Seriously? Can all those letters mean something useful? Yes! Together they are actual examples of what could move in and help to solve Peak Oil. Let’s call it “Community Fuel.”
This post is about fostering a new kind of economy – one that nurtures new kinds of enterprises that won’t kill us and the planet, actually add to the collective good, AND are financially viable creating jobs and economic health. These enterprises – new enterprises – start out small. Many people accept the fact that small businesses create jobs and economic stability, but the debate has surfaced again. For more on the final answer, see Michael Shuman’s article, “Small Thinking About Small Business: A Rebuttal to Jared Bernstein.”
So, we have a dilemma. While we have to work on the early stages of enterprise development better than we have in the past, we also have to promote (1) new ideas to increase their numbers and success rate, but also (2) make them better enterprises for our communities.
These “better” enterprises would start out with a more community-minded legal structure (see B Corp Push in Oregon), they would be sustainable, community focused, and community fueled! We have a lot to learn if we are to shift the practices of the past (and the present) into something better for all of us. There’s no doubt we must, but the word we isn’t trivial. We need to understand what that “better” could be and what our role is. We need to learn new strategies and methods.
Let’s start with the particulars of the letters DPO. It stands for Direct Public Offering (see wikipedia’s definition here). Briefly, it’s a way to legally offer shares for investment in an enterprise to people who don’t usually get to invest directly in anything. That would be you and me, (certainly me). We’re called “non-accredited” investors. And we are the 99%… (96% actually, according to Jenny Kasssan of Cutting Edge Capital) who are actually beginning to think of ways we might help generate better businesses for better communities. From the entrepreneur’s point of view, we could make beautiful music together.
But, alas, there is a catch. The law won’t let you unless you fill out legal paperwork. One way is a DPO. So, what is it?
A DPO is a sale of shares in an enterprise offered “directly” to potential investors – people like you and me. There are no professional middlemen doing the selling of shares – potential investors talk directly to board members or principals in the company. This means you build a relationship with each other, investor and investment. (Hence the word “share”.)
There are two kinds of investor classes (generally) one group who have a lot of money, enough so that the legal folks don’t worry about them losing their shirt, because they have a closet full of them. They are called “Accredited Investors.” They have legal access to investments of all kinds, and so entrepreneurs usually focus on them to invest in their business. They have more money than most people.
The second class of investors is people who aren’t wealthy or worth over a million. They are the rest of us. Cutting Edge Capital shares a pie chart online that asks entrepreneurs: Why compete for 4% of investment dollars, when you can spread your ask out to the other 96% of us? There are citizens in every neighborhood and town who want to get out of the stock market and into improving our own local economies. What about us? A DPO allows the connection to be legal!
A Direct Public Offering must be approved by the state/s in which it will be offered, avoiding more expensive federal applications. And, it can be offered to non-accredited investors. In other words, a neighborhood bakery, a software company, a commercial building, or a window business can ask me if I would like to buy a share in their success, or, a share in their failure. If they are the kind of business I want in my community, I’m more likely to invest, AND, to help make it successful. I don’t have to have a pile of cash. In fact, I may only have $100 to use as an investment (they’re risky!). It depends on the cost of the share, but often the numbers allow for smaller investments.
So, how does an enterprise “do” a DPO? You fill out a SCOR form. It’s about 44 pages, and even has a manual (Issuer’s Manual for Form U-7) which is full of appropriate questions and examples manual. It stands for Small Company Offering Registration Form (U-7) and you can find out more here from the North American Securities Administrators Association (NASAA). It can take from one to three months to receive approval, often in two phases (where you have to fix what wasn’t right the first time in Phase 2).
What brings me to hate/love this document is that it is an excellent business development tool. I have become very familiar with this document, and I am convinced it is an extremely useful tool for early stage and growing companies. If every enterprise used this document as their business plan framework, we would have much smarter plans, and enterprises ready for community investors! Remember, that’s 96% of us, not the usual 4%.
So, what’s next? We have enterprises with strong cases for success, we have the legal tool for community investing, now all we need are community investors! Here is where we run into another challenge. We don’t know who we are.
Put another way, we don’t know that we are investors! But, think about it. You have money in a bank, in a savings account, or maybe in some stock market fund that someone else manages. You ARE an investor, you just don’t think of yourself as one.
That has to change.
 So, meet the Local Investing Opportunities Network (the LION of my title). Started in Port Townsend, WA, it’s a group of people who live in town, who provide investments, mostly in the form of loans, to local businesses. They talk to each other, make connections, help educate people, inviting them to the table, and then conduct their deals privately and directly. They provide a framework for investors to work in their own community, providing triple benefits – their own, the enterprise’s, and the community’s economy.
From their Web site, “Keeping funds local facilitates greater economic self-sufficiency, job growth, economic development, and a dollar-multiplier effect whereby a dollar kept within the community can be spent many times over for a far greater benefit than a dollar invested away from our community.”
We now have the three critical pieces to the local economic puzzle: Investable enterprises, legal tools for local investing, and local investors. Imagine what we could do with this kind of community fuel!
There’s clearly more to it than this overview. How do community investors conduct due diligence? Find deals? What resources are there for me if I’m an entrepreneur? Springboard Innovation and Cutting Edge Capital, along with a number of partners, are working together to bolster these three areas in 2012, bringing resources, expertise, educational opportunities, and strategies to Portland and Seattle. It’s an incredibly exciting possibility for all of us, building bridges with reasoned and thoughtful finance between citizens and their enterprise neighbors.
What do you think? Ready to invest some time to find out more?
Building Sustainable Community
by Malaika Maphalala
Exploring Locavesting
I recently finished reading Amy Cortese’s new book, Locavesting – The Revolution in Local Investing and How to Profit From It. It’s a great read on the development of the movement to build more resilient and sustainable communities by investing in our local economies. Locavesting takes the Buy Local movement to the next level – Invest Local – and poses the question: what if everyone invested 5-10% of their assets in local and community investments?
As Cortese shows, Local Investment offers many potential benefits. For one, it provides another category of portfolio diversification as protection against the increasingly volatile stock market. Investing in local communities is investment on a human scale and can restore a sense of personal connection to financial transactions that has been lost in the complex, impersonal investments of today’s financial markets. And, it encourages us to broaden our concept of returns beyond just financial.
Investing in small, community-rooted businesses is investing directly in the health of our communities and provides a vital boost to the kinds of businesses that are the true drivers of our economy. Small businesses make up 99% of all U.S. companies, employ half of all private sector employees, provide two of every three new jobs created, and contribute half of private GDP – about 5.5 trillion dollars annually. Money spent and invested in these businesses circulates within local communities, contributing to their prosperity. Cortese points out that “communities with a diversified economy comprised of many locally owned businesses have a higher quality of life, civic engagement, and income equality than similar communities that are reliant upon a few large employers.” Without strong local economies, we can’t expect to have a functioning global economy.
And yet despite the fact that small businesses far outstrip large corporations in job creation and driving economic growth, they’re being increasingly starved of capital, seriously hampering our economic recovery.
Locavesting provides a superb history of the financial markets, outlining how we’ve arrived at the mess we’re in today. As the public markets have grown and moved toward extremely high frequency and speculative trading, large companies have been favored, resulting in a shrinking pool of small companies and a serious drop-off in new Introductory Public Offerings (IPOs) which historically have been the number one way for small companies to raise capital for innovation and expansion.
Today, just 1% of the trillions of dollars flowing through the stock markets is sending investor dollars into the coffers of small or growing companies when they issue new stocks or bonds. (The remaining 99% is trading of existing shares on the stock market.) While most investors will continue to have significant holdings in larger companies, public markets are no longer the place for small companies to raise money and for investors to invest in them for the long term. Compounding the failure of public markets to support small businesses, large banking institutions which now hold the lion’s share of all depositors’ money, have cut their lending to small business down to a mere trickle. Without capital to grow, small business cannot play its critical role in the economic health of our communities.
Clearly, there’s a need to get money into small businesses. But confoundingly, it’s not so easy for the average investor to choose to put their money into local economies. Cortese points out a number of serious hurdles that get in the way. Most significantly, securities laws, originally created to protect individual investors from scams, have become a tangle of regulation that make it very difficult or outright illegal for businesses to take investments from average investors, including their customers, friends, and neighbors. As she puts it, “it’s easier for an individual to invest in a company halfway around the world than in a small enterprise down the street.”
And yet, despite the hurdles, Cortese identifies the most accessible ways for investors to begin investing locally and takes readers on a tour of some exciting models of local investment happening around the country. The easiest, least risky way for investors to invest in small business and community is simply by moving their money into a Community Bank or local Credit Union. These smaller institutions invest within their communities and lend to small businesses at a much higher rate than the big banks. She notes that if just 10% of money currently held in big banks were moved to community banks, it would generate up to $4.8 billion in new local lending. Wisely, Cortese directs readers to check up on the health of a community bank when choosing a new institution by using an analysis tool available on the Move Your Money site (www.moveyourmoney.info). She also points readers toward Community Development Financial Institutions (CDFIs), institutions that focus on making small business loans in low income and underserved communities. Natural Investors already participate in this type of community investment through Calvert Foundation’s Community Investment Notes.
Beyond these simple steps to engage in local investing, Cortese takes us on a walk on the wild side, sharing wonderful stories of communities and small companies doing some very creative things in support of local investment. All of these efforts fit within the few narrow openings within securities laws. It’s here that we get to hear the story of LION – the Local Investment Opportunity Network started in Port Townsend (with the help of Natural Investments’ very own James Frazier), and several other examples of community members coming together to invest in local businesses where they have personal relationships. She also introduces us to Crowdfunding, the Slow Money movement, Local Stock Exchanges, and the use of the Direct Public Offering, nicknamed the Do-it-Yourself IPO.
Cortese’s book is chock full of great stories, interesting tidbits of history, and hopeful developments for a revolution in Local Investment. For those interested in participating in this burgeoning trend, Locavesting is a must-read.
 Malaika Maphalala is a Financial Advisor with Natural Investments LLC, a national investment advisory firm committed to helping motivated investors create portfolios that reflect their own social priorities and concerns, generating healthy returns while cultivating opportunities to make a difference. Natural Investments has been at the forefront of the socially responsible investment world for over 25 years, and wrote two of the leading books on the topic, “Investing from the Heart” (1992) and “Investing With Your Values: Making Money and Making a Difference” (2000). They are an independent, SEC registered advisory firm with offices in 8 states. Malaika heads up the Portland, Oregon office and can be reached at 877-424-2140 or malaika@naturalinvesting.com.
If you were part of the amazing turn out at the Finding Common Cause Panel last night, you would have heard Amy talk about her focus on challenging assumptions in systems. This is a timely article written by our Development Director, Malaika, highlighting an astounding example of system change with Regenerative Agriculture.
Building Sustainable Community
by Malaika Maphalala
I recently had the pleasure of meeting Kat Taylor, co-founder of One PacificCoast Bank, a “beneficial bank” newly arrived in Portland. A fan of banks with strong community-service visions, I was interested to hear about their work, but what really caught my attention was that Kat has spent half her time involved in Regenerative Agriculture. Here was a woman after my own heart: combining high impact work in social finance with trailblazing work in building sustainable food systems in her community and beyond.
When we got together, Kat explained that she thinks of things in terms of systems. She believes that our current extractive models of food production, finance, and energy must be replaced with systems that support life. And clearly, she has stepped up as a driver of these changes.
 Kat and her husband Tom Steyer originally purchased 2000 acres in Pescadero, California as a conservation project aimed at saving a critical watershed from development. The land, a former dairy farm, was a depleted landscape of coastal scrub and grasslands, interspersed with Douglas Fir. The couple soon realized that this watershed was in the midst of a vital food network connecting rural agricultural land to the suburbs. Drawing on that systems-oriented way of looking at the world, they became interested in re-enlivening the land as a sustainably managed ranch that would both rehabilitate the land and provide food locally. Kat went about getting a fast education in food systems, drawing from the work of several pioneers: Joel Salatin of Polyface Farms, Alan Savory, who pretty much wrote the bible on Holistic Resource Management, and Julius Ruechel, a Yukon cattle rancher who, like Savory, advocates ranching using grazing patterns that mimic the migrating herds of the Serengeti and Great Plains.
Today, the Pescadero ranch, known as TomKat Ranch, produces triple certified grass-fed beef, sold locally under the name LeftCoast GrassFed, and implements rotational grazing and stacked functions whereby cattle, chickens, turkeys, pigs, and rabbits move in tandem across the land. Mimicking patterns of nature allows the animals to play their natural and vital role in the ecosystem, helping to spread nutrients, build topsoil, and support an increase in biodiversity of native species.
In a natural extension of this work, the TomKat Ranch Educational Foundation has played a huge role in changing the school lunch program in their community. The entire La Honda-Pescadero Unified School District now cooks all school lunches from scratch using minimal processing, whole grains, minimally refined sugar, and as many locally sourced organic ingredients as possible. Amazingly, they’ve gotten their food costs down below conventional costs. The one sticking point is the higher cost of food preparation, which is currently mitigated by grant money and volunteers. However, Kat noted they’ve achieved additional cost reductions in areas standard cost assessments don’t track: reduced landfill costs, far less cost in packaging, and less food waste.
Her partnership with the Center for Ecoliteracy resulted in training programs for school chefs from throughout the state, a feasibility study for improving school food in Oakland, the development of a cookbook for school food managers with scalable recipes reflecting seasonal foods of varying regions, and an ongoing tracking study following the pathways of twelve important California crops that could be featured in school meals. The tracking project is especially groundbreaking, revealing ways that the entire school food system can be retooled toward sustainability. Kat wants to see a food system where demand actually helps to create and broaden a beneficial local supply chain, supporting good labor practices and a healthier natural environment.
Another agricultural project the Foundation helps spearhead is InKa Biospheric Systems, an advanced aquaponic technology in which raising fish is combined with growing produce. InKa hopes to demonstrate how aquaponic systems, which maximize food production while minimizing natural resource depletion, can offer tremendous value in regions around the world where there is limited fresh water and arable land.
But wait, there’s more. TomKat Ranch is developing new land ownership models to address the prohibitive land costs that make it so hard for new farmers to access agricultural land. They’re developing an association model where farmers, who will ideally live on the land, can buy membership in a landowning association that maintains ownership of the land. Membership provides the right to use the land for sustainable farming, and through an association lending system, allow farmers to use the land to access financing for working capital which can be repaid thorough a percentage of future profits. As they continue to work out the details of this model, they’re exploring ways to incentivize building topsoil so that members who quantifiably improve topsoil on their land could be rewarded by being allowed to resell their membership rights at a higher price. TomKat Ranch has begun to make land available under a pilot model, with Early Bird Ranch, a pasture-raised poultry producer, now on-site as the first association partner.
And then of course, there’s the bank. Modeled after community banking pioneers like Triodos Bank and Self Help Credit Union, One PacificCoast Bank is a Community Development Financial Institution (CDFI) that uses the term beneficial banking to describe its lending practices, which focus on low and moderate income communities. Loans to small business and non-profits support clean technology solutions, regenerative agriculture, critical community institutions, job growth, and a living wage. And, affirming the bank’s commitment to an equitable relationship with its community, 100% of the economic interest in the bank belongs to the non-profit One PacificCoast Foundation.
This is a fascinating group of projects and I appreciate Kat Taylor’s passion and devotion to addressing these critical issues. She says that as a mother and a person who can’t stop seeing everything as connected, she’s felt compelled to be part of creating beneficial systems within a new development paradigm that can help build an economy of justice.
Malaika Maphalala is a Financial Advisor with Natural Investments, a national SEC registered Investment Advisory firm that has specialized in exclusively socially responsible and ethical investing for over 25 years. A lifelong advocate for social change, Malaika is driven by a passion for finding innovative approaches to bringing people and resources together to address social and environmental complexities.
Springboard Innovation Plans Hatch Incubator – By Christina Williams
It now sits as a furniture store along Portland’s new eastside streetcar line between Broadway and Weidler, at 228 N.E. Broadway. It’s a sprawling building of the sort that begs for redevelopment.
Springboard Innovation has such a plan on its drawing board, aiming to turn the building into Hatch, a community-oriented business incubator for social-benefit companies that fall somewhere in that gray area between the for-profit and nonprofit realm.
The target market is unique. So is the financial and corporate structure behind the Hatch venture…
Read the full article.
With profound thanks to the founders, worker-owners and investors in Equal Exchange (a fair trade co-op) that has pioneered this model over the last 25 years. I originally wrote a verion of this article for Equal Exchange’s 2008 Annual Report (where it appears on page 12.)
 Close to the center of HatchLab’s business model there are two gates. One is open,one is closed,and therein lies a great strength. Most businesses are designed to deliver two financial results: to make profits and to grow in value. They then distribute those gains back to the business’ owners; profits can be returned through dividends and growth in value through increasing share prices, through capital gain.
HatchLab is choosing just one means: we welcome profit and decline capital gain. We have fixed price shares, and we offer a dividend on those shares out of our profits. Let’s dig a little deeper and see what that means. The answer to “How much is a company worth?” can change every few minutes. We’ve all seen the stock market graphs. The answer goes up and  down and huge wealth is won or lost on that guesswork and speculation. Hatch has closed that gate. Buy a share in in the Hatch enterprise, and its price is fixed. There is no capital gain, no hope of windfall riches, no ticker symbol to obsess over, no precipitous decline. You can’t trade that share in the stock market for a variable price. You can however seek to trade it back to Hatch for the price you paid.
One significant simplification is that with no way to get rich, the need to control is also released. In most business models, control allows owners to maximize their return and get the biggest piece of the pie. But if your pie slice is fixed what are you trying to control? That allows us to sell non-voting shares, and keep control with Springboard Innovation, the non-profit that owns the building who founded Hatch, and HatchLab, Inc., and who is driving the mission. But wait, if all our pie slices are fixed, yet Hatch grows, who will the rest of the pie belong to? It will belong to the community. That’s what our Articles on Incorporation say, and our Bylaws were written to enforce it. This is a special kind of freedom; freedom from the temptation to turn every success into cash. It’s freedom to deliver on a mission and create an economy that still creates financial wealth, along with social capital.
Profit however… that’s different… we like profit. We seek to be sustainable and profit gives us the means to invest in new ideas, to cover occasional failure, and to reward employees and investors for their labor and money. Profits, unlike share prices, are measured by auditable standards and demonstrate to others that social enterprises are sustainable.
So while non-profits avoid both gates, and corporations embrace both, HatchLab is following Equal Exchange and choosing a singular path–yes to profit, no to capital gain. As more people seek alternatives to business as usual ,we are expecting company.
| ORGANIZATION |
PROFIT |
CAPITAL GAIN |
| Typical Corporation |
YES |
YES |
| HatchLab |
YES |
NO |
| Typical Non-Profit |
NO |
NO |
A table showing the beauty of one.
An important Hatch role is to support new types of organizations: ones better suited to serve society. Here’s one take on redesigning Corporate structure, these principles come from Corporation 20/20 an initiative of the Tellus Institute in Boston.
New Principles for Corporate Design
- The purpose of the corporation is to harness private interests to serve the public interest.
- Corporations shall accrue fair returns for shareholders, but not at the expense of the legitimate interests of other stakeholders.
- Corporations shall operate sustainably, meeting the needs of the present generation without compromising the ability of future generations to meet their needs.
- Corporations shall distribute their wealth equitably among those who contribute to wealth creation.
- Corporations shall be governed in a manner that is participatory, transparent, ethical, and accountable.
- Corporations shall not infringe on the right of natural persons to govern themselves, nor infringe on other universal human rights.
What do you think, would these work? It makes me wonder what the old principles were? Please share your thoughts in the comments section.
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Please leave a comment on the blogand add your voice to the mix.
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So, meet the Local Investing Opportunities Network (the LION of my title). Started in Port Townsend, WA, it’s a group of people who live in town, who provide investments, mostly in the form of loans, to local businesses. They talk to each other, make connections, help educate people, inviting them to the table, and then conduct their deals privately and directly. They provide a framework for investors to work in their own community, providing triple benefits – their own, the enterprise’s, and the community’s economy.
