"Locavesting": Investing In Main Street Instead Of Wall Street

What if you didn't send your money to a faceless investment bank, but instead gave it to a local business? We spoke to author Amy Cortese about local investing, where people keep their capital within 50 miles of where they live.

"The crazy thing is it’s easier for most people to invest in a company halfway across the world than in their own backyard," says Amy Cortese, author of the recently published Locavesting: The Revolution in Local Investing and How to Profit From It. Cortese, a former BusinessWeek editor, got her first glimpse of the revolution in 2009, as she witnessed communities swallowed up by the hangover of the economic collapse. "Wall Street rebounded, bonuses were back, everything was looking up, but it was so starkly different on the ground, on Main Street." Cortese spent the next year on a journey to uncover the most innovative experiments in citizen finance around the world, from local stock exchanges to cooperatives and DIY IPOs. Fast Company spoke with Cortese about “locavesting,” the term she dubbed that, similar to the spirit of locavores, describes the movement to rebuild sustainable communities by investing in businesses within 50 miles of where you live.

Fast Company: You open the book posing this really interesting question, first posed to you by Woody Tasch, founder of Slow Money: What would the world be like if we invested 50% of our assets within 50 miles of where we live? Can you paint that picture for me?

Amy Cortese: Americans have about $26 trillion dollars in investments, and now it's probably closer to $30 trillion. Imagine if half of that, $15 trillion, was invested in local communities rather than multinational conglomerates that are outsourcing jobs and not investing domestically. I think we’d be living in a far different world. That said, it is a little idealistic to think we’ll ever get to 50% any time soon. But even think about 10% or 5% or 1%. One percent of $26 trillion is $260 billion going to the Main Street economy and that’s a lot.
Isn’t that a bit of back to the future? Basically, what our country looked like 100 or 200 years ago?

Yes, exactly. From the earliest days of the country, investments were local. There were informal networks of investors and merchants, and that’s how industries were built, how regions prospered, and local stock exchanges turbocharged that. But since the 1930s when our securities regulations were largely put into place, it’s gone in a different direction. After the Great Depression they created laws that governed how you could invest and trade. That had the unintended consequence of hampering a lot of local investment. One of the main things it did was create two tiers of investors. The first was accredited investors: If you were wealthy you could invest in anything you wanted, there no limits. But if you were an ordinary investor, which was 98% of the population, you could only invest in publicly traded companies that registered with the SEC. The intent was to protect individual investors from unnecessary risk and unscrupulous snake oil salesmen. All the locavesting things that are happening now are working within the few narrow openings in the securities law that allow people to invest in things other than publicly traded companies.

In your reporting, did you find evidence that communities that invested locally were more resilient during the recession?

Yes, absolutely. One of the best examples is Hardwick, Vermont, where community investing has been unfolding for a decade. It started when the area's new generation of farmers and entrepreneurs began getting together to help each other work through business issues. Many of them, such as Tom Stearns of High Mowing Seeds and Pete Johnson of Pete's Greens, were experiencing rapid growth and would run into cash flow problems, so they began lending money to each other to get through lean times. Around 2005, Stearns raised $1.1 million from a group of (accredited) local investors, all within 50 miles. Other community investments followed. Claire's Restaurant, which showcases food grown or raised by the area's farmers, sold prepaid "food coupons" to 50 residents for $1,000 apiece, which entitled them to $25 off a meal once a month for four years. It's sort of modern day barn raising. All of this mutual support and reinforcement has attracted more entrepreneurs to Hardwick, like the Vermont Food Venture Center, a shared use facility for food producers and startups, which has relocated to Hardwick from Burlington to be part of the action. In the last three years, while most of the country was struggling with unemployment, Hardwick created 100 food and agriculture-related jobs, increasing local jobs by 25 percent.

What was one of the most interesting models for locavesting you discovered?

Do It Yourself IPOs—DPOs, as they're called—are really interesting. It’s just like an IPO but without the Wall Street middleman. What does Wall Street do for its 7% fee? They market the shares to their client base. But if you’re a company that has a very strong following, enthusiastic customers, a known presence in your community, you don’t need that Rolodex. DPOs are perfectly legal under SEC laws and they can be done for very little money.

Are they listed anywhere?

That’s the nut of the problem. They can be traded. The company can set up a bulletin board and trade them, or they can trade on an OTC market which is not ideal. The problem is liquidity, and that can scare off potential investors. That’s the idea of a local stock exchange, where people could go public and trade their shares. A lot of people are surprised to learn that 100 years ago we had many local stock exchanges across the country and those exchanges helped fuel their local industries. Today our markets are global and efficient but not serving the types of companies they used to. Local exchanges would be very regionally focused. You’re not going to have the speculators and robotraders, I don’t think people will be shorting the local hardware store.

[Image: Flickr user *julia]

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7 Comments

  • Tom from NJ

    Running out to by Amy's book. Two areas that I would like to see grow are Impact Investing and Crowdfunding concentrating on local businesses. These seem like very complimentary vehicles for Locavesting.

  • Don

    Two great examples of locavesting in action today:

    invest.QuimperMerc.com: a group of community leaders in Port Townsend, WA banned together and raised over $500K to open a community-owned retail shop. 
    Courinvestor.com: A fast growing Fort Collins, CO consumer electronics company is raising money from his neighbors, not venture capitalists. 

  • Lisa Sawyer

    Danielle,

    Thank you so much for sharing your interview with Amy Cortese and making me aware of her book. A native of Maine, I am a small town girl at heart and I have seen firsthand too many abandoned Main Streets. Two years ago I posted about these businesses embracing social media as a means of digital word of mouth advertising to bring traffic back to their stores that had been lost to national chains and regional shopping malls.

    A subsequent move to the southern part of the U.S. landed me in the investor relations industry working with a company in the organics sector. It is a great company in the green solutions market, which is becoming increasingly attractive to investors, but like most small emerging domestic companies, they needed assistance attracting investor and media attention so they can increase their shareholder value and build a sustainable shareholder base. 

    Without volume and liquidity, a company’s stock price can remain low and/or stagnant. The company is not able to properly utilize the benefits of becoming publicly traded and may fail before reaching a level where the folks on Wall Street even know of their existence.

    Amy is absolutely correct in her statement that “Today our markets are global and efficient but not serving the types of companies they used to.” There are many companies across this country who are pushing the envelope to bring us innovative products and technologies. What if people invested 50% of their assets in businesses who are creating jobs and contributing to the “thrivelihood” of communities within 50 miles of their own backyards?

    This piece has certainly given me some creative thoughts about new ways I can assist clients, and I plan to explore them further.

    Again, thanks for covering Amy’s book, and to the other ladies who have commented thus far.

    Kind regards,

    Lisa Sawyer

    President

    Guardian Financial Services Group

    http://Guardian-FSG.com

    If interested, my piece on bringing traffic back to small town America can be found at http://creativeoptionsmedia.co... and my post on “green” investing can be read at http://guardian-fsg.com/blog/2....

    As always, I welcome all comments and suggestions. Thanks much, Lisa

  • Rebecca Ryan

    I’m so grateful that Amy has written this book. I think a lot of us are disenchanted with Wall Street, and as a female entrepreneur, the bank/loan model is so archaic. Many of these local investing options will work in my city, Madison, Wisconsin. Thanks, Fast Company, for giving this idea some space and inquiry.

  • Rania Anderson

    For accredited investors, local investing could also include providing angel capital to locally founded/based firms. Women-owned businesses could definitely benefit from more equity investments. Some states also offer tax incentives - an added bonus.

  • Ruth Hedges

    Amy ,
    You are so right. That is why last year we launched Startups Across America,
    http://Startupacrossamerica.co... ,a map that allows everyone to see where Startups are
    located, how much capital they need and what they will do with the
    funding, so local friends, family and neighborhood investors can find, research and make sound investments. An
    interactive picture of the entrepreneurial landscape can help to
    proliferate reality-based economic activity and renewed prosperity for
    everyone."
    While
    Americans currently have trillions of dollars sitting on the sidelines
    in money market accounts, countless brilliant ideas, technology,
    research and innovation have been squandered for lack of investment,
    with ongoing consequences for our health, our economy and our society”
    says Ruth Hedges, we need to encourage investment in entrepreneurs and
    innovation in every way possible and provide a fast track system to
    launch viable new ventures."

     It's
    one thing to believe in "the American dream," the challenge is to fund
    and facilitate it in the real economy. This project along with the Funding Roadmap reporting system will encourage
    private investors to power a resurgence of small business development in
    America by backing the creation of new ventures. As a social medium, a transparent http://fundingroadmap.com cloud based reporting system and marketplace is
    the virtual highway on which the new generation of entrepreneurs and
    investors meet to fund and build new sustainable companies of the
    future and jobs for the present.

  • Bette Boomer

    "Locavesting" is a fascinating concept - rebuilding sustainable communities by investing in businesses within 50 miles of where you live - is taking sustainability to the streets - our main streets USA. Let's all move from NIMBY to YIMBY (yes in my back yard)! Excellent book & we baby boomers applaud this kind of revolutionary to evolutionary thinking!