Investing in the local economy: A win/win for business and community

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Investing in the local economy: A win/win for business and community

Fri, 06/24/2016 - 12:03pm -- katie

By Louisa Schibli & Janice Shade, Co-Founders, Milk Money L3C - Small business owners, whether they own a startup or a long-established family business, will inevitably need to seek outside funding at some point, or several points, during the life of their business. Funding could be needed to get off the ground, expand services or locations, build a team of trusted employees, or simply to add new equipment.

Most entrepreneurs’ first thought may be to seek traditional sources such as a business loan from credit union or bank. Traditional financing is a great option, however, it is not a fit for every business or for every scenario. Fortunately, entrepreneurs also have alternative financing resources locally, thanks to innovative and forward-looking laws and regulations in Vermont.

Revisions to Vermont securities regulations in 2014, referred to as the Vermont Small Business Offering (VSBO), allow business owners to seek funding from friends, customers, and other community members – local sources of funding that also strengthen the local economy. Vermont businesses can raise up to $2 million in capital by selling securities in their company to in-state investors. The revisions make it easier for everyday Vermonters to invest up to $10,000 in a single business, and allow some high net-worth individuals to purchase unlimited equity.

Investing locally is not only a benefit for small business owners who are seeking capital. Investors themselves benefit by diversifying their investment portfolio, as well as having a local connection to the company they are investing in. Unlike investments on Wall Street, local investors have more opportunity to patronize and build relationships with the businesses they have invested in.

Further, communities and local economies benefit greatly from local investment. Consider how the money a local business makes could circulate throughout the community. Using the capital received from a local investor, a local business can hire and pay more employees; one of those employees contracts a Vermont builder to construct a new home; the builder uses the income to purchase new equipment and take on a new employee to run it; the contractor’s new employee can now afford ballet lessons for his daughter. One small investment can lead to a string of investments that build local wealth and enable the entire community to prosper.

According to Amy Cortese, who is best known for her book Locavesting: The Revolution in Local Investing and How to Profit from It, communities thrive when their members invest in small local businesses rather than larger corporations. Her point is that “ownership matters” because businesses with local owners are stakeholders in the community. They provide jobs, products, and services to the local community and often spend their money within the community.

The American Independent Business Alliance notes that “on average, 48 percent of each purchase at local independent businesses was recirculated locally, compared to less than 14 percent of purchases at chain stores.” They refer to this as the “multiplier effect” of local business, which occurs as a result of three main actions: businesses spending locally in order to operate their business, businesses spending locally with other businesses, and consumers spending locally.

To increase the circulation of money within your community, you can get more creative with local investing. You might design your portfolio so that all of your investments support local companies, place your money in your locally owned credit union or other financial institution, donate to local charities, purchase items that are made or grown locally, donate to a local business through a crowdfunding platform like Kickstarter, or create other opportunities within your region to promote local spending.

Whichever path you take, investing locally will also be more likely to increase your joy. The local investments you make are likely to bring you closer to other members of your community. You may also be more likely to invest in companies, products, and services that make a positive social or environmental impact. Being closer in geography to the businesses you support enables greater insight into their values and ethics, which may help you determine how your money will be best spent.

 

Louisa Schibli and Janice Shade are co-founders of Milk Money L3C, a Vermont low-profit limited liability company – powered by not for profit credit union VSECU – that supports local investment, entrepreneurship, and small business through its local investment platform, educational and networking resources, and services for investors and entrepreneurs.