Following the 2008 crisis, many of my colleagues and I in the financial advising industry started to notice a curious thing. More clients began asking about where, exactly, their money was being invested. They wanted to know how to get some or all of it out of “the system," and quite a few added: "Oh by the way, do you know where I can learn about starting a business? I have an idea.”
I hadn't heard these questions much before 2008. All of a sudden, more clients wanted to know how they could take back control of their wealth and their future. It felt like a major change was imminent.
During the last five years these questions have matured. Legislative action has been taken. The facts have come out. We now know that less than one percent of a person’s wealth is invested in their local community. We know that when money is spent at a locally-owned business, it has a multiplier effect because it continues to circulate nearby. We know that 64 percent of all new jobs are created by small businesses. In spite of these facts, the vast majority of us do not have a single dollar invested locally.
On the flip side, an entrepreneurial spirit has been spreading across Michigan -- Start-up Weekend in Flint, CEO Roundtable in Grand Blanc, Pitch Night in Ann Arbor, Start Garden in Grand Rapids. All of these voices, hailing from big cities and small towns alike, are growing into a chorus -- but there’s a catch to much of this activity. The focus has largely been centered on high-growth, high tech, advanced manufacturing, biotechnology, and medical devices. These are industries that attract only a certain kind of capital – namely, venture capital – leaving little room in the conversation for any other kind of business or investment.
This is not a stable path forward. Combine businesses that can’t find capital with people who want to invest in what they understand, and throw in a society that’s tired of having their lives controlled by outside and unseen forces, and you have the ingredients for a financial revolution.
In the beginnings of any major change, there are always challenges that could cause it to derail. In this case, it’s the massive heavy-lifting that is necessary to re-imagine and rebuild our capital markets in order to help people transition a portion of their wealth to be put to good local use. Surely, this is no easy task.
Rolling up our sleeves, we partnered with Washtenaw County and launched a six-month pilot called venture LOCAL as a way to spread information and get people thinking about what’s possible. We are in the midst of holding community gatherings in seven cities, asking every group the same question: What would your town look like in five years, if it were significantly supported by local capital?
Ideas came pouring out as people worked in small groups, drawing with crayons on white art paper and imagining what their town could be:
“We need to start an investment club in our town.”
“We really need an urgent care center downtown.”
“What if we had meet ups where investors and entrepreneurs could get to know each other?”
“Could a group of us buy that foreclosed building on Main Street?”
“What could we do with that vacant lot across from the diner?”
After speaking with more than 3,000 people, however, the question most often asked is: “When will there be a local investment fund available?”
The next step is to find out if such a fund that is accessible to all people and all businesses -- one that a person could put $50 a month into and get a fair rate of return -- is economically viable. Fortunately, Washtenaw County wondered the same thing, so we are working with them on a feasibility study, as well, to find out.
So what’s the Next Idea?
In order to rebuild Michigan’s economy and rethink its capital markets, we must look at multiple angles.
On the business side, the participation of the local chambers of commerce and economic development agencies is crucial. Their influence over Michigan business leaders, entrepreneurs and investors is unmatched, and we need their help in introducing this information to their stakeholders.
On the community side, we have more towns in Michigan requesting information on how to build avenues for local investment than we can serve. We have partnered with the Michigan Municipal League, which is at capacity in this area as well, to develop a consortium of companies, non-profits and individuals that can go out to communities and hold information sessions, help set-up local investment clubs, and provide support.
This will take time. Speaking with thousands of Michigan residents across the state, we have identified several key factors that are inhibiting progress:
- Awareness: Many don’t know that they can invest locally or why it’s so beneficial to them, their families, and their communities; and business owners aren’t aware there is new legislation that makes it easier to raise local capital.
- Knowledge: Most of us, including financial advisors, don’t know how to invest locally. There is little information about how to do due diligence, to set up the right accounts and to build the legal framework to make it happen.
- Services: Michigan is missing key companies who provide specific services that these new community-based capital markets will need in order to function well. Examples include a self-directed IRA custodian and a broker-dealer who can help investors sell shares on a local exchange.
- Leadership: The three classic idea killers – fear, uncertainty, and doubt – have made many Michigan leaders hesitant to step up and support the inclusive expansion of our capital markets. In their absence, new leaders are emerging directly from the local communities.
The inequality gap is growing by the day. Real wages are stagnant, pensions are waning, and the big challenges with our national economy feel largely out of our control. The risk of rebuilding Michigan’s economy while excluding the vast majority of the state’s citizens -- both its investors and businesses -- is that we will continue to be weakened by the big economic issues of our day. Including everyone, whatever their wealth, is the only way we can ensure that the prosperity we create stays here in Michigan to benefit us – a revolution of the grandest kind.
Share Your Ideas:
- If you could invest in your local community, what kind of business would you feel good about supporting?
Angela Barbash is a licensed financial advisor and founder of Reconsider, a research and consulting company based in Ypsilanti that specializes in local investing, community capital and social enterprise.