We’re especially excited about this story because it’s all about cheese (okay, maybe not all about cheese but we have your attention now, don’t we?).
If you’re familiar with the concept of ODC’s (that’s short for Opportunity Development Cooperative) then the concept of individual business success as part of a larger economic picture is also an idea that you’re well-acquainted with – and that’s exactly the case made for the Vermilion Community Development Co-operative (VCDC).
The VCDC is comprised of over 20 members who have each invested at least five shares to support the co-operative’s first endeavor: a real estate lease for the Old School Cheesery in Vermilion, Alberta. The goal? To enhance local economic development.
Before VCDC came to be, its now-President Scott Webb was invited by the town’s Economic Development Officer to a meeting where it was announced that Peavey Industries was going to provide up to $150,000 worth of money to put into community businesses. Alongside Scott were other individuals in attendance, including Peavey Industries leadership members and Old School Cheesery owner, Patrick Dupuis.
“Patrick said at that time he was interested in bringing that business into Vermilion but there wasn’t much more discussion about it then. There were a lot of different ideas about different businesses that could be started, but that one was the one I was drawn to most,” said Scott Webb. Eventually more conversations between Scott and Patrick took place, ironing out details that would lead to a collaborative solution both were confident in.
Then, all the pieces started to come together, beginning with a well-matched trio: Scott Webb as President of VCDC, Toland Cochrane as the visionary and construction lead, and Bruce MacDuff, money whiz and Treasurer. The VCDC was then established with an initial goal to support Patrick, whose gumption for grants, business and a vision for a cheese shop in the town of Vermilion was undeniably the best place to start for the small town co-op.
As conversations continued, it was clear that everyone involved didn’t want a model where shareholders could tell Patrick how to run his business. As a time-tested savvy businessman, Patrick didn’t need input, he needed financial support. “So we decided that we would not be part of the business but that we would own the land and the buildings,” Scott shared, “and we lease those to him.”
Investment through real estate is a common way for investment co-operatives to support local businesses, loaning the property to businesses that pay rent back to the co-operative, typically with very fair interest rates.
It’s About Longevity
Before we continue any further, we would be remiss if we didn’t mention a pivotal partner in the co-operative: Peavey Industries. As a company, it has been a longstanding belief that it’s important for the entity to be deeply rooted in the communities in which it operates. This takes shape in many ways, all of which strengthen its connection with customers. Peavey Industries’ initiative, Peavey Opportunity Development Co-operative, is built to foster economic wellbeing and development, and, in a way, acts as an incubator by providing access to capital that stimulates local economic development.
Since Peavey Industries was a part of the initial meeting where the town shared its plans to support local economic development, it was an easy collaboration to pursue. Between the well-matched trio behind the VCDC, business owner Patrick Dupuis and Peavey’s ODC, there was a solid momentum and a confidence that this could really get off the ground.
“The project itself is just marvelous. I mean, it’s like it was preplanned to have Patrick looking to come to town, and Peavey Mart showing up almost at the same time. They were here a little bit earlier, and actually had a meeting with some of the people before Patrick got involved,” says Bruce MacDuff, VCDC’s Treasurer.
But there was still the need for other investors to become involved by buying shares in the co-operative. If you have ever attempted to solicit investments, you know that this is where the real work began.
We asked Bruce what it was like trying to find investors.
Business owners and operators within the community (and surrounding areas) were first asked to participate, and a trend developed. Those who weren’t community-minded were generally not interested, especially because the rate of return (on paper) was low as far as typical investments go. However, entrepreneurs within the community tended to be more interested, and connections to the co-op leaders often meant trust was already established and they were, therefore, more apt to invest.
“Anybody that was wanting a return on investment at a certain level either didn’t participate or we didn’t pursue them,” Scott shared. If people at one of these meetings expected a certain rate of return, it wasn’t the right fit. “And that was not the spirit of this. The spirit is to bring more business into town.”
Investors that saw the co-operative as an investment not only in the Old School Cheesery or as a means of return but, rather, as a long-term investment in the economic growth of the community were the ones that were brought into the fold.
Striving Towards a Win-Win
The goal is to help Patrick’s business to thrive and contribute to the larger community balanced with seeing a reasonable return on investment. While a for-profit oragnization, the goal of the VCDC is not simply to generate profit.
So, how does it all work?
Scott shares the general structure: “There are several ways you can go on these co-ops – but the one we chose was (we’d call it Family and Friends) and the maximum number of shareholders that you can have – that can buy the membership shares – is fifty. And we realized that we couldn’t use all fifty of those if we wanted to have another project in the future, and we wanted to have some different interests – because not everyone’s going to be interested in the next project. So we capped it at thirty.”
To begin, the co-op sold member shares, which were required before you can buy an investment share. Investment shares sold for $1,000 a piece within a minimum buy of five. However, there was a lesson to be learned here – in retrospect they would increase the minimum buy (more on that later). Per co-op regulations, a corporation can only hold up to 10 per cent of the shares – this applies to Peavey Industries in the case of the Vermilion-based co-op. Individuals can own no more than 50 per cent.
As of the time of this interview, the co-op has 28 active investments.
Then, the investments were put to work. In this case, Vermilion owns the land and the building, but that’s it. The co-op would buy property, largely because owning real estate limits risk, as opposed to owning shares in a company. Approximately 20% of the fund was attributed as capital cost allowance on the building, “which reduces return to our members by that amount but at the end of 5 years, it’ll be $50,000 less, at which point we’ll sell the building to Patrick for that price,” Bruce explains.
Any profits go out to the shareholders each year, then Patrick buys it after five years.
The co-op’s plans included purchasing the property and the building that was there and then developing the building for the Old School Cheesery (including basic electrical and basic structure). Beyond that, Patrick will add what he needs to run his business.
While there are risks associated with property value, the co-operative still gets a 3-5% return on the lease through the Old School Cheesery’s payments. As with most stories, this sounds like a linear process, but there were challenges along the way.
VCDC leaders shared that one of the hardest things about starting a co-op is financing the set-up itself. In the end, though, VCDC’s success wouldn’t be without a foundational sense of trust between the investors and the co-op leaders, who saw the latter as rightfully cautious, which made a big difference in their ability to make strategic, timely moves.
While owning and leasing property is the model that VCDC began with, real estate isn’t the only way that the Vermilion co-op plans to approach this cooperative model.
A Closer Look at the Old School Cheesery
From the get-go, Patrick had proven that his business had the potential to bring in new business to the community. His business was clearly the choice for the VCDC as an asset to the community at large.
The growth potential in Patrick and the Old School Cheesery was evident to Bruce: “He’s been running this business, I’ve been buying his cheese all the way back to when he was selling it out of a cooler at the farmers market. I’ve watched him grow,” Bruce shared. “He’s got a plan, he’s dynamic, which made it easy for me to get involved. A lot of people in town knew him because of his involvement.”
Patrick’s resourcefulness and ability to gain funding was additional encouragement. He received support from The Town of Vermilion, which gave Patrick $15,000 for his renovation through a grant program.
But as we alluded to previously, there were challenges faced and lessons learned as a result. Bruce explains how he would structure it differently if they were to start again:
Since regulatory burdens are a reality, finding the middle ground between the number of investors and the minimum investment amount was tricky and hindsight teaches the VCDC a valuable lesson.
Another big challenge that a real estate-based co-op may face and that which was experienced by the VCDC was simply matching the estimate for construction with the increase in cost and delivery in today’s construction landscape.
The team behind the VCDC also credits help from municipalities which can work in tandem with co-op efforts for even stronger economic growth. This could come in the form of a grant program that could help their communities with those costs at the beginning. Support can also come in the form of individuals. Find resources – the people who have experience, knowledge, a passion for economic stimulation and who’s willing to get involved.
There’s no shortage of projects for the co-op to kick off but, as always, there are limitations and it’s about finding the right idea to jump on. They aren’t going to make a move until it’s right.
Scott shares his thoughts, “so what I think will have to happen is somebody will come forward and say, ‘I would like to start this business and here’s my business plan. Would you as an investment co-op consider it?’ And then if we think the person has a project, a business suggestion that will succeed, then I think then we would be supportive of it. If we keep trying to think of stuff that we want to do, I’m not so sure. Unless it’s absolutely clear that it’s going to be successful.”
It takes a village, as they say.
In the end, an opportunity development co-operative goes beyond an investment with returns over the years. It’s good for the community. The co-op is a way for those within the Vermilion community to see their money grow by investing right in their community rather than the stock markets.
For more details about Vermilion Community Development Co-operative current projects, visit their website here.