When was the last time you asked a financial advisor to put your money in a financial fund that would support environmental and social concerns only to be met by a blank stare, because the advisor had no knowledge of that such a fund existed?
Or perhaps you went to your advisor and said, “I’d like to
invest my money locally, in small businesses that are struggling here in our
community and help them improve our local economy. Do you have a fund that will
do that?”
Did the blankness of the stare deepen?
As a financial advisor I regularly place my clients in
vehicles that might fundamentally change the way the economy works and at the
same time provide a competitive return on investment. Unfortunately, there are
simply few if any local choices that will satisfy such needs.
As a member of the California Financial OpportunitiesRoundtable, we ran into similar problems around providing access to capital
locally. With SEC regulations and government investor protocols, targeting
investments within a community through traditional financial vehicles is often
difficult -- but not necessarily impossible.
Needed: Local And State Support For Small Business And
Micro-Enterprise
We know that many Community Development financial
institutions have been flooded with available funding lately, which says that
the local interest exists, but the money is not yet flowing out for investments in small local businesses and
startups.
Getting money into the hands of those who can help build a
healthy economy requires an economic development strategy at both the local and
state levels that supports small business and micro-enterprises.
Our visions of global grandeur have often redirected our
focus away from investing and buying locally, often fueled by the possibility
of windfall profits in larger markets. But that focus has pulled us away from
the richness of our community businesses and the economy they support. These
businesses operate adjacent to the multinational big boxes that can sell for
less, but become extractive from the local economy rather than generative.
Transforming Our Finance and Securities Laws
In the book, Creating Good Work: The World’s Leading SocialEntrepreneurs Show How to Build a Healthy Economy, (Palgrave, 2013) I wrote in
my chapter about the transformation required to see money as part of the
natural biosphere in which it operates. If we can transform our perception of
money, we can simultaneously address issues such as the needs of communities,
quality of life, human justice, food quality, education, infrastructure, energy
security, and soil fertility.
This is especially true for those unaccredited investors
whose net worth is less than $1 million. Equity crowdfunding may allow for more
of this kind of investment to take place in the future, but we still run up
against the lack of financial vehicles that would allow us to direct
investments toward environmental and
social issues in our local communities.
In addition, financial advisors are also limited in this
arena by the choices available through traditional channels. These investments
are equally as prudent as others on the market while at the same time improving
the quality of life in the communities. The problem is they are rarely offered
because in many cases the traditional marketplace doesn’t know they exist.
Alternative Funding Sources
Getting funding into the hands of local businesses that are
doing good work is a real challenge in this climate. However, instead of
relying on traditional bank loans, alternative funding sources could be created
for locally-owned businesses.
One new model could leverage network thinking and
connectivity to create scale. It would be transparent so it could deliver the
desired social, economic, financial impacts for its stakeholders. It would also
be a true “neighbor to neighbor” investment experience, allowing local
investors an opportunity to achieve a “living return” while at the same time
supporting the locally owned businesses and enterprises in their community, and
for that matter, communities all over the country.
Living Economy Fund Model
One model we are developing based on this thinking is what
we're calling a “Living Economy Fund,” which would be open to all investors. It
would provide support to locally-owned, mission-driven businesses nationwide,
while at the same time offering the necessary liquidity, transparency and
security to retail investors so they could achieve a living return. Currently,
such investments are only available to accredited investors.
A key element would be an eligibility requirement so that it
could be offered through retail investment
platforms with a low to moderate investment minimum, commensurate with
mutual fund minimums and experience. Additionally, the investments would need
to be structured so that yields would be high enough to offer a growth of
investment for savings, while at the same time offering an affordable borrowing
cost to local businesses.
A core component of such a fund’s management and purpose
would be embedded within linked networks of businesses (for loan sourcing and
review) and an online community to connect businesses with their investors,
much like Kiva or Prosper.com. Communities such as Green America, BALLE, and Slow
Money, all have aspirations to create such an experience.
A fund like this can then be simultaneously offered in
different contexts as a “white label” experience, and also offered on a
national basis to fiduciaries nationwide. Thus, community organizations can
brand the fund for their constituents, while investors can enjoy the benefits
of national diversification.
In addition to its direct benefits, the creation of funds
based on a “Living Economy Fund” model would enable others within the financial
services and impact investing community to leverage and utilize the business
model created to further harness the estimated $120 billion in demand for
impact-oriented community investing.
As is stated throughout Creating Good Work, we have to be
willing to apply the notion of deliberate disruptive design to any situation
that is not delivering the impact required. This is true whether we are trying
to end childhood hunger, creating more collaborative solutions to climate-based
influences, or building a health local economy.
More of the same simply won’t carry the day. It’s time to
build something new.
- Greg Wendt and Ron Schulz
