The Promise of Local Investment Crowdfunding

designraAlternative Finance, Community Capital, Crowd Investing, Crowdfunding

Black Woman Business Owner

Investment Crowdfunding provides the best opportunity to transform local communities in the shortest amount of time. Investment Crowdfunding, just like regular equity investment, allows entrepreneurs to sell shares of their business to private shareholders, shares that can potentially be sold later at a much higher price per share at some point in the future. That’s how you attract real investment capital, and that is why investment crowdfunding will eclipse venture capital funding as the leading source of startup capital by 2025 as community capital strategies continue to become mainstream. The COVID-19 crisis has caused an immense increase in the use of this new and innovative funding mechanism that builds ties between founders and their community of investors using digital technology.

Today, local entrepreneurs and real estate developers can tap the $65 billion in investment dollars that are being funneled to Wall Street and invest some of those dollars locally and transform the average local resident into an investor and consumer that allows money to circulate in our local communities building individual wealth and accumulated community wealth. The process of locavesting and investment crowdfunding will create jobs and wealth in the local community.

Locavesting, Crowdinvesting, and Recycling Community Dollars

Locavesting is a term that I came across in my work as a crowdfunding consultant. I will state for the record that my interest in investment crowdfunding leans much more toward local real estate development and local business development than towards tech startups. I believe that local communities must consolidate and recycle their wealth through real estate development and local business development that provides job creation and wealth generation in their community first. According to a Locavestor blog post written by Amy Cortese “Small businesses—which by definition are locally owned—create two out of every three jobs in the U.S., employ half the private workforce and generate half of private GDP.” “They create local wealth by keeping money circulating locally—that’s called the local multiplier effect.  They provide the foundation for a healthy and diversified local tax base, and contribute to the health and well-being of their communities.”

Lack of Access to Capital

Access to capital is the number one issue facing many local businesses no matter the size or type of business, but in Black communities accessing capital through traditional methods is almost impossible. Even when the owners have the education and experience accessing business capital is highly unlikely. Big banks, which dominate the market, approve just 2 out of 10 small business loan requests. The odds are worse for women and minority-owned firms: Just $1 out of every $23 in small business bank loans goes to women-owned businesses, for example, even though they represent 30% of all small firms. In the equity space, less than 1% of all businesses receive venture capital funding—and most of that is invested in just three states.

The Convergence of Locavesting and Investment Crowdfunding

When we look into the investment portfolios of most individual investors we will find stocks and bonds of large multinational companies that very often send jobs and profits overseas. The new retail investor class that investment Crowdfunding creates is very cash-rich and rarely finds itself being invested in local businesses that as stated above are the economic drivers of our local communities. How do we change that dynamic? How do we channel more capital to productive use—to the small businesses that create jobs, spur innovation and build strong local economies? Well, investment crowdfunding is the vehicle that will be able to transfer this capital to small local businesses and real estate development.

From Consumer to Investor

There is latent potential capital that is being used only as consumer dollars in local communities.  The vast majority of that money is not being saved or invested only spent as quickly as it is being earned. One solution is the junction between crowd investing and locavesting where community members are willing to invest as little as $100 in local businesses and real estate development. Then become customers and brand advocates for the businesses that they have invested in and have a financial interest in being successful. 

Key Takeaways

Investment crowdfunding and locavesting provide a platform to increase the viability of community-based business enterprises. The successful business owners can organize themselves into the next generation of investors and developers as a local investment group. If you want to learn more about how to crowd investing can help you build a strong local economy then Please Visit!