September 2, 2014

Need an Investment in Your Business? Locavesting Has More Than a Few Great Ideas

LocavestingWhat if I told you that business lending is expected to grow 66 percent by 2013?

Yes, yes, I’m aware of the economic slowdown; I’m writing this review after the U.S. debt crisis and a stock market week rocky enough to make me skip watching CNBC and Fox Business channels for a long time.  And no, no, I do not have ocean-view property in the middle of the Moab to sell you.

The aforementioned growth is referenced in Locavesting: The Revolution in Local Investing and How to Profit From It by Amy Cortese, a renowned Brooklyn journalist. The book explains:

“Analysts at the Gartner Group project that P2P (Peer-to-Peer) lending will expand…to $5 billion in loans worldwide. The brisk growth…will be driven by investors seeking higher returns and borrowers shunning (or being shunned) by banks.”

Ready to learn more? Good, because this book is one of the most honest showcases of monetary hope to the small business community, online or off.  Locavesting examines how communities and small businesses band together to establish alternative financing to reluctant banks.  I asked the publisher for a copy after seeing it in a bookstore, and was emotionally well rewarded by its text, summed up in the conclusion’s first sentence: “What would the world be like if we invested 50 percent of our assets within 50 miles of where we live?”

Learn about financial resources that can develop your community

Cortese infuses historical connection into her examination of alternative funding, much like that in The Economics of Integrity by Anna Bernasek and The Mesh by Lisa Gansky. Starting with Blue Sky legislation launched in Kansas, Cortese shows how American culture has conducted and reacted to overinvestment that correlates with the national mood of the stock market.

The author’s tone towards traditional markets is never sullen, but she is definitely critical of standard investment considerations.  “A-ha moments” abound that bring historic events into context with attitudes towards small business today.  Here’s a quote that reflects that enlightenment:

“There is a strong perception that small companies and startups are extremely risky–that’s the reason, after all, the SEC created such high hurdles for those companies to raise money from ordinary investors…Larger companies may have the resources to better weather a downturn, but size no longer guarantees safety. Who would have thought that Lehman Brothers, a 150-year-old investment firm that had just logged its most profitable years, would vanish virtually overnight?…At least you can rest easier knowing that a local business probably isn’t dabbling in highly leveraged derivative trades…”

Cortese also informs us how alternative small business investment can beneficial, such as in the following quote on co-ops:

“In the United States, about one in every four people belongs to a co-op of some sort. The country’s 29,000 co-ops collectively generate $654 billion in revenue….Co-ops tend to fill a need that the marketplace is ignoring.  And often they are at the forefront.  Those crunchy-granola natural food co-ops were instrumental in establishing the organic and natural foods market — well before John Mackey opened his first Whole Foods store in 1980 or Walmart glommed onto the organic trend in 2006.”

The funds and programs explored in Locavesting run the gamut from long-established community banks to newcomers like Profounder.  You will read about a Local Investment Opportunity Network (LION) in Port Townsend, Washington, or the support to Cops and Doughnuts, a bakery run by Clare, Michigan, police officers.  Contributions from rural America are brought to light through the book’s opening view of Milk Thistle Farm, an upstate New York organic dairy farm well known in New York City, and Slow Money, a program that connects local investors to food enterprises.

You also read about the pitfalls that some experiments have encountered, such as Prosper.com’s dealing with SEC claims “despite compliance due diligence” prior to its operation. Cortese notes that the SEC “is acutely aware of many of the issues holding back small business capitalization.”  Other challenges include conducting due diligence on small businesses and capitalization in some instances due to the recession.

Yet interviewee Alan Cantor, vice president of philanthropy at the New Hampshire Community Loan Fund, sums up why individuals poured $4.5 million into his fund, “double the amount last year:”

“People are tired of finding out about collaterized debt obligations and tranches and all this chicanery that was happening with their supposedly traditionally invested money.”


Locavesting
ends each chapter with a pro-and-con review of each fund devised.   Also, if you are inspired to create an alternative fund for your community, you will have contacts and websites for more information.  Deciding to provide contact information is a brilliant and welcomed touch.

Putting small business in the spotlight

As someone who has been reviewing business books for nearly two years, I can say it’s been difficult finding books that provide financing suggestions tailored to small business.  A lot has been written about Wall Street, and yet so much of Main Street has been overlooked in print. This wonderful read puts small business front and center and is great for background education or for learning about financial resources broader than Kiva and Kickstarter. Read it along with Wealth Creation for Small Business Owners to get the best ideas on how to manage your finances before seeking investments.

Locavesting is an ingenious finance book, but more importantly, a savvy beacon that can help small businesses and communities muster critical ports in a fierce economic storm.

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Pierre DeBois - Associate Book Editor


Pierre DeBois Pierre Debois is Associate Book Editor for Small Business Trends. He is the Founder of Zimana, a consultancy providing strategic analysis to small and medium sized businesses that rely on web analytics data. A Gary, Indiana native, Pierre is currently based in Brooklyn. He blogs about marketing, finance, social media, and analytics at Zimana blog.

4 Reactions

  1. Thank you for reviewing Amy’s book – I look forward to reading it!

    I can attest to the oft-overlooked value of local investment. My husband and I relocated from NYC to the small town of my childhood after the markets crashed (and we subsequently lost jobs) in 2008. We started a specialty grocery thanks to loans from the locally-owned bank and a community-funded micro-finance organization. Both have been invaluable. I think it’s particularly notable that our small rural town (pop. 22,000) would heavily invest in small business start-up via micro-finance.

    I’m writing a book about this experience; if you would like a copy when it is published next year I’d be happy to send you a review copy.

  2. “Locavesting” is a term and book title coined by economics and business writer Amy Cortese. It is the combination of “local” and “investing” and is inspired by “locavore” which describes someone whose preference is to eat food grown, raised, or caught within 100 miles and may include carnivores, omnivores and vegetarians – as long as it is local. The thinking is that just as food is considered healthier if it hasn’t travelled too far, investing in what and who you know if also healthier. Cortese’s book is a great analysis of the whys and hows. It is also full of inspiring stories.

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