By Sustainable Solano

 Courtesy of Terra Firma Farm

We wanted to share with you some recent musings from our partners over at Terra Firma Farm in Winters on the recent closing of S.F.-based Munchery and why these startups are not the solution our food system needs.

As Terra Firma Farm’s Pablito points out, there is value in putting our money as consumers into local farms with sustainable practices. By buying local produce, money stays within our communities, farmers are able to retain more of what is paid for the food they produce and there are environmental benefits from having produce travel shorter distances (and our tables benefit from having the freshest, most flavorful produce).

There are many ways this local food ecosystem manifests, including local restaurants and caterers that source locally grown food, such as League of Chefs or BackDoor Bistro; food co-ops, such as the Cultivate Community Food Co-op that is selling ownership shares; and CSAs (community supported agriculture) that connect consumers directly with growers.

Terra Firma Farm is a CCOF certified organic farm that offers a CSA — a box of organic year-round vegetables, fruit and nuts for local residents — with box-drop locations that include Benicia and Vacaville in Solano County as well as in Winters. Here’s the post:

 Courtesy of Terra Firma Farm

Getting Munched by Munchery

If you live in the SF Bay Area, you have probably heard the news about the prepared-meal delivery company Munchery, who shut their doors and their bank accounts recently without paying their vendors or employees. I’m sorry for anyone affected by this incident.

Many TFF subscribers have already read my opinions about venture capital-funded start ups that promise to “shake up” the food business. They offer things that existing business owners know are simply too good to be true: Extensive freebies and free delivery along with dubious claims that all their ingredients are locally sourced from organic and sustainable farms. And they all claim to do this in the interest of “revolutionizing the food system”. But their only real goal is to make themselves wealthy if and when Wall Street takes them public in an IPO.

There are numerous problems with this model. The first is the idea that food should be cheaper than it already is, and technology can make this happen. That is simply untrue. The profit margin in the farming and food businesses is low; there is literally no fat to be removed. And nothing that companies like Blue Apron or Munchery did fundamentally changed those economics. The founders who ran these companies were either naive, ill-informed, or simply lying. And as stories from inside these businesses start to leak out, it is clear they were also poor and inexperienced managers.

Second, food is a mature market with a relatively fixed demand. Munchery and the others have not created new products, but rather taken market share from existing restaurants, supermarkets and other companies. Their only advantage was the free money from venture capital. Other businesses could not afford to spend more than they make in order to compete. Thus, the VC-backed startup model in this instance was not “disruptive”. It was profoundly anti-competitive.

Third, the companies they were competing against are better run. Lots of people can run an unprofitable business if they have an endless source of someone else’s money. Established business owners are the ones who have figured out how to be sustainably profitable. And yet these were the businesses that Munchery and the others were impacting or eliminating.

Fourth, Venture Capitalists are not held accountable. Sure, VCs are putting their money at risk when they finance companies like Munchery. But that risk should not be limited to the funds they have already invested. Munchery shut down without paying its employees or vendors, and it’s unlikely many of the creditors will get much out of their bankruptcy. The VC firms that retain an ownership stake in a startup should be legally required to make good on all the company’s debts when it fails. This would raise the bar on what type of companies venture capitalists fund, forcing them to spend more time evaluating the viability of startups and ensuring that they retain enough funds to pay their debts if and when they shut down.

In the end, the business model of Munchery, Blue Apron and so many others in the sector had only one real goal: to take business from thousands of small businesses and outsource limited profits to Wall Street. It was a terrible idea all around, and certainly not good for our economy or society as a whole.

I have sent a letter to my state Assemblywoman asking her to look into legislation requiring VCs to cover the debts of the companies they fund. I believe it is in the interest of the state of California to more strongly discourage VCs from funding companies that they do not have absolute confidence in. Small businesses in this economy need all the protection they can get, and face numerous layers of regulation that raise their costs and lower their profits. Wealthy Venture Capitalists should be subject to regulation and oversight that is just as strong, or stronger.

Thanks,

Pablito

This article originally ran on Terra Firma’s site.

Interested in joining a CSA? Find out more on our website and check out our list of local farms that serve the county.