Locavesting: The Revolution in Local Investing and How to Profit From It - Hardcover

Cortese, Amy

Hardcover

ISBN 10: 0470911387 ISBN 13: 9780470911389

Publisher: Wiley, 2011

Synopsis

How individuals and communities can profit from local investing

In the wake of the financial crisis, investors are faced with a stark choice: entrust their hard-earned dollars to the Wall Street casino, or settle for anemic interest rates on savings, bonds, and CDs. Meanwhile, small businesses are being starved for the credit and capital they need to grow. There's got to be a better way.

In Locavesting: The Revolution in Local Investing and How to Profit from It, Amy Cortese takes us inside the local investing movement, where solutions to some of the nation's most pressing problems are taking shape. The idea is that, by investing in local businesses, rather than faceless conglomerates, investors can earn profits while building healthy, self-reliant communities.

• Introduces you to the ideas and pioneers behind the local investing movement
• Profiles the people and communities who are putting their money to work in their own backyards and taking control of their destinies
• Explores innovative investment strategies, from community capital and crowdfunding to local stock exchanges

With confidence in Wall Street and the government badly shaken, Americans are looking for alternatives. Local investing offers a way to rebuild our nest eggs, communities, and, just perhaps, our country.

Q&A with Author Amy Cortese

Author Amy Cortese

What is locavesting?
Locavesting is a term I came up with to describe the emerging local investing movement. Most of us are familiar with the term locavore, which refers to the growing number of people that try to eat a diet sourced within a 100-mile or so radius. Locavestors are people who want to invest that way. The idea is that you can earn a profit while supporting your community.

Why should we invest locally?
From an economic perspective, small businesses – which, by definition are mostly locally owned – create more than two out of every three jobs. They also benefit their communities in ways that big corporations do not. Studies have shown that a dollar spent at a locally owned business generates three times more direct economic benefits to the community, measured in wages and local spending, than a dollar spent at a corporate-owned chain. And that gets to an important point. So many of our iconic corporations are no longer connected to any place at all, they are global, they produce in overseas factories, and they employ more people outside the U.S. than within. Local business owners, in contrast, have a stake in their communities – they live there, after all – so they make decisions in a different way than a corporation that is solely interested in maximizing profit.

From an investment perspective, local businesses can be quite successful. They’re not just mom and pops; they can be established, growing multi-million dollar enterprises. I would also argue that their proximity and familiarity makes them a less risky investment than, say, sinking money into a company halfway around the world whose business you don’t understand, or investing in a seemingly safe company like AIG or Lehman Brothers or BP. That said, no one is suggesting that everyone go out and invest all of their money in the local hardware store. But local businesses can be part of a smart diversification strategy. And here’s why it’s important. These firms – the ones that create jobs and contribute to a vibrant local economy – need capital to grow like any business. But they’ve been largely abandoned by Wall Street and traditional funding sources. Think about what life would be like without these businesses.

So why aren’t more people investing locally?
Well, it’s actually not that easy to do. Our securities laws, which were crafted nearly 80 years ago, make it very difficult for investors who are not super wealthy to put money into private businesses, and for those businesses to reach out to their communities. It’s easier for most people to invest in a company half way around the world than one in their own backyard. And that’s a shame. But it can be done. I wrote the book to highlight the different ways that people are coming up with to put money into their local businesses. And there is a groundswell of activity in this area.

Give me some examples.
There is an amazing amount of activity going on across the U.S. and in other countries. Some of my favorite examples are the ad-hoc community capital deals, where residents become investors in a beloved business. In Brooklyn, where I live, two-dozen residents of Fort Greene lent a total of $70,000 to help a new neighborhood bookstore open, and a year later it is thriving. Nine cops in Clare, Michigan pitched in to buy a 111-year old bakery that was about to be shuttered. Instead of another vacancy on their main drag, the new bakery has helped revitalize downtown Clare. In the area of food, Slow Money is a cool organization that is creating new ways of financing sustainable food and agricultural enterprises.

There are other models as well. Crowdfunding sites like Kiva and Kickstarter have showed that aggregating small sums from many people can be a successful way to fund a venture. But they are either donations or interest-free loans. Now crowdfunding is being applied to equity and debt investments in businesses that earn profits for investors.

Direct public offerings, which are like IPOs but conducted without a Wall Street middleman, allow companies to reach out directly to their most loyal customers and supporters to raise funds. And local stock exchanges are making a comeback.

Can you talk more about local stock exchanges?
Sure. Many people don’t realize that less than 100 years ago, we had dozens of regional stock exchanges across the country that fueled their local economies. Baltimore, Buffalo, St. Louis, Salt Lake City, Seattle, Wheeling, W. Virginia - they all had their own stock markets. That changed, of course, with advances in communications technology. The local exchanges gradually died out or merged. Today, our stock markets are global and efficient, but they facilitate speculation over productive investment. And escalating costs have made it prohibitively expensive for many deserving firms to go public. According to one study (by Grant Thornton), the capital markets are effectively closed to 80% of companies that need them.

That’s why we’re seeing a revival of the local stock exchange idea. There are initiatives underway in places as varied as Lancaster, Pennsylvania, Hawaii, Cleveland, and Toronto to recreate the local exchanges that once served their areas so well. These exchanges would provide an important source of liquidity for many locavesting models.

Did you come across anything surprising through the course of researching your book?
Well, I’ve been struck by how strongly people feel about their local businesses, and the yearning out there for an alternative to the winner-take-all ways of Wall Street, for solutions that promote a more inclusive and broadly shared prosperity. Just as every purchase you make is a vote, every investment dollar sends a deeper message about what kind of society we want to live in. And people are starting to get that.

About this title

From the Inside Flap

Small businesses are the backbone of the American economy, generating eighty percent of jobs and half of GDP. They also create the foundation for healthy, diverse neighborhoods and strong local economies.

So why are we starving these vital enterprises?

The truth is, our financial and political system is stacked against small business. The stock market has become a vast, electronic casino that has abandoned any pretense of allocating capital to productive use. And community banks—a mainstay of small business funding—are an endangered species in a Too Big to Fail world. Don't look to the government for help, though: politicians at the federal, state, and local levels are often under the sway of deep-pocketed corporations. Meanwhile, Main Streets and downtowns everywhere are slowly dying.

But don't write them off just yet. In dozens of towns and cities across the country, an extraordinary experiment in citizen finance is underway. From Brooklyn, New York to Vernon County, Wisconsin to Port Townsend, Washington, residents are banding together to save their small businesses and Main Streets from extinction. And they are reaping rich rewards in the process. These citizens are at the vanguard of a grassroots revolution that journalist Amy Cortese calls "locavesting."

In Locavesting, you'll meet these pioneers and explore the often ingenious ways—some new, some as old as capitalism itself—they've come up with to take back their financial destinies from Wall Street and the corporate fat cats while revitalizing the communities they call home. Among other examples, you'll learn how:

• Nine cops in Clare, Michigan saved a 111-year-old bakery and helped revive their downtown

• As union protests engulfed the state capital, a new breed of cooperatives in rural Wisconsin pointed the way toward a more harmonious and prosperous way of doing business

• "Crowdfunding" startups such as ProFounder, Funding Circle, and Grow VC are harnessing the Internet and social media to connect entrepreneurs with hundreds of small investors

• A grassroots organization called Slow Money is mobilizing thousands of citizens to create new funding models for financing local food and agriculture

• Companies from Ben & Jerry's to Annie's Homegrown have sold shares directly to loyal customers, bypassing Wall Street middlemen

• And how communities as varied as Lancaster, Pennsylvania and the Hawaiian islands are working to bring back local stock exchanges

Forget credit default swaps and derivatives. This is the kind of financial innovation we desperately need. A source of inspiration and ideas with practical how-to advice, Locavesting is must-reading for small business owners, entrepreneurs, and investors looking for solid, socially productive alternatives to the Wall Street casino—and anyone who cares about the future of democracy in America.

From the Back Cover

Praise for Locavesting

"Investing locally makes sense as long as you do it with your eyes wide open. And this book is a realistic up-to-the-minute exploration of the field. After all, it was the local community that invested in Ben & Jerry's—and it worked out pretty well for them."
—BEN COHEN, cofounder of Ben & Jerry's

"An inspiring look at what local businesses can achieve."
—JOSEPH E. STIGLITZ, 2001 Nobel Laureate

"Buy this book before the Securities and Exchange Commission (SEC) bans it! Locavesting demolishes the myth that the best investment options lie in the financial-doomsday machine we call Wall Street. Fasten your belt for a mind-blowing journey where you will learn about dozens of highly profitable community investment opportunities. Amy Cortese takes you on a breathtaking ride."
—MICHAEL SHUMAN, author of The Small-Mart Revolution and Going Local

We have witnessed the failings of an unfettered free market system, tallied in lost jobs, stagnant wages, rising inequality, and languishing Main Streets. Isn't it time for a backup plan?

Locavesting is a call to rethink the way we invest, so that we support the small businesses that create jobs and healthy, resilient communities. Just as "Buy Local" campaigns have found that a small shift in purchasing to locally-owned enterprises can reap outsized benefits for a local economy, so, too, can a small shift in our investment dollars. Amy Cortese explores the revolution in citizen finance taking root across the country, and shows how local investing can help rebuild our nest eggs, our communities and—just perhaps—the country.

Edition details

• Publisher: Wiley
• Publication date: 2011
• ISBN 10: 0470911387
• ISBN 13: 9780470911389
• Binding: Hardcover
• Language: English
• Edition number: 1
• Number of pages: 252