We are interested in growing three critical pieces to the local economic puzzle: (1) Investable enterprises, (2) tools for local investing, and (3) local investors. Fostering a new economy – one that has a long view – is what this is about. Springboard’s mission is to nurture new kinds of enterprises that won’t kill us or the planet, enterprises that solve problems AND are financially viable. These enterprises also create powerful livelihoods along with increasing economic health.
Many understand this as a global trend, but everything is truly “local” when you get right down to it. Therefore, the sweet spot is to look at our neighbors and our communities and ask ourselves, what can we do here and now?
We can work on the critical stages of enterprise development, from start up to scale, helping improve ideas and fostering enterprises that really benefit 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, ideally, 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 are strategies and methods we can adopt right now that could tranform our community.
And, we have to start with the money.
So, back to alphabet stew. 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 likely be you and me, probably, since this group comprises 96% of us.) We’re called “non-accredited” investors. According to Jenny Kasssan of Cutting Edge Capital, this group is almost completely untapped by entrepreneurs. From the entrepreneur’s point of view, we could make beautiful music together. From a citizen investor’s point of view, it’s a way in to getting engaged in the local economy – a sure win-win.
So, how does an enterprise “do” a DPO? You fill out a Small Company Offering Registration form (the 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. Learn 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).
Imagine a scenario where there are 10 or 20 DPOs available in a city at any given time. The average citizen now has choices for where to put investment dollars, along with influencing what kinds of businesses grow in town. If we have stronger connections with our local businesses (and nonprofits), their chances for success increase. We can use this legal tool for community investing right 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. 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.
 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.”
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, Slow Money NW, Supportland, LION:PDX and Cutting Edge Capital, along with a number of other community partners, are working together to bolster these areas in a Re:Forum series in 2012, bringing resources, expertise, educational opportunities, and strategies to Portland. It’s an incredibly exciting possibility for all of us, building bridges with reasoned and thoughtful finance between citizens and their enterprise neighbors.
To learn more about how to engage, check out our Re:Forum series on Jumpstarting Community Investing.
(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.” )
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.
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, 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.
Update: Author Amy Cortese is joining us here in Portland on June 15th to help kick off Springboard’s Re:Forum series on Local Investing. Find out how to raise investment dollars from 500 of your neighbors and how you can be a smart local investor. More here.
 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.
And the New York Times writes about PRIs.
To Advance Their Cause, Foundations Buy Stocks
Earlier this year, the Bill & Melinda Gates Foundation invested $10 million to acquire a stake in Liquidia Technologies, a biotechnology company working on new ways to deliver vaccines.
The foundation bought its shares using a program-related investment, or an investment that can be counted toward federal requirements that it pay out 5 percent of its assets each year.
A growing number of foundations are using such investments, known as P.R.I.’s, to connect with profit-making ventures that advance their missions. But as they become more popular, some officials in the nonprofit field worry that this and other newer mechanisms are blurring the lines between profit-making businesses and charitable work.
“Equity investments, and sometimes debt instruments, are ways to tap into the private sector when we think it will add to the work we are doing and leverage private flows of capital to advance our work in global health, global development and U.S. education,” said Jeff Raikes, chief executive of the Gates Foundation.
The Liquidia investment was made from a $400 million program-related pool the foundation created in 2009. Now, the foundation is increasing that pool to $1 billion, a quarter of which will be used to make equity investments or to finance debt instruments in profit-making ventures.
Its investment in Liquidia piggybacks on capital supplied to the company by traditional investors and is meant to ensure that the technologies the company develops for better delivery of vaccines not only benefit what Mr. Raikes calls “the rich world” but also serve the poor, who are the foundation’s target.
I’m not going to say we couldn’t do this through a nonprofit, but it would certainly be more difficult,” Mr. Raikes said.
Investments like the Gates Foundation’s stake in Liquidia compose but a tiny portion of all program-related investments. About 5 percent, or $37.2 million, of all P.R.I.’s made in 2006 and 2007 was used to buy shares, according to research by the Foundation Center.
The rest of the Gates Foundation’s $1 billion pool, for instance, will go toward more traditional types of program-related investments, like the one it made to guarantee a bond offering by KIPP, a nonprofit manager of charter schools.
But interest is growing rapidly in using P.R.I.’s to buy stakes in businesses that can help foundations achieve their missions, experts say, and the Gates Foundation alone will change the dynamics.
The foundation also put money into two funds that invest in Africa — $7 million in one targeting health-related businesses and $10 million in another aimed at small businesses — and used a $2 million P.R.I. to buy a stake in Inigral. That represents almost the total of all such investments made in the period covered by theFoundation Center report.
Added to about $20 million that the Omidyar Network, the philanthropic investment fund set up by the eBay founder Pierre Omidyar, has put into equity funds and other investments, the amount already exceeds that for program-related investments in the Foundation Center’s last report.
“We made our first equity P.R.I. a little more than four years ago, and after that I got maybe one call a month asking how we did it,” said Will Fitzpatrick, general counsel of the Omidyar Network. “For about the last year and a half, though, those calls are coming in at a rate of one or so a week from a combination of large and smaller foundations thinking about making similar investments.”
Diana Aviv, chief executive of the Independent Sector, the nation’s largest nonprofit trade association, said such investments reflected a broader trend.
“Foundations are increasingly agnostic about how they achieve their goals,” Ms. Aviv said. “If their purpose is, say, to eliminate food deserts, they may see supporting a grocery store chain as the best way of doing that rather than funding a nonprofit program.”
That trend concerns her at a time when government financing for nonprofits is declining and the charitable deduction is under fire. “It’s part of this slow erosion of nonprofit funding streams that threatens to undermine organizations that have been built over decades to meet high standards of public trust,” Ms. Aviv said.
For example, Gerard Cafesjian, who made more than a billion dollars through the sale of a publishing empire, formed a family foundation that has invested and made loans to a variety of companies in Armenia, from a financial services business to extensive media holdings and real estate. Its Web site says it has a total of $128 million invested in that country.
The foundation’s 2009 tax form, the latest available, showed that it used P.R.I.’s to make some $53 million in investments that year, about $42 million of which were equity investments. In contrast, it made just $178,000 in grants.
GLC Enterprises, which manages the foundation, did not respond to a list of questions about its investments.
In most cases, program-related investments pale in comparison to grants. Some foundations, like the David & Lucile Packard Foundation, do not even count them toward the payout requirement.
It first used a program-related investment in 2009, when it put $1 million into Ecotrust Forest Management, a fund set up by Ecotrust, an Oregon-based nonprofit conservation organization.
The fund, whose limited partners include Packard and a handful of family offices and individual investors, acquires forest land in the western United States and Canada and earns revenue using ecologically sound management of those properties.
Mary Anne Rodgers, Packard’s general counsel, said the foundation was working on a second deal and planned to cautiously increase its investments in businesses.
“The principal purpose of these types of investments isn’t the appreciation of capital, though we hope to get a return,” Ms. Rodgers said. “Our main reason for investing in Ecotrust Forest in this way is to demonstrate that sustainable forest practices can generate a profit so that mainstream investors will become more interested in it.”
The Omidyar Network used that strategy to demonstrate the commercial viability of microfinance. It used a program-related investment to become a limited partner in the Unitus Equity Fund, a private equity business affiliated with the nonprofit Unitus. After Omidyar made its investment, the fund attracted a group of limited partners that reads like a who’s who of the venture capital world.
“They were having a hard time raising commercial capital until we did that,” Mr. Fitzpatrick said.
Revolution Foods also needed nonprofit financing to attract commercial capital. Its first financing in 2005 came from what is now known as DBL Investors, a private equity firm, the first fund of which included program-related investments from several foundations.
Revolution Foods has grown to 750 employees making nutritious meals served in more than 600 schools in 20 cities across the country.
“That capital got us off the ground,” said Kristin Groos Richmond, one of its founders. “It helped us hire our first employees and buy our first truck and kitchen equipment.”
Not all program-related equity investments turn into gold, however. From 1999 to 2002, the John D. and Catherine T. MacArthur Foundation used P.R.I.’s to make six investments totaling $6 million to help small businesses in places like Appalachia and the Mississippi Delta.
“To be honest, we’ve seen a mixed set of financial results,” said Debra Schwartz, director of MacArthur’s program-related investments. “So far, a couple have been total wipeouts, there are a couple where we’ll at least get our principal back and maybe two of them will produce a positive return — though I’m not expecting anything gigantic.”
Still, she said, “what we were trying to do was help create jobs, and from a rough accounting, more than 11,000 jobs have been created and maintained. That’s impact.”
Original article here.
Join us Wednesday, Nov 9th to press cider, share food, and learn about how small farms, finance, and technology connect to our communities and our own kitchen tables. Our Forum begins at 6:00 and will be here at our current home at Olympic Mills, SE Washington and SE 2nd, in the main lobby where we’ll have an apple press for cidermaking! Potato soup will be the main fare, and you bring a side dish to get in – it’s a potluck! Forum speakers begin at 6:45 p.m. after cider and dinner. FUN!
Learn about Slow Money from Founding Members, hear about Abundance Farming technologies from the founder, and more about how Community Supported Agriculture strategies are changing the landscape of farm to table.
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.
|
The list below provides access to leading edge ideas and information.
|
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.
