I could write a book about this (and I did!) but here’s the argument in a nutshell:
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. Studies links the presence of small businesses to everything from better physical health to greater community engagement. Finally, these local enterprises give the places we call home their special character and identity—imagine life without your favorite café, coffee shop or bookstore!
It comes down to this: Ownership matters. Locally-owned businesses are stakeholders in a community. They live there, have roots there, so they take more into consideration than simply the bottom line.
Yet, whether they are mom & pops, cooperatives, mid-sized manufacturers, social enterprises or startups, these businesses often struggle to get the funding they need to grow and thrive. 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 that 1% of all businesses receive venture capital funding—and most of that is invested in just three states.
It’s not just banks and VC firms that are holding back. As individual investors, almost all of our investments, by default, are in the stocks and bonds of large corporations—often the very same ones sending jobs and profits overseas.
That’s lopsided logic. And not a very efficient allocation of capital!
The reality is, the world is awash in capital. It just happens to bypass many small deserving businesses as it careens blindly around the globe in search of profit. 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? To the companies that we know and trust? How do we fund the change we want to see in our communities and in the world?
These questions are at the heart of the Locavesting—the book and this web site it inspired. And the answers may be closer than you think.
At its core, locavesting is about tapping the capital that exists, right here, right now, in our communities to support the businesses that make them strong. It’s about exploring new funding models—like crowdfinance, direct public offerings and local investment groups—that empower entrepreneurs, investors and citizens in ways that benefit us all. Because if we care about our neighborhoods and the kind of world we live in, it’s upon us to do something about it.
This guide, and this web site, is designed to help you do just that.