Beyond the Headlines: “Local Investing Opportunities”
Right now, around the country, groups of citizens both small and large are reclaiming their money as a force for positive social change. Whether as natural investors, local currency groups, the Slow Money Alliance, or others, this grass-roots movement is rapidly evolving, creating the potential for big changes in our basic relationship with money.
One of the values that many of these people share is a passion for their local community. They want to support the local businesses that are owned by, and employ, their neighbors, friends, and family. One great way to do that is to invest in them. Here in my hometown of Port Townsend, Washington, a group called the Local Investing Opportunities Network, or LION, has been successfully helping that happen by connecting local businesses with local investors.
LION members were inspired to come together for a variety of reasons. Some of them have been successfully investing in local businesses for many years, often in ad-hoc groups, and realized that they could have a much greater collective impact by getting organized and working together. Everyone saw the benefit of local investing: money invested locally stays local and continues to benefit the community through a “multiplier” effect as dollars are spent and then re-spent many times, circulating as the lifeblood of the local economy.
After many months of considering various organizational models, LION was formed as a membership-based network in late 2008. People that want to invest locally can easily join by agreeing to a basic set of guidelines for confidentiality, group decision-making, and conflict resolution. Local business owners or startup entrepreneurs are invited to submit their business plan (or a brief “investing opportunity summary”) which is then e-mailed to all LION members. Each member can evaluate the investing opportunity and contact the business owner directly if they are interested in learning more. The potential investor and business owner may proceed to negotiate the terms and ultimately strike a deal directly with each other. LION is not a part of the actual investment process at all. It is not an investment club or investment fund that makes collective investment decisions; nor does it give investment advice. LION members are encouraged to consult their own professional advisors, if needed, before making investment decisions.
Local investing has many unique considerations and risks. Each transaction takes time to negotiate and complete. At any given time, there may be few local investing opportunities that are a good match for a given investor’s interests and risk tolerance. Instead of being geographically diversified, every local investment, by definition, is subject to the risks inherent in its locale, including regional economic weakness, natural disasters, and the like. Diversification, which is the practice of spreading money across a wide variety of investments, is the single most important way to reduce investment risk; yet it is very difficult to achieve through local investing alone. For these reasons, most LION members use a relatively small portion of their total investable assets for local investing. The rest of their portfolios are often invested in diversified socially responsible investments, real estate, and other typical investments.
In spite of the risks, and the weak economy, from the inception of LION to the date of this writing, none of the local investments of LION members have failed! The vast majority of investments, which range in size from a few thousand to a few hundred thousand dollars, are interest-bearing loans that continue to generate reliable payments. Most businesses find that they can pay less interest to local investors than they would have paid to a bank, and most local investors are receiving more interest than they would have received on their savings account. Of course, an investment in a local business may not be as secure as money in an FDIC-insured bank, which is why higher, but still reasonable, interest rates are justified—typically in the 5% to 10% range.
The best part of local investing, without a doubt, is being able to sample the goods, so to speak. Local investors have funded a goat dairy which is now producing delicious goat cheese. The new bicycle shop downtown was financed by local investors alongside the owners. Local citizens have invested in small real estate developments, several farms, an award-winning creamery, a hostel, private schools, retail stores, and even a nightclub/restaurant! Taken together, the local businesses that have benefitted from local investing are as diverse and colorful as the community itself.
As LION has succeeded in its mission of facilitating local investment, it has been receiving increased interest from the media and other communities that want to learn more about how it works. The key is to work within a fairly tight-knit community – whether it is a small town, a neighborhood in a larger town, or simply an extended group of friends. Keeping each local investing group small is important because of securities laws which require an expensive and time-consuming registration process for any business that offers securities to the public. Though it is everyone’s responsibility to ensure they are complying with securities laws, which are different in every state, in many cases, there are exemptions for non-public offerings where there is a pre-existing relationship between the business owner and the investor. It is within small communities of people that pre-existing relationships either already exist, or can be created easily.
This, in turn, highlights another benefit of keeping things small and local: interpersonal relationships are created and developed, and in turn, the local community is strengthened. This is the way I imagine that all investment deals were done before the advent of global securities trading. LION, and other groups like it, are facilitating the return of the small, local, handshake business deal that helps not just the individuals involved, but the larger community as well, and in a way, the whole globalized world that is just now beginning to remember the virtues of being local.
If you would like to learn more about LION, and how you might set up a similar organization in your neighborhood, check out the LION web site at www.L2020.org/lion and feel free to contact me directly at (360) 379-0295 or [email protected].