at least not yet. What is worth suggesting is just a slight modification to Christensen’s point above: Best case, Wall Street is not the big winner in the next wave of economic growth. Ask Jim Rogers, co-founder of the Quantum Fund with George Soros and a prolific commentator on CNBC Asia now that he’s moved to Singapore. “Finance is going to be a terrible place to be for the next ten or fifteen years,” says Rogers. “All these guys getting MBAs are making a terrible mistake because there is not going to be much money in finance.” Where does Rogers see a brighter outlook? In raw materials, in agriculture, in farmland.

At Natural Products Expo West, NBJ was fortunate enough to participate on a longstanding state of the industry panel to provide some sense of the bigger pictures at play in nutrition. It was a packed room, an engaged crowd, and a surprisingly receptive mood when the conversation in the last ten minutes turned to growth. We talked less about where the growth might land in 2012—energy beverages or herbs & botanicals, for example—but what growth might come to look like over the coming years. We talked about progress, and the need for this economy—including its bankers, especially its bankers—to progress to a point where progress means something other than growth. We talked about a former triple-bottom-line investor, Seth Goldman, now deep in the braintrust at Coke. We talked about Chipotle spending millions on a sustainability message in outright defiance of industrialized growth and economic efficiencies. We talked about all of this just days before a derivatives executive named Greg Smith submitted his resignation to Goldman Sachs in the form of a New York Times op-ed accusing his firm of putting profits well before people.

There is definitely something happening here.

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