Our goal is to launch a platform to help In business fundraising based approved crowdfunding equity funding to U.S. small-business and startup entrepreneurs seeking to raise money.
Local businesses always look for new way to make more money and add to the bottom line. What is better to invest in successful local businesses?
Following is short review of local investment opportunities and its options. For more information you can contact Equity CrowdFunding experts.
“Small businesses are entitled to and deserve local support because they provide so many benefits within their communities, while operating in a challenging and competitive economic environment. If we don’t look out for them, the banks certainly would not.Why is it important to invest in local small businesses ? They help create the color, culture, and uniqueness in our communities and neighborhoods. They are owned, managed, and staffed by our friends and neighbors. In what’s called the “local multiplier effect,” the money we spend and invest with local small businesses has a much higher probability of being re-spent at other local small businesses, circulating more of our money throughout our communities - increasing and improving the general quality of life for everyone. Yet, local small businesses face enormous challenges. They lack the time and connections to influence laws and regulations in their favor; as a result, it’s harder for them to take advantage of tax loopholes and subsidies that larger corporations receive from governments. Since they typically operate in a very convergent business, in just one or a few places, they are less diversified and more exposed to seasonal and other regional challenges which do not affect big businesses as much. What’s more, due to their small size, securities laws and regulations are difficult and expensive for them to navigate through, making it all the more harder for them to legally raise money from investors, often limiting their options to high interest credit cards and lopsided bank loans.
We define local investing as putting one’s money to work for the mutual benefit of the investor, the local small businesses , and the community. These benefits can be financial, in-kind (products & services), cultural, and more. By using their money to help start, expand, and support local businesses, local investors catalyze many positive changes, such as:
“Consider that in the early days of investing, all investments were local, as neighbors came together to pool money and help start essential businesses within their communities. In so many ways, local investing brings us back to our roots.”
Local investing by comparison, is slow and engaging. Local investors must have the passion, time, and energy to find and evaluate local investment opportunities; and these local investors must get to know the people that offer these opportunities. This is possible because local investments are much simpler and easier to understand and evaluate, than Wall Street investments. In return, investors can make money on their investments, which is very important, but local investing is about impact as much as it is about profits. Local investors can help start or expand businesses, create jobs, and increase the prosperity in their communities. They build relationships and goodwill that lasts well beyond the investment time horizon.
We highly recommend that local investors work together, not alone, in order to help each other out. Sharing expertise and insight helps everyone find better investment opportunities and these investors make better investment decisions by drawing on the diversity of backgrounds and perspectives of the group. Since traditional sources of investment advice—such as accountants, brokers, financial advisers, and lawyers—do not always have the background to evaluate, understand, or encourage local investing, local investors have the opportunity to learn and become their own experts. The next three parts of this course, Local Investing Clubs & Networks, Organizing Business Showcases, and Evaluating Local Investments, all address how investors can work together to start investing in their communities.
Securities, on the other hand, are essentially any kind of agreement in which an investor gives money to someone else with the expectation of receiving repayment plus a profit in return. Securities include ownership stakes (shares, or equity) in a business, loans to a business (also called promissory notes, or debt), revenue-sharing agreements, and virtually any other kind of investment contract – even personal loans made between friends and family at any interest rate greater than zero (because zero percent loans are not securities; see above). Since the eventual return of the investors’ principal (the money they put in) plus any profit depends on the management and business skills of the borrower or investee, there are inherent risks in securities, which is why they are carefully regulated by governments and are generally more appropriate for investors (and their advisers) that are ready to do the work to evaluate those risks and decide if they are appropriate to take.
In addition to the type of security (equity, debt, etc.), local investment securities also vary significantly in how and to whom they are offered, advertised, and sold:
For local investors in the USA, here is a very brief overview of what you should know. Laws are passed by legislative bodies, such as Congress, and are generally intended to set broad policies. Rules and regulations are written by government agencies for the purpose of filling in the regulatory details needed to comply with and enforce the laws. Both laws and regulations have full legal effect. Securities laws and regulations exist on two levels: federal and state. The Securities & Exchange Commission (SEC) creates federal regulations authorized by laws that Congress passes, and it also enforces those laws and regulations. Every state also has its own securities regulator (sometimes contained within a larger department or subdivision of state government) which writes regulations based on laws passed by the state legislatures, and it enforces those laws and regulations. As a result of this system, there are always at least four legal areas pertaining to any given investment offering: federal and state securities laws, and federal and state securities regulations. They all collectively dictate the “rules of the road” for all securities offerings you will encounter.
Crowdfunded shares will be open to any investor regardless of his or her income or net worth. Those who buy stock will have to hold it for at least one year before trying to sell. Under the rules, crowdfunding must be done online through a broker or funding portal that provides financial information about the companies and discloses how much money it makes for selling the shares.
People whose income or net worth is less than $100,000 would be limited to investing a maximum of $5,000 annually. Investors with income and net worth greater than $100,000 could contribute as much as 10 percent of their annual income or net worth, up to a maximum of $100,000 in one year.
- OR -
Individual income over $200k or joint income over $300k in each of the last two years.
Accredited investor is a legal term that all investors should know, whether it applies to them or not, because it comes up quite often around securities offerings. In short, accredited investors are people with enough assets or income that lawmakers feel less need to protect them from risky investments. The legal definition, as it applies to individuals, is someone with an individual or joint net worth of over $1 million, not including the value of their primary residence, or an individual income exceeding $200,000 or a joint income exceeding $300,000 in each of the two most recent years, and a reasonable expectation of exceeding the same income level this year. Federal and state securities laws and regulations allow companies to offer securities to accredited investors only under less stringent regulatory requirements than are normally imposed on companies. Therefore, businesses that believe they can meet their funding goals by working with accredited investors exclusively will often take advantage of those types of less regulated (and therefore less expensive) securities offerings. The very real, and many people feel, unfair consequence of accredited-type offerings is that only a limited number of wealthy people have access to these investments, which typically include the most risky and also most profitable investments such as private equity funds, venture capital funds, and hedge funds. Everyone else is locked out of these opportunities. Fortunately, accredited-only investments are fairly rare in the local investing world, because most local small businesses feel they need to be able to raise money from all types of investors. For this reason, and because there are extensive resources available elsewhere that support accredited investors and businesses that want to offer accredited-type investments, the Local Investing Resource Center primarily focuses on securities offerings available to nonaccredited investors.
One final word about legal documents: When investing in local securities, a legal agreement will be needed to spell out all the relevant terms of the investment between you and the investee. For DPOs and accredited-only private offerings, it’s likely that the agreement will be written beforehand and presented to you for your review and signature. For other private offerings, as often as not, the agreement will need to be negotiated and written by one or both parties. If you are just getting started with local investing, or uncomfortable with legal agreements, you should consult an attorney before negotiating or signing any investment agreements. However, many local investors, over time, develop a level of comfort with negotiating simple investment contracts such as promissory notes. Basic template documents are available for free online, and it’s a simple matter to edit the document’s terms to match what has been negotiated. Take the “Do-It-Yourself” approach at your own risk, but know that many experienced local investors do this, especially for smaller and more straightforward local investments.
Review your financial situation. Do you have money to invest that you can afford to lose? Have you paid off any high interest credit card debt? Are your non-invested savings sufficient to cover emergencies, and are they working for you at a locally-focused bank or credit union? Note: IRAs can be invested locally using a tool called a Self-Directed IRA, but there are modest extra costs and paperwork involved.
If you are just getting started, or prefer to work by yourself, consider looking for local crowdfunding and local peer-to-peer lending opportunities online, using our resource list. Be on the lookout for local businesses that are using pre-sales to fund their startup or expansion, and support them.
Read our next module on Local Investing Clubs & Networks. If possible, join a group in your community. Use our Group Directory to look up nearby groups. Being part of a local investing group can help you build mutually beneficial relationships with other local investors, create connections to local business people that offer investing opportunities, and generally learn how to invest locally in your community.
If there are no local investing groups nearby, consider teaming up with other interested individuals to create one yourself. Often, locally-focused economic development groups (like BALLE chapters, some Economic Development Councils (EDCs) and Small Business Development Centers (SBDCs), and local sustainability groups such as Transition Networks will have members, or know people, that will be interested in helping you create an investing group dedicated to your area. You may also use our User Directory to see if there are any interested people on our site nearby you. If so, you can send them an e-mail through our site.
New Possibilities EmergingUse your connections, including through local investing groups or similarly interested groups, to find out about local investing opportunities. To kickstart these kinds of connections, read Organizing Business Showcases and organize one. Check Direct Public Offering listings on CuttingEdgeX. Be patient and wait until you hear about an investing opportunity that interests or even excites you. Reach out to the people that are offering the opportunity. Unless they have registered their investment offering with regulators in a way that allows advertising, they may only be allowed to offer the investing opportunity to people they have a pre-existing relationship with. In these cases, if you don’t know them already, you can start building a relationship by calling or meeting up in person. Ask about who is involved, the history of the business or project, what opportunities they are pursuing, and how you can support their efforts. If the relationship develops in a promising way, you may eventually be able to take the next steps.
Once you have a potential investment you are interested in, and a quality, trusted relationship with the sponsor, do your due diligence. Read Evaluating Local Investments for a step-by-step guide and support in this process. The investment sponsor should be able to provide financial and other types of information that will help you make a decision on whether to invest. Be sure to work with other investors, if possible, to help make the best decision. If something does not feel right, and you can’t get a satisfactory resolution from the sponsor, you should politely decline to invest.
Once you have invested, stay involved! In good times, you will enjoy financial and community returns on your investment, and in tough times, your continued support can help a local small business get through. You are now a part of a growing movement that helps build community ties, strengthens community resilience, and increases local prosperity using your investment dollars.