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SOCAP September 22, 2016

A SOCAP Guest Post By Adam Wiskind

Neighborhood Economics Highlights New Tools to Redirect Capital Locally

The Neighborhood Economics conference was a SOCAP associated event that told inspiring stories about how investment in local businesses can transform our communities.  Overwhelmingly, invested capital in the US flows to large scale Wall Street corporations.  Only 1% of the $30 trillion that Americans invest in stocks, bonds and funds go to small business. The result is that local businesses struggle to qualify for loans and are overlooked for equity infusions that would help them to grow. And yet investing in local businesses, not just by patronizing them but by providing access to capital, has knock-on benefits that allow small businesses to prosper as well as the communities where they are located.  Michael Shuman shared data that shows that US communities with the highest density of small businesses also have higher job and wealth growth rates. We would all benefit from more investing in local businesses.

It is no great surprise why the vast majority of investment has traditionally flowed to Wall Street.  There are few local investment vehicles and unless you are an “accredited investor” it is quite challenging to make direct investments in local businesses. But presenters at Neighborhood Economics made it clear that picture is changing:

  • Amy Cortese of Locavesting described the evolution of Regulation Crowdfunding platforms that allow businesses to raise both debt and equity online from many small investors.  In May of 2016 the final rules of a key component of Obama’s JOBS act went into effect which allows entrepreneurs to raise up to $1,000,000 from investors in any state of the country through an online portal. Republic, Fundable and Crowdfunder were a few of the sites that were mentioned.
  • Brian Beckon from Cutting Edge Capital discussed Direct Public Offerings (DPO), an increasingly popular vehicle which allows small businesses to raise investment from both accredited and unaccredited investors within the state that the company is operating. Another reason a DPO is different from crowdfunding is because crowdfunding is not formally direct. The rules of Registered Crowdfunding require the use of an intermediary third-party portal that is registered with the SEC.
  • Community Investment Funds are another vehicle for individuals to direct their investment dollars away from Wall Street toward local communities.  These investments tend to be less risky than the more direct investment vehicles because the funds are diversified, however to date there are still few of these funds in operation.
  • Neighborly is a new venture that is providing low risk ways for people to invest directly in the places and civic projects they care about by making municipal bonds accessible and transparent. This site enables individuals to purchase municipal bonds without engaging an intermediary. The bonds help local governments to build infrastructure and implement projects within the communities that they serve.

Though using different approaches, all of these tools aim to reach similar goals: the democratization of capital flow and its reinvestment into local communities.  However, the tools will not be able to achieve their full potential without a significant effort to promote them and to educate the small business ecosystem about their benefits. The National Coalition for Community Capital is a nascent effort to support entrepreneurs, intermediaries and would-be investors to understand and utilize these tools to grow the local economy.   This organization is forming a national coalition of financial professionals to support its five focus areas; education, policy analysis, identification of best practices, data collection and leadership.
With powerful new investing tools and the knowledge and awareness to use them, we can look forward to seeing the flow of capital move towards local economies where it will do a world of good.  

Adam Wiskind helps the owners of impact companies to appraise and sell them while preserving their mission.  He moonlights as a journalist and can’t wait to find his first crowdfunding investment.  Contact him at awiskind@exitstrategiesgroup.com or on linkedin.  



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