Authored by economics and business journalist Amy Cortese and copyrighted in 2011 the book “Locavesting” paints a grim picture of funding available for small businesses. She describes many efforts being made to create funding sources and thereby build “resilient, sustainable and healthy communities”.
She says, “Today, we are buying local and eating local, but we still aren’t investing local. There just hasn’t been an easy way for individuals to put money into worthy small businesses in need of capital.”
“…[O]ur financial markets have evolved to serve big business. Of all the trillions of dollars madly flying through the financial markets, less than 1 percent goes to … provide capital to companies that will use it to hire, expand, or develop new products… When small businesses create three out of every four jobs and generate half of GDP, that is not an efficient allocation of capital.”
The book argues that “as a society, we are failing our small businesses, through everything from government policies that favor big business to gross misallocation of capital” and details “how securities regulations have evolved to hamper local investment and how the financial industry has come to dominate our economy to a dangerous degree.”
The later chapters of the book provide descriptions of types of funding sources for small businesses that the author feels will be of growing importance. The first of these is community banks, especially those that build personal relationships with their borrowers. As pillars of the local community credit unions play much the same role as local banks. Another possibility is state banks such as the Bank of North Dakota, which has attracted the interest of several other states.
Community Development Financial Institutions (CDFIs) may be banks, credit unions, venture capital funds or loan funds. They serve underserved and low-income communities. Community development loan funds provide money for loans to consumers (as an alternative to predatory loans), local nonprofits, affordable housing, first-time entrepreneurs, microbusinesses, and local small businesses. The Opportunity Finance Network, http://www.opportunityfinance.net/, is a network of over 200 CDFIs.
Port Townsend, Washington is the birthplace of the original Local Investment Opportunity Network (LION), connecting potential investors with potential borrowers in Port Townsend and East Jefferson County, https://l2020.org/LION. It has a growing number of imitators. Madison, Wisconsin and surrounding Dale County have such a network, http://lioninvesting.com/ourstory/the-concept/.
“Community Capital” is the term Amy Cortese uses to designate investments by local residences to rescue or sustain a local enterprise that they value. Her first example is all nine policemen in the town of Clare, Michigan, who purchased a bakery that was going out of business. They secured a continuing supply of doughnuts and also gave life to a business that soon came to employ 19 full-time workers.
Cortese gives several examples of well-loved book stores that have been saved by local investors as well as other kinds of shops, cafes and businesses.
Cortese also describes social networking and “crowdfunding” as ways to inject capital into appealing ventures. Her examples include Kiva.com, Kickstarter and IndieGoGo and consumer lending sites such as Prosper.com and LendingClub.com. Two others are FundingCircle.com and ProFounder.com (which has now shut down).
The book “Locavesting” also has a chapter called “Slow Money”. It is about a national nonprofit organization made up of “semi-autonomous local chapters dedicated to creating financing solutions for small food and agriculture producers”. “Slow Foods vision is to create a new type of entrepreneurial finance, one that respects the land and the farmer, connects investors to their local economies, and enlarges our definition of fiduciary responsibility.” The chapter introduces the term “foodshed” which it explains as “Similar to a watershed – a geographical area’s life-sustaining source and flow of water – a foodshed refers to a region’s food production and distribution system. It encompasses the farm, the table, and everything in between. Like watersheds, foodsheds are vital to the health and security of a region”.
It notes, “Farmers markets have increased threefold in the past decade. CSAs – community-supported agriculture – in which customers prepay for a share in the season’s harvest – have grown from 60 in 1990 to more than 2,000.” Slow Money has a website, http://slowmoney.org/.
The book has an extensive chapter on co-ops. Websites include the National Cooperative Business Association, http://www.ncba.coop/, the International Cooperative Alliance, http://ica.coop/, and the Organic Valley co-op, http://www.organicvalley.coop/.
The last two chapters are about Direct Public Offerings (which are less expensive that Initial Public Offerings (IPOs)), see http://dfdpo.com/, and local stock exchanges, see http://missionmarkets.com/.
Amy Cortese has a Locavesting website, http://locavesting.com/Locavesting_homepage.html.