Local investing – What is it and why? | PostIndependent.com

Local investing – What is it and why?

People are discovering ways to buy and eat locally, but they have not given much thought or figured out how to invest locally. Yet, traditional funding sources for small businesses — savings, friends and family, and bank credit and loans — have become scarce, and there is no easy way for individual investors to find opportunities to put money into small, local businesses in need of capital.

Did you know if Americans shifted just 1 percent of their investments to locally owned businesses, more than $300 billion would be injected into the local Main Street economy? Shouldn’t the decision to invest be as much about the people in whom you are investing as it is about personal wealth and risk? That is the power of community-based or local investing.

The concept of local investing is simple. Imagine that you know a talented, ambitious chef who wants to open a new restaurant in the area. Unfortunately, she doesn’t know any wealthy investors and doesn’t have many wealthy friends, so it is unlikely that she will raise the money she needs to get started. Local banks are wary of startups, particularly those with a great idea, no track record, and few personal funds to invest. She needs a place to go to put the investment offering out to the local community, and we want to help create that place in our communities and in our region.

In her book “Locavesting: The Revolution in Local Investing and How to Profit from It,” Amy Cortese lays out the history and need for communities to find ways to encourage local investing. She describes the economic and social values — jobs, a healthy tax base, charitable giving, civic engagement, quality of life, and sense of place and identity — that are reinforced (and often reinvigorated) when a community rallies around the time-honored tradition of local investing. She suggests that qualitative factors such as reputation, track record, and unique characteristics of the local market should be important criteria for funding. In short, the long-range goal is to create mutual benefit among the community, local investors, and local businesses.

Locally owned businesses spend much more of their money locally and thereby pump up the so-called economic multiplier. Studies suggest that local businesses are critical to tourism, walkable communities, entrepreneurship, social equality, civil society, charitable giving, revitalized downtowns, and even political participation.

Examples of creative investing frameworks include:

• Community development finance institutions (CDFI) and community loan funds similar to the Business Revolving Loan Fund in Carbondale the Roaring Fork Business Resource Center administers.

• Local Investment Opportunity Network (LION) adopted in cities like Port Townsend, Wash.; Madison, Wis.; and Brooklyn, N.Y. LION connects local investors with local business owners who need capital. It is not a venture fund or a bank or an investment club or a financial institution; however, it is a way for everyday folks to keep more money circulating locally, stimulating the local economy.

• Crowdfunding websites such as http://www.kickstarter.com and http://www.kiva.com allowing businesses to aggregate small sums from many individuals via the Internet.

• Slow Money, a national organization with semi-autonomous chapters, dedicated to creating financial solutions for small-scale food and agriculture producers.

Unfortunately, there are challenges to investing in local businesses, including U.S. securities laws. In 1933, the first laws were created to protect vulnerable Americans from losing what little money they still had in the aftermath of 1929, and our current securities laws continue to leave out about 80 percent of Americans (those who are not “accredited investors”).

An important transformation is taking place which will hopefully redefine what it means to be an investor. A key part of this transformation focuses on the difference between accredited and non-accredited investors. Briefly, a non-accredited investor is now defined by the SEC as anyone who makes less than $200,000 per year, or has less than $1,000,000 in the bank. Anyone over that benchmark is considered to be accredited.

This conversation peaked in 2011, as those on Capitol Hill were becoming increasingly concerned that existing securities laws were cutting off needed capital from small businesses, at a time when unemployment was running over 9 percent. This led to the passage of the Jumpstart Our Business Startups (JOBS) Act. A significant part of the bill legalizes crowdfunding, permitting small businesses to solicit small investments with lighter filing requirements administered by licensed websites.

These alternatives and legal ramifications must be considered when determining the appropriate structure/framework for local investing in our region.

Before creating the Roaring Fork Business Resource Center, Ms. Lowenthal served as the Executive Director of the Carbondale Chamber of Commerce and held management positions in law firms and other professional service organizations in Chicago, Philadelphia, and New York City. She can be reached at (970) 945-5158 x3 or rlowenthal@rfbrc.org.

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