Ecosystem

Building a Local Investing Ecosystem in The Great Lakes Region

Erin Pidot | August 10, 2015

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Angela Barbash is the founder of ReConsider, a Ypsilanti, Michigan-based firm that is helping to catalyze local investing in the Great Lakes region. Since 2011, Barbash has been systematically identifying and tackling the obstacles that stand in the way of a regenerative economy—educating investors, businesses and political leaders on Michigan’s crowdfunding law, and creating ReValue, a financial advisory firm for impact investors. Erin Pidot talked to Barbash about the challenges involved in creating an ecosystem for the new economy and what’s next on her ambitious agenda.

Erin Pidot: What inspired you to launch Reconsider?

Angela Barbash: Two things. The first was my clients. Starting in 2009, my financial advising clients started asking about investing locally, alternative forms of currency, investing in solar panels on their house, precious metals, sustainable food and water systems, and other things that they had never really talked about previously. But I didn’t have any solutions for them, particularly on the local investing front. It wasn’t easy to find the community investing opportunities and options that were out there.

Angela Barbash
Angela Barbash

The second thing that happened was I went to the Slow Money Conference in 2011 and I was blown away. There were 850 people there and 35 finance professionals, and I literally tracked down every single one and said, “Are your clients asking you about investing locally or investing in food systems?” And they said, “Yes, that’s why we’re here.” And I would ask, “What solutions are you bringing to them?” And they would answer, “We don’t have any solutions, that’s why we’re here.”

They overwhelmingly said that until the finance industry figures out how to make money on this, it’s not going to happen. And so I thought, that sounds like a challenge to me! I resolved to go back and figure out how to make it happen.

EP: What other factors have come up in your conversations with people?

AB: I would say the primary driving force behind changing investor behavior and attitude is a general distrust in the economic system and the people who are advising them about where to put their money. Distrust of the model, distrust of the people engaged in that model, and distrust of the companies that are offering products or individual stocks and how they are causing the destruction of everything around us. People are questioning the whole system from top to bottom.

They’re looking for clarity over where their money is and what their money is doing. And even though they realize they’re taking a risk in investing in Main Street businesses—because small businesses often fail and people go into business who maybe shouldn’t go into business—in many cases they feel like it’s a bigger risk to invest in the global financial system. When that shift happened, it opened the floodgates of interest.

EP: Reconsider’s stated purpose is to “nurture a generative and collaborative ecosystem in the Great Lakes region”—one that supports strong local economies. Can you expand on this vision?

AB: When we first launched ReConsider, we felt that no one organization was really talking about any of these interrelated topics—local investing, impact investing, the sharing economy, alternative forms of currency. There are all of these interrelated components of a generative economy and there really weren’t many organizations talking about any one of them, let alone talking about all of them and walking people down the path.

So, that’s where we started with our mission—let’s just get the conversation in front of people and make them aware of things, like benefit corporation status happening in other states, simple stuff. Since then, we’ve dove into the infrastructure and what would be needed to actually take tangible steps forward.

EP: Such as?

AB: Communication is a big piece that’s missing from the infrastructure. The other pieces have to do with the channels that are available to investors who want to invest locally or have an impact with their dollars.

For instance, we don’t have a local stock exchange. And there are a couple of local investment funds in Michigan, but they’re debt-based funds and their returns are zero to three percent, which means that they’re only ever going to compete for a small portion of a client’s portfolio, and they’re going to be more likely to look at that investment as a charitable contribution, which is a different mindset.

If you want them to flip over to an investment mindset you have to offer investment grade returns, and there is nothing in Michigan that offers investment grade returns for non-accredited investors who want to invest locally. That’s a huge endeavor to try to get off the ground, which we’re in the midst of trying to do.

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EP: Can you talk a bit more about what you see Reconsider’s role in generating this ecosystem? What have you identified as the most important steps to take?

AB: It’s been an interesting evolution. Reconsider is our research and development sandbox, the place where we can test out ideas. We’ve gotten contracts from various entities to do research, to dig in and to figure out what the opportunities are in the marketplace and to see if those opportunities can be developed.

All kinds of ideas churn through Reconsider. Two primary needs rose to the top that seemed feasible and that the community overwhelmingly had asked for: a local investment fund that’s available to non-accredited investors where they can invest small dollar amounts, and an investment advisory firm that would help these investors.

As we dove into all of the different ways that you could start a local investment fund, we realized that the market wasn’t ready for it. You need significant capital. The seed capital is going to have to come from institutions, and they weren’t ready for it yet. So now, three years after launch, we’re about to query the institutions and see if they think they’re ready for this. Even if they say they’re ready, it’s going to be another couple of years before we can actually get it up and running, so that by itself has been a five-year project.

“We noticed that when you have public officials in the room, the conversations expand beyond just businesses raising capital and community investing”

Regarding the investment advisory firm—I’ve been a financial advisor for a decade, I know how that works. Stars aligned, the market wanted it, and so we launched it. We launched ReValue in August 2013 and took a year to beta test the services. Reconsider is an investor in ReValue, we own half of that company.

EP: Reconsider and the Washtenaw County Office of Community and Economic Development partnered to create venture LOCAL, an education and engagement campaign to accelerate investment in locally-owned businesses in the county. How did this partnership form and what do you think motivated the county to take this up?

AB: Washtenaw County had put together a local economy workgroup in 2012 that we were invited to. There were a couple of commissioners who had been to BALLE conferences and been exposed to the local economy movement and getting beyond the Buy Local piece, and they said, “there’s more we think we could be doing here in Washtenaw County, but we don’t know what.” So they put together this workgroup and we did some initial work—here are some opportunities, here are some gaps in the Washtenaw County ecosystem.

The next step was in 2014. They had this pot of money called Act 88 dollars—which may go away, it’s on the chopping block with the legislature. We were able to get a piece of that to raise awareness about the recently passed Michigan Invests Local Exemption (MILE). We said, “You really can’t start anywhere if businesses don’t know that they can raise capital and if investors don’t know that they can invest locally and if no one knows why that’s important enough to consider.”

The first step really was an outreach and engagement strategy that was just exposing people to information they had never heard before, particularly the leadership in each of the towns in Washtenaw County. Getting the Chamber, the DDA, the city, and various business leaders and the influential people in town in the room—we felt like that was one of the best ways we could start.

We built it with an eye towards taking it outside Washtenaw County. We call it venture LOCAL—that’s the parent brand for it—but then as you drop it into Chelsea, it’s venture CHELSEA, you drop it into Wixom, it’s venture WIXSOM. We built it with this idea that if other communities are interested we can come in and help them get running with it, but then at some point if they want to own that brand and run with it and do more programming on their own independently, we would just give them the brand.

EP: So far, you’ve held community gatherings in a half-dozen towns. Who has attended and have the gatherings led to an acceleration of local investment?

AB: The goal was to expose people to this information, particularly about the MILE Act, and why investing locally makes so much sense. Eleven companies have filed MILE Act notices so far, but I think it’s going to take more like 9-12 months for a company to figure it out and put all the pieces in place and then file their notice.

As far as people in the room, in almost every town we had representation from Chambers, DDA, and the city, except for Ann Arbor. It was almost all entrepreneurs in Ann Arbor and so you saw very different outcomes.

We noticed that when you have public officials in the room, the conversations expand beyond just businesses raising capital and community investing in the businesses to ‘If we had more businesses we would have a stronger tax base and this is what we would do with the tax money.’

EP: Were there potential investors at these community gatherings?

AB: We ask at the beginning of the event, “how many of you are entrepreneurs, how many of you are stakeholders or public officials, and how many of you are investors?” Invariably, a third or a quarter of the room will raise their hand because they’re qualifying themselves as investors if they’ve ever invested in a local company before. And we tell them that’s a trick question. Everyone is an investor. It’s a simple thing but it kind of blows their minds.

EP: You’ve also held two investor trainings so far. Who was in the audience and what was the reaction?

AB: The investor trainings have been really successful at specifically targeting investors, or people who want to become investors—right on the edge people. A lot of the people who are on the edge are excited about investing locally, but have no idea how to do it, so that’s how they end up at our workshop.

ReConsider logo J

We’ve done five of them so far—in Chelsea, Ann Arbor, Traverse City and two in Ypsi—with altogether about 130 participants. And every single time it’s been the most rewarding, enriching experience.

What’s really exciting to watch is crowdsourced due diligence. That’s a basic concept that you see in an investor club where everybody is vetting an opportunity together. But this is on a wider community level, where people are in a room and they work together to figure out the questions they want to ask, and they’re each contributing based on their own expertise and not feeling like they have to be an expert in all things. They’re really leaning on each other. We think that crowdsourced due diligence is an incredibly powerful concept.

EP: How would you describe the target audience for local investing—is there a profile of a likely local investor?

AB: There is a profile. They’re community minded, they’re often volunteers in one or more community endeavors, and they’re generally under the age of 65, because if they’re over the age of 65, they’re going to be retired and much more risk averse.

“they have a millionaire-next-door type of mentality”

Some people just have $100 and they want to invest it locally and they’re excited about that, and some have $100,000 of free cash flow and they want to put $20,000 of it in the local economy, so you can’t really divide it based on net worth or assets or income bracket.

They are often humble, low-key people—they have a millionaire-next-door type of mentality.

EP: What do you see as the biggest challenges that Michigan faces in helping this movement take off?

AB: Three challenges come to mind. The first is that the state-supported economic development agencies and the incubators and accelerators have 90% of their attention focused on high-tech, high-growth companies and on attracting big businesses from out of state. A lot of counties are still offering tax incentives to big businesses, which have proven not to be successful.

“until the economic development engine in Michigan embraces this, we’re up against headwinds”

That sort of mindset is almost diametrically opposed to focusing on Main Street businesses or small enterprises that could grow to be a Zingerman’s and have a huge impact. Zingerman’s employs 500 people now, but even Zingerman’s had a problem getting capital when they wanted to do their deli expansion. I think until the economic development engine in Michigan embraces this, we’re up against headwinds.

The second challenge is the legal community in Michigan. Some of them support it, a lot of them are neutral, and many more are against it. They’re against it because when they hear ‘MILE Act’ or ‘investor crowdfunding’ they think equity. They think: “these small businesses are going to have 50 owners and then they’re going to have to raise capital later and their cap table is going to be a nightmare and I don’t ever want to deal with that kind of business.”

But we’re usually not talking about equity when we’re talking about MILE Act, we’re talking about debt. So getting those attorneys on board with us—whether it’s the MILE Act, or a Regulation D offering, or whatever— just getting them to a place where they feel comfortable with the community at large being involved in these businesses is a challenge that needs to be worked on.

The third is education. There is currently only one organization in southeast Michigan, Sidewalk Ventures, that is helping businesses get ready for these crowdfunding campaigns and actually walking them through it all. We started out offering investment readiness services in 2013 because no one was helping these businesses, but Jeff Aronoff (of Sidewalk Ventures) has taken it and done something so much better with it.

For investors we’ve got Revalue, but it would be awesome if there were other financial groups in Michigan that were willing to talk to their clients about this. There are only so many people we can serve.

Interested in investing locally? See our Local Investing Guide.

Erin Pidot is a is a fellow at Metro, a Portland, OR-based regional governing agency that focuses on regional land use and transportation planning. She recently received her Masters of Public Policy from the Gerald R. Ford School of Public Policy at the University of Michigan.

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