Karl Dakin of Colorado Community Capital says an influx of investment capital is on its way. On Feb. 1, 2017, the ComCap Colorado conference will highlight this bounty.
Raised in rural Kansas, I would often watch as a line of cumulus clouds piling upon on each other in the sky. Everyone knew that a storm was coming. Action became necessary. Whether it was to do the best one could to get the crops out of the field or to take shelter, doing nothing was not an alternative.
To many, the Great Recession is over and it now appears that we live in a time of relative economic stability. For some, the effects still linger strongly with many key metrics still lower now than nine years ago.
A number of changes were made to counter the Recession whose impact has yet to be felt. One of these was the roll back in securities regulations to make more money available to entrepreneurs -- investment crowdfunding. The first step in the rollback was the passage of the federal Jobs Act in 2012 -- four years after the recession started. It took another four years for the act's implementation on May 16 of this year -- way too late to be of any help the last recession, but possibly in time to offset the next one.
Recognizing the potential of investment crowdfunding, but not frozen in partisan politics, one state after another stepped up and passed its own version of the Jobs Act. This trend has continued with 35 states now having investment crowdfunding laws and nine more states with legislation pending. The citizens of Colorado are fortunate that the entire state government -- both legislative and executive branches -- worked to pass the Colorado Crowdfunding Act in 2015.
For those who seek instant gratification, investment crowdfunding has been disappointing. Even with record funding levels achieved each month, investment crowdfunding is still just a tiny sliver of the capital industry.
The original target of investment crowdfunding legislation was Main Street businesses. It was expected that once given the opportunity, that the average person would quickly shift their money from Wall Street to Main Street.
To date, nearly all of investment crowdfunding has been focused on real estate with nearly all of the money coming from wealthy individuals. So, what went wrong? Nothing. In fact, the recognition by professional investors that investment crowdfunding would work well in quick turnaround, highly profitable ventures should be considered a market indicator of things to come.
It will take time before investment crowdfunding comes into its own. As a society, we have been trained from birth that we 'poor' and 'unsophisticated' people are unqualified to make our own investment decisions. Most people remain unaware that it is now possible to invest in a business in their own backyard.
In addition, early entries into investment crowdfunding have structured their offerings like micro angel and venture capital deals. They have simply reduced the price per share, but use the same sales tools and pitches. These will not work when a business does not intend to be acquired in three to five years or does not generate a high profit with high growth -- the profile of a common business. In addition, these will not work when an individual does not think of themselves as an investor.
It's still not easy. The average individual can make an investment in a publicly traded company through their employer in their 401K as simply as checking a box. The fact that the company is failing or sailing on unreachable profit/earnings ratios is seldom considered. For a person to make an investment in a local business, the business must commit a relatively large amount of its resources to make a sale of its ownership -- one sale at a time -- each handcrafted and lacking the industrialization of the public securities markets.
Given time, culture and infrastructure will adapt to this new normal -- a local business can now tell everyone of their proposal to raise funding and they can receive funding from everyone. Groups will form to support these capital campaigns -- capital communities -- that financially support those businesses, social enterprises and even community projects in which they have common values and can share in the benefits of success.
A grassroots movement is gaining traction to "help move a significant portion of the estimated $40+ trillion Americans have in long-term savings from Wall Street to local and social entrepreneurs," according to National Coalition for Community Capital (NC3).
This movement is taking root in Colorado. The idea that 'access to capital' is a problem that no one can do anything about is being rejected as the power of investment crowdfunding and community capital is employed. When investment crowdfunding is blended with consumer purchasing -- where consumers become investors and then support sales through their personal networks -- the full potential of the change started in 2012 will become obvious.
On Feb. 1, 2017, a conference on community capital will be held: ComCap Colorado.
Its focus is to make everyone aware of community capital and to launch a large number of capital communities to help businesses in every part of the state. Capital communities will act like volunteer fire brigades that come together as needed, when needed, to financially support the capital campaigns of any organization within their community. A capital community may be framed as a geographical area, an industry, a social cause or other topic in which the members of the capital community have common interests.
A storm is coming. A storm of money. Money that is already here within our own communities. We will simply quit shipping it out of the state with a variety of taxes, overhead expenses and commissions negating any return on our investment. The money can be put to work locally where other benefits can be realized from more jobs, better products and services, more community support and participation and a community that works together. As we work together to enable and support local businesses to raise capital, maybe the next economic trend will be upwards.
Karl Dakin is President of the Colorado Community Capital PBC.
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