How many great ideas for starting or expanding small community-based food businesses have gone languishing for lack of access to capital – even relatively small amounts?
One of the frustrations in growing our regional food economies has been the Securities and Exchange Commission (SEC) rules preventing most Americans (all but the richest 2%) from investing in small, local enterprises.
Unless a business can afford $50,000 to $100,000 (or more) to spend on lawyers to prepare private placement memoranda or public offerings, it is effectively prohibited from soliciting funds from private investors in return for a stake in the business. Yet, often it is a budding entrepreneur’s friends, family and community who would love to pitch in to help launch a local company.
But what if a host of individuals (the crowd) could advance small sums to help fund local businesses – an idea called crowdfunding? This would greatly reduce the risk to small investors that the SEC rules (in all fairness to them) are designed to prevent. Recently, the Sustainable Economies Law Center petitioned the SEC for a rule change that would permit any of us to invest up to $100 per offering per business, with the aggregate offering limited to $100,000 maximum. (The SEC has posted the petition and responses to their website at http://www.sec.gov/rules/petitions/2010/petn4-605.pdf).
Of course, there are other ways to raise money besides trading shares of your business. Crowdfunding is already being used to tap funds through swap schemes. For example, in exchange for some fresh organic produce you might seek start-up funding as a backyard farmer. Or maybe you offer meal coupons as an incentive for help with purchasing a food truck. Basically, you can go online to any of several platforms (IndieGoGo.com, Kickstarter.com) and solicit dollars – as long as you aren’t promising a return on investment.
Yet many entrepreneurs – especially those looking to build not just another food business but an alternative food system – would prefer that others from their community have a stake in their businesses. You are essentially asking friends, family and the community-at-large to step up and invest in the future of food in your community.
Equity-based crowdfunding might also free up sums of money that people of small means can’t afford to donate but also are not being spent immediately. Crowdfunding is also likely to inspire later-stage capital development as entrepreneurs have already demonstrated the community’s belief in their product offerings. In states, like Washington, which prohibit state and local governments from investing in private companies, crowdfunding may be the future of financing community-based businesses.
Indeed, the opportunities for crowdfunding the development of local food economies seem endless. Last week an urban farmer was talking to me about how much more he could do with a relatively small investment in a rototiller. Or what of financing community washing facilities and distribution hubs? All we need is a crowd that is passionate to the degree that they are willing to invest – and a change in the rules.
[To comment on the proposed rule change email rule-comments@sec.gov with “File No. 4-605” in the subject line. Previous comments are posted at http://www.sec.gov/comments/4-605/4-605.shtml.]
Photo credit: Gimli LongBow, used with permission under Creative Commons license.
About Viki Sonntag
Viki Sonntag, PhD, is a practitioner, activist, and researcher in alternative economics and founding director of EcoPraxis, a non-profit that works collaboratively with community-based businesses and organizations to put the vision of sustainable community economies and resource use into practice.