Reparative Investing and Due Diligence with Black Farmer Fund

Preface

In the fall of 2023, we, four students from the School of the Environment and School of Management at Yale University (Monica Charletta (MBA/MEM ‘25), India Gupta (MBA ‘24), Sophia Hampton (JD/MESc ‘25)  and Bennett Olupo (MEM ‘24) worked under Charles Wade, the investment director of Black Farmer Fund, through the Regenerative Agriculture Lab clinic offered by the Yale Center for Business and the Environment. We used our combined background in finance, agriculture, and environmental and racial justice to support Black Farmer Fund in building out a due diligence process for integrated capital while upholding reparative investing practices. We received a rich education in the necessity and power of reparative investing given the ongoing context of systemic racism in agriculture and finance today, collected and synthesized in the following blog post on our learnings and reflections from this work.  

A key takeaway from our time with Black Farmer Fund is that the processes behind their investments are as important as the investments themselves. An emphasis on relationships, democratic decision making, moving with consensus, and trust is built into the bones of Black Farmer Fund as an investment fund, and thus their actions ripple outward in the same manner. Akin to Julius Nyerere, Black Farmer Fund understands that the quest towards liberation and food sovereignty requires true community building. It is a deliberate and fruitful process. 

About Black Farmer Fund 

Black Farmer Fund (BFF), established in 2020 by farmer-activists Karen Washington and Olivia Watkins, is a non-profit reparative investment fund created to end food apartheid through empowering the Black community. The organization’s mission, “....to nurture Black community wealth & health by investing in Black agricultural systems in the Northeast,” guides them to practice values-aligned methods of investing, including low-interest loans, grants, social network building, and technical assistance. All of this is geared towards empowering a cohesive and regenerative food system within the Black community of the Northeast. BFF runs a community driven fund and disperses investments using an investment committee consisting of members reflecting the same demographics and experiences of the people that they seek to fund. 

Black Farmer Fund’s $1M pilot fund, launched in 2021, supported a cohort of eight transformative food businesses based in New York that included farmers, herbalists, and community collectives. Currently, BFF is raising $10M and expanding their geographic scope to support Black food actors across the Northeast with a combination of grants, loans, and technical assistance. 

One of the projects BFF supported in 2021 was Rootwork Herbals, an organization that encompasses a BIPOC community garden, herbal school, and gathering space. Amanda David, the founder of Rootwork, describes the importance of BFF’s reparative capital as she worked to grow her business: 

“I was very against taking in grants from other places because I worked in non-profits and I understand the kind of song and dance that you have to do for funders. And I never wanted to do that, I never wanted to play up Black trauma for funds, I never wanted to kind of like ‘sell my soul’ to get money even if it was to do good things with it. So enter the BFF, and it’s like oh my god this is funding that is nourishing and supportive and I can just be myself and tell the truth about what we’re doing and just build community.” 

With BFF’s help, Rootwork Herbals is now able to expand their community garden, build a much needed fence, put in a pavilion for gathering spaces, operate a community fridge to hold free eggs from the garden chickens, establish a tool shed, and host more classes on ancestrally rooted herbalism. 

What is Reparative Investing?

Amanda David’s resistance to traditional investment models for social justice-oriented projects is not unique. The options for businesses like hers are usually unsustainable philanthropic dependencies  or traditional investment, both of which pose systemic barriers to access often due to race and class. Neither of these options have been able to engage with or shift the systemic disadvantage that communities of color face when capitalizing their businesses. 

There is a long history of banks employing predatory practices when drawing up loan terms for Black people in the United States, including discrimination through the types of loans offered and above-average interest rates. Black communities, due to racist policies and practices, have had hundreds of billions of dollars in assets and capital stolen from them, creating a reality wherein the typical White household holds over nine times as much wealth as the typical Black household. 

Applying these traditional investment models to the racialized economic landscape will only serve to further entrench the racial wealth gap. Traditional investment demands returns in the range of 5.75 - 11.91%, meaning that on top of returning the initial capital provided as principal, investees must generate and return almost 6-12% of value to investors each year. Impact investing is one approach to creating positive social and environmental returns through investing, however, impact investors frequently seek market-rate financial returns, which excludes many highly impactful business owners, innovations, and business models from attracting capital.

BFF uses reparative investing as a direct response to these entrenched social and economic injustices that exist today. The president of Potlikker Capital (another reparative investing fund focused nationally), Mark Watson, defines reparative investing as a double entendre referencing both reparations for exploited communities, and environmental repair. 

Reparative investing is distinct from traditional and market-rate impact investing because of both the expectations on returns and the investment criteria. Reparative investing seeks to make investments at the lowest interest rate possible, including interest rates at or below zero percent. These concessionary, or below-market-rate, returns acknowledge the historic exploitation of certain communities, as noted below under “Why Reparative Investing is Important”. Another distinct element of reparative investing is the use of integrated capital in the form of coupling these low- to no-interest loans with grants. BFF shifts the ratio of loan to grant depending on the capacity of the business to avoid burdening the recipient with unsustainable debt.

Reparative investing also takes a highly specific, values-based approach to determining which ventures will receive funds. Impact investing firms often have thematic focuses, such as financial inclusion, gender and racial disparities, climate, and education, and investees must generate a demonstrable positive impact through their operations. In contrast, reparative investment firms can still take a thematic lens, but the focus is on ensuring the structure of the investment itself functions as a form of wealth redistribution, while the impact contributes to community well-being and environmental repair. In the case of BFF, the investment committee, made up of Black farmers and food entrepreneurs,  is specifically looking to fund businesses that empower Black land stewards and food actors who center ecological practices. Through this approach, Black Farmer Fund is addressing the systemic racism and underinvestment faced by Black farmers and communities in the U.S.

Why is Reparative Investing Important? 

The thesis of reparative investing work is that centuries of U.S. racist policies and laws have created a debt to non-white communities and the “business-as-usual” approach is ill-equipped to reconcile this reality. From enslavement to the Homestead Acts, the Tulsa Massacre, redlining, and systemic Black land loss the racial wealth gap persists: Black Americans hold just 3.8% of the 116 trillion in US wealth while making up about 14% of the population. For BFF, their reparative practices work to combat the enduring disparity around Black farmland ownership in this country. According to the USDA, white people own 98 percent of agricultural land and operate 94 percent of farmland. Black Americans own fewer than 3 million acres and operate 0.4% of farmland.

There was a moment, between emancipation and now, when it looked like the situation was improving – in 1910, Black farmers operated 14 percent of farms and held between 16-19 million acres. However, a systemic and discriminatory effort to push Black farmers off farmland followed that historic high. The USDA and traditional agricultural support institutions played a major role in this injustice. With the court case centered on this issue, Pigford v. Glickman, the USDA ended up paying out over $1 billion to more than 13,000 farmers for racial discrimination in the allocation of farm loans and assistance. The pattern of discrimination continues today and creates major barriers for a Black farming future. Today, 97.8 percent of all farm program payments go to white farmers. Today, Black farmers still face high loan denial rates. Today, Black farmers are stigmatized for growing culturally relevant crops like callaloo and face harassment for existing in predominantly white agricultural areas.

For BFF, the other integral piece of reparative investing is funding projects engaging directly with the environmental harm associated with most agriculture. While regenerative agriculture has received unprecedented investment over the last decade, most of this investment is going to current, mostly white, landowners and farmers. This is yet another example of injustice given the regenerative agriculture movement’s roots in Black and Indigenous methods of growing food. Raising crops without pesticides, intercropping diverse plants together, cover cropping, and rotational grazing are all lessons from Afro-Indigenous and other indigenous cultures. These voices are imperative to the future of sustainable agriculture in this country and they need land and financial and social resources to continue. These factors point to the necessity of reparative investing to address historic injustices while working towards a more sustainable future.

How Black Farmer Fund Embodies Reparative Principles

Despite pervasive barriers perpetuated by systemic racism, the legacy of Black agriculture in this country is one of mutual support and deep cooperation. This is what BFF embodies. BFF is working in the legacy of leaders such as Fannie Lou Hamer, Callie House, and W.E.B. Du Bois, and therefore emphasizes solutions built on coalitions, mutual aid, and economic self-determination. In the process, they form deep connections with the people they support and actively resist the predatory standard that most financial institutions uphold. Among many examples, we wanted to highlight four aspects of BFF’s process that showed us how investing can redistribute wealth in nourishing and non-extractive ways. 

    1.  Trust-based relationships and holistic due diligence prioritize repairing systemic inequalities

Due diligence is the process by which investment firms determine if and how they will invest in a potential business through in-depth research into an applicant, their organization, and the intended use for their loan. This typically entails conducting multiple interviews with the applicant and their team, understanding the industry and trends, documenting risks, and building financial models that forecast future cash flow and the organization's ability to meet the fund’s loan terms. 

With traditional investment funds, this due diligence can present a harmful power dynamic. When looking at the overall volume and deployment of capital, investing remains overwhelmingly white. In 2021, only 1.4% of U.S. assets were managed by minority-owned firms, despite minorities making up 40% of the population. In venture capital investing, 77% of all funds are directed towards companies with white founders. First, this dynamic reinforces racialized economic disparities because of the financial disadvantage that Black farmers and food entrepreneurs face compared to their white counterparts. And further, those seeking investment might experience fear and vulnerability around investors’ power to impact their business and livelihood depending on their investment decisions, especially when the investors do not share their backgrounds and experiences. For the investor, this may translate into a lack of understanding regarding the social and economic realities for their investees. This misalignment might allow the investor to justify financial terms that do not support minority investees in the long run. 

BFF disrupts this dynamic through a deep commitment to relationship building both within their organization and with their potential investees. Some of this is possible because BFF staffs experienced farmers with lived experience in the system that they seek to transform. This makes it possible for investees to trust that BFF understands their situation, will listen to them, and can be flexible to their needs as Black food actors. Further, BFF explicitly prioritizes relational dynamics with their investees, a departure from an industry oriented around numbers and transactions. In the course of our time with BFF, BFF staff repeatedly mentioned how they make themselves available to their investees, troubleshooting challenges and seeking to understand each businesses’ unique story and challenges. 

When conducting due diligence, the investment team looks beyond financial and operational viability to understand exactly how a potential investee contributes to the BFF’s pillars of building (1) Community (2) Economy and (3) Ecology in the context of Black health and wealth. BFF has developed its own definitions for what they mean by these terms: 

Community

• Focused on investing in Black owned food businesses
• Applicants demonstrate service towards increasing the health and wealth (economic, social, ecological, etc.) of Black communities

Economy

• Applicants are in a sound financial position or have the potential to be in a sound financial position 
• Applicants are willing to engage in continuing education with BFF

Ecology

• Applicants seek to minimize negative environmental impacts
• Applicants are locally minded
• Applicants’ products provide positive health contributions  

Another key component of BFF’s investment process is their formation of a community-driven Investment Committee , which convenes to decide which organizations receive will funds and the integrated capital structure. BFF upends the typical investment committee structure, in which decisions are made by senior finance professionals focusing on generating market-rate returns with limited or no capacity to recognize social or environmental impact. BFF’s Investment Committee brings together individuals supported through their pilot fund and other experienced farmers, restaurateurs, herbalists, caterers, and chefs from across the Northeast. This committee leverages their deep experience when reviewing opportunities to ensure they meet BFF’s investment criteria and positively impacts the Black food system. Again, BFF demonstrates their commitment to trust-based relationships by providing opportunities for the Investment Committee to participate in trainings and community-building exercises with one another prior to making any sort of investment decisions. This allows time and space for Investment Committee members to build connections with each other and to understand the perspective and experiences each member brings to the table when making an investment decision. 

BFF’s people and community oriented approach is actively reinforced at every level of their functioning, from the organizational structure, to the due diligence process, to the ongoing post-investment support. These practices also help to build some of the social capital needed to repair the harms of centuries of systemic racial and economic injustices. 

    2.  Accessibility and preparatory technical assistance enhance financial sustainability

As finance and legal professionals approach issues associated with racial disparities and community divestment, they can create innovative entity formations and investment strategies that may be important but are cumbersome to navigate. In practice, this means paying for more lawyers, accountants, and paperwork than the average person or farmer is able to access. BFF successfully counters this by prioritizing accessibility and pre-loan technical assistance to overcome barriers and help investees become “investment ready”. 

The application forms that BFF provides for potential investees ask straightforward questions without legalese or financial terminology that might alienate people without previous exposure to business jargon. BFF has also connected applicants struggling to complete the forms or provide financial statements with accounting experts as a form of technical assistance. A misaligned number or financial statement that does not meet typical standards is not necessarily a deal breaker. Instead, BFF is committed to ensuring that the people they want to invest in, can be invested in. For BFF, form follows function. BFF is trying to move money and resources toward Black farmers and food actors who need it. Anything that stands in the way of that is an obstacle that BFF will do its best to remove. 

    3.  Integrated capital offers flexible financing that meets the needs and capabilities of fund recipients

BFF is a 501(c)(3) that deploys a combination of philanthropic grants and low-interest loans to its investees. This 501(c)3 structure is important because it allows BFF to raise money to cover operating costs rather than taking those fees from their investees. This also helps BFF set below-market-rate interest rates for their loans, unlike a traditional investment firm that is legally required to prioritize shareholder returns. BFF is still bound by a fiduciary duty to provide returns to its investors at an agreed upon interest rate, ranging from 0 - 3%, but their investors are aligned on the importance of offering concessionary capital to catalyze change and support Black food system actors.

This lower-stakes, integrated capital approach combines each instrument’s unique benefits into every deal: grant capital provides non-repayable, supportive funds to help businesses sustain and/or grow their operations, while loan capital provides patient, low-interest debt to help businesses build credit discipline and as leverage to increase returns. 

To provide integrated capital financing, BFF raises funds from both philanthropic and private investors. Investors can choose from three types of debt securities based on desired size of investment, interest rate, and lived experience. 

Figure 1. Summary of BFF’s Three Tiers of Investment (Source: BFF website)

Notably, BFF does not offer investors market-rate returns and therefore fundraises with mission- and values-aligned investors in order to support the fund. 

A financial modeling tool can be helpful in determining how to balance a business’ projected cash flow with the menu of reparative investing options such as loan structures, grants, and technical assistance. For example, BFF conducts financial due diligence by summarizing and lifting up (1) key financial information provided by applicants in the form of financial statements, (2) historical trends and growth assumptions, and (3) opportunities for further development. Using this information, the due diligence team can make decisions about how to best support the applicant as an investee by adjusting the amount and terms of the grant and/or loan, and by offering additional technical assistance. This is critical as it allows the team to toggle different ratios of grant vs. loan capital, interest rates, and repayment schedules and the impact to an investee’s cash flow, helping BFF create packages that match an organization’s needs and financial position. 

4.  Non-punitive processes in the case of default create an aligned incentive to work together and improve 

A key feature of BFF’s non-extractative approach to reparative investing is in its “workout procedure,” or the process that begins when investees struggle to make loan payments. In contrast to traditional funds, BFF does not seize collateral unless there are extraordinary circumstances or send collections after investees; instead, BFF will work with them to solve any underlying challenges and improve cash flow. This process might look like providing targeted technical assistance, restructuring the loan, or pulling in a relationship manager to facilitate communication between the two parties. While BFF and its investees share a partnership with the aligned requirement to repay the fund’s investors, building trust and strengthening farmers’ and entrepreneurs’ operations strives towards the greater goal of building food sovereignty and supporting health and wealth in the community of Black food actors in the Northeast.

Conclusion

The current economic system fails Black communities in so many ways, from insecure land access to disproportionate business financing. As co-founder Olivia Watkins says, “money can be a tool” that disrupts these cycles but this requires looking at the context of historic inequities and implementing practices that seek both repair and regeneration. 

Throughout the Northeast, BFF has sparked a constellation of empowerment for Black food actors, a community that has been historically undermined and disinvested in by white funders. In these ways, BFF challenges the status quo by serving as an example of what is possible when communities are given the resources to help themselves. By using a reparative investing model, Black Farmer Fund demonstrates how practices such as centering communities and patient capital can be intentionally utilized to repair the racial and economic harms of capitalism and build thriving and equitable food systems. Further, business models such as BFF demonstrate how these values can and should be intentionally incorporated into every aspect of the design and structure of the organization. We hope that this model can be replicated for other regions and sectors, acknowledging that several aspects of the design should be modified to serve specific populations. 

Black Farmer Fund is currently raising philanthropic funds to further augment their impact. To support Black Farmer Fund, please visit https://blackfarmerfund.org/donate.

 

Further Resources

 

1. Black Farmer Fund 2022 Annual Report

https://blackfarmerfund.org/annualreport22 

 

2. Black Farmer Fund Farmer Testimonials 

https://blackfarmerfund.org/blackfarmersthriving