Building your Local Economy Ecosystem

Welcome!  This guide is the first installment of the Local Investing Resource Center’s How to Catalyze Local Investing course.  It offers community organizers and leaders, including those in economic development and government, a guide to local investing and how to help it start and grow in their communities.

Table of Contents:
  1. Introduction
  2. An Overview of Local Investing for Community Organizers
  3. Building your Local Economy Ecosystem
  4. How to Get Started
  5. Resource List



Citizen-led local investing is experiencing a modern resurgence, with a wide variety of groups working to mobilize local capital to accomplish community-oriented goals.  Economic development groups and local governments see local investing as “zero-cost stimulus,” as Michael Shuman puts it in his book, Local Dollars, Local Sense, meaning that local investing unlocks money that sits dormant in bank and brokerage accounts and injects it back into the local economy without needing to attract more costly forms of outside investment.  Local business associations, such as Chambers of Commerce, Main Street groups, and “Buy Local” groups, appreciate having an alternative source of funds that can be “friendlier” than banks, credit cards, and other conventional sources of financing.  Transition Networks and other sustainability groups champion local investing’s role in helping the community achieve greater self-reliance and financial resilience.  For nearly everyone, there is something to like in these exciting new initiatives.

Let’s imagine, for a moment, a community with a thriving culture of local investing.  Small businesses and nonprofits that want to start up or expand their operations have reliable ways of reaching out and connecting with local investors that can help them achieve their goals.  Their chances of success are increased, since they are not limited to banks, which have tight restrictions on who they can lend to, and credit cards, which can be very costly.  These businesses use investment money to pay wages to local employees and purchase goods and services from other local businesses.  Much of that money is then re-spent locally many times over, increasing prosperity across the whole community, in what’s called the “local multiplier effect.”  The investors can receive a fair financial return as well, completing the circle.

“Active networking and collaboration ensure that promising local entrepreneurs are discovered, educated, financed, and supported throughout their business lifecycle.”

Local investing can deliver more than just economic benefits.  It can help attract or retain crucial businesses, like farms, retail stores, or conservation projects.  Valuable relationships are created and deepened across the community as entrepreneurs, investors, economic development professionals, government leaders, financial professionals, business groups, and others work together to catalyze local investing as a key ingredient of a vibrant local economy.  Active networking and collaboration ensure that promising local entrepreneurs are discovered, educated, financed, and supported throughout their business lifecycle.  This coalition of different groups and individuals working together to promote and strengthen the local economy are what we call the Local Economy Ecosystem.  This guide explores the types of groups that should be part of your local ecosystem, and how to collaborate with them on building a culture of local investing.

What's it like to invest locally?  Local investing is very different than conventional investing.  In today’s globalized world, investing has become a way of putting one’s money into shares and debt of multinational corporations and governments via high-speed, electronic trading platforms.  Local investing, by comparison, is slow and engaging.  Local investors must have the passion, time, and energy to find and evaluate local investing opportunities, and to get to know the people that offer these opportunities.  This is doable because local investments are much simpler—easier to understand and evaluate—than Wall Street investments.  In return, investors can make money on their investments, which is very important, but the attraction of local investing is about making a positive impact on the community as much as it is about profits.

Growing a CommunityCommunity organizers who want to catalyze local investing ultimately need local investors to be inspired to mobilize some of their investment money out of where it sits in bank and brokerage accounts, including IRAs.  To do this, they must engage with local investors and facilitate connections between investors and local entrepreneurs who can offer quality investing opportunities.  We highly recommend local investing clubs and networks, which are groups of investors that want to put some of their money to work locally, as a great way to bring local investors together.  If you are fortunate enough to have a local investing group in your community, they will typically already have the means and motivation to seek out local investments, and your role may be largely one of supporting and coordinating with their efforts.  If not, you may need to seek out, educate, and inspire investors to form such a group.  Local investing groups often organize business showcases, which are community events that highlight specific small businesses and nonprofits to rally financing and other types of support for them.  However, any kind of group can host business showcases, so you can always organize your own as a way to connect entrepreneurs with local investors.  Once those connections have been made, it’s up to them to complete investment deals.  You can support the process, though, by encouraging local investors and investor groups to read our course on How to Invest Locally, which includes everything they need to know, including how to evaluate local investments and make good investing decisions.

Catalyzing local investing in a community is usually not quick or easy.  Local investing will be more apt to take root in communities where there are already strong values and programs around supporting local businesses, buying local, and so forth.  If such initiatives are not in place, people may need more basic education about the importance and value of supporting local small businesses through shopping, investing, and mentoring, before investors will be motivated to dive in.  Either way, shifting how significant numbers of people think about their money and how to invest it can take a while, even if you are relatively successful.  Many communities have made significant progress by focusing on consistent networking and education over time, building momentum gradually and savoring their incremental victories.

The Northeast Oregon Economic Development District (NEOEDD) is one example of an economic development agency that’s working to catalyze local investing in their rural three-county area.  In conjunction with ChangeXChange Northwest, a group that helps Pacific Northwest communities generate local investing activity, NEOEDD has built a local economy ecosystem comprised of local leaders, including local economic development organizations, Chambers of Commerce, Main Street groups, and business counselors.  They organized a series of workshops to educate and inspire local investors, who have formed three local investing networks.  Approximately one year into the process, a few early local investments have occurred, through crowdfunding and private loans.  NEOEDD’s next goals are to continue recruiting and educating: more local investors to invest locally, and more local entrepreneurs to offer high-quality investing opportunities.  NEOEDD won the 2014 Innovation Award for their work from the National Association of Development Organizations (NADO).

Port Townsend, Washington, has a great example of a more mature local economy ecosystem.  Surrounded by water on three sides, this small town of 9,000 people has a history of local self-reliance.  In 2008, a group of local citizens created the Local Investing Opportunities Network (LION) of East Jefferson County, WA, in order to connect local investors with local businesses and help build a more prosperous economy.  LION members reached out and created alliances with their Economic Development Council (EDC), Small Business Development Center (SBDC), local bankers, and local entrepreneurship educators to help build investment-ready local businesses, and ensure that local businesses knew how to reach out to local investors.  LION held community outreach events to recruit more investors to the cause, and ultimately grew their membership to over 70 people.  LION members invested over $3 million locally over the next four years, helping to start and retain many businesses which would likely not be there otherwise.

This guide introduces you to best practices for catalyzing local investing, based on the experiences of these and other communities.


An Overview of Local Investing for Community Organizers

As a community organizer that’s promoting local investing, you need to have a basic understanding of the nuts and bolts of the field.  Local investing opportunities come in many forms, with varying degrees of complexity and risk.  Broadly speaking, there are two main categories: securities, which are legally regulated and generally more complex, risky, and appropriate for experienced investors, and non-securities, which are generally more simple and appropriate for novice investors.  As a result, non-securities can be easier to promote and introduce to a community that’s not familiar with local investing yet.  Although non-securities are not traditionally considered investments, they do enable investors to create a positive local impact with their money while receiving benefits in return.  Here is a brief list of local investments that are not securities, and are therefore most appropriate for those just getting started with local investing to consider:

  1. Deposits at local banks & credit unions; these institutions can lend money back out to local small businesses and nonprofits, but you should inquire about their commitment to do so.  BankLocal is a great website that can help you identify which banks nearby reinvest in your community the most.

  2. Donation-and reward-based crowdfunding, through websites such as Kickstarter and Indiegogo, where investors can help fund both local and non-local businesses, nonprofits, and other projects, and investors can receive non-financial rewards, such as products or services, in return.

  3. Peer-to-peer lending at a zero interest rate, either through websites such as Kiva Zip and Community Sourced Capital, or directly to local people and/or businesses.

  4. Finnriver Farm- Locally Funded!Pre-sales whereby local investors/consumers pay for products or services up front, often at a small discount to retail value, in order to provide startup, expansion, or operating funds to local small businesses, which fulfill their commitment to their investors over time.  Community Supported Agriculture (CSA) is a great example of this, as farmers are paid for their work before the season, when their expenses are the highest, and deliver their harvest weekly throughout the season. CSAs are great way to support local farm businesses, and are available in most regions.  Credibles is a website that facilitates pre-sales for growing food businesses so that they can expand their operations to meet demand.  Sometimes, creative local businesses such as restaurants or breweries will run their own presales campaigns to fund their growth.

Securities, on the other hand, are essentially any kind of agreement in which an investor gives money to someone else with the expectation of receiving repayment plus a profit in return.  Securities include ownership stakes (shares, or equity) in a business, loans to a business (also called promissory notes, or debt), revenue-sharing agreements, and virtually any other kind of investment contract – even personal loans made between friends and family at any interest rate greater than zero (because zero percent loans are not securities; see above).  Since the eventual return of the investors’ principal (the money they put in) plus any profit depends on the management and business skills of the borrower or investee, there are inherent risks in securities, which is why they are carefully regulated by governments and are generally more appropriate for investors (and their advisors) that are ready to do the work to evaluate those risks and decide if they are appropriate to take.

In addition to the type of security (equity, debt, etc.), local investment securities also vary significantly in how and to whom they are offered, advertised, and sold:

  1. Private Offerings of securities are generally not advertised, not as heavily regulated by governments, and arranged directly between the parties.  Generally, the investment sponsors may only offer their investing opportunity to people they have a pre-existing relationship with, which is why building direct personal relationships and networks is so vital in local investing.  The vast majority of local investing securities fall in this category, so the courses on this site provide guidance for both investors and businesses that want to facilitate these kinds of direct investments.  They can be offered by the whole spectrum of local businesses, such as retail stores, small manufacturers, farms, construction businesses, and professional service providers; and nonprofits, such as private schools, radio stations, employment agencies for disabled people, and land trusts and other conservation organizations.  Local Investing Clubs & Networks and Organizing Business Showcases are the best ways to connect the people that can offer and fund these local investing opportunities.

  2. Direct Public Offerings (DPOs) are like local IPOs (Initial Public Offerings) that enable small businesses and nonprofits to run public campaigns to raise money from large numbers of people.  DPOs must be reviewed and approved by securities regulators in one or more states before advertising and sales to eligible investors can begin.  They are relatively rare because of the commitment of time, energy, and money an organization must make to receive regulatory approval and run a successful campaign, but they are growing in popularity because they allow relatively large public outreach campaigns that would not be possible otherwise.  You can find out about nearby DPOs through your local networks and online listing services like CuttingEdgeX.

  3. Investment Crowdfunding is a new and mostly untested type of offering that is based on the online Donation-and Reward-based Crowdfunding model, except that the issuer may offer securities to investors, with the possibility of eventual profits, instead of just product or service rewards. As of late 2014, investment crowdfunding is legal in a few states, and is likely to expand to more states and the federal level in the coming years.

A Word about Risk

Local investments almost always depend on the ability of the people backing them (typically the owners, management, staff, directors, and/or advisors of a business) to execute their business plan, deal with the unexpected, and ultimately achieve their goals, which in turn should enable the investment to succeed.  Therefore, the risks in local investing are about as varied as the people that want to raise money from investors.  For example, local investors may encounter experienced local business people that have established, long-running, profitable businesses and solid reputations in the community that want to refinance a high interest bank loan at lower rates, using their existing cash flow – a good example of a fairly low risk local investment.  Local investors may also encounter any number of people with dreams of starting a business to provide a product or service that they are sure will be in high demand.  Even if the investor agrees and buys into the dream, they should recognize how little is known about the possibility of actual success, and therefore how high the risk of this investment may be.  Due diligence is the process of evaluating the risks in a given investment, comparing them to the risks that the investor knows they are willing and able to accept, and making a decision about whether or not to invest.  We explore due diligence in much greater depth in our guide to Evaluating Local Investments.

As a community organizer who wants to catalyze local investing, the success of your efforts depends to a good extent on the outcomes of the local investments that happen in your community.  If word gets around of high profile investment failures like bankruptcies or fraud, local investing can get a bad reputation in the community, and it can affect your reputation as well.  While most investors understand that financial losses are an inevitable aspect of investing, and are guaranteed to happen sooner or later, it’s in your best interest to do what you can to facilitate positive investment outcomes.  The best way to do this is to educate both businesses and investors by connecting them with the resources they need to succeed.  For example, business people need to know how to run solid businesses, develop good business plans, and go about raising money from investors legally.  You can connect them with local SBDCs, business consultants, entrepreneurship or accounting classes, and our How to Raise Money Locally course (when published).  Investors need a basic education on local investing concepts, especially how to research and evaluate local investments and make good investing decisions for themselves; you can refer them to our How to Invest Locally course.  This way, you can help create an environment that is built for long-term success.

A Word about Legal Issues

The purpose of securities laws and regulations are very clear: they exist to protect investors.  They are intended to prevent fraud by investment issuers and to level the playing field by requiring disclosure of material facts and risks to potential investors.  Generally speaking, it is incumbent upon businesses that choose to offer securities to comply with securities laws and regulations.  Most small business owners and managers know little to nothing about securities laws and regulations, and therefore need education and support (and when needed, legal advice) to avoid running afoul of them.  It’s a good idea to seek out local attorneys who are knowledgeable about securities law to be part of your local economy ecosystem, although they can be hard to find, especially in smaller communities.

Accredited Investor Definition:

Net worth of over $1 million (not including primary residence)

- OR -

Individual income over $200k or joint income over $300k in each of the last two years.

Accredited investor is a legal term that all local investing catalysts should know because it comes up quite often around securities offerings.  In short, accredited investors are people with enough assets or income that lawmakers feel less need to protect them from risky investments.  The legal definition, as it applies to individuals, is someone with an individual or joint net worth of over $1 million, not including the value of their primary residence, or an individual income exceeding $200,000 or a joint income exceeding $300,000 in each of the two most recent years, and a reasonable expectation of exceeding the same income level this year.  Federal and state securities laws and regulations allow companies to offer securities to accredited investors under less stringent regulatory requirements than are normally imposed on companies.  Accredited-only investments are relatively rare in the local investing world, because most local small businesses feel they need to be able to raise money from all types of investors, not just wealthy ones.

When making private offerings to nonaccredited investors, which are the most common types of local investing opportunities, local small businesses generally cannot advertise their opportunities, speak publicly about them, or even speak privately about them with people they do not have a pre-existing relationship with.  In public, and in private with people they do not already know, business people can discuss almost anything—their personal and business history, their business’ mission and values, the opportunities and challenges they face, and any other non-financial matters—but not investment-related information, including terms, amounts, financial projections, and details of previous investments they have offered.  Creating the frameworks that help both investors and entrepreneurs navigate these subtle boundaries is a key role of local investing groups and community organizers aiming to catalyze local investing.  Local business people should be encouraged to network extensively, meet people that are interested in supporting their business, and build relationships with them over time.  Then, in private, with people they have already built pre-existing relationships with, they can engage in investment-related discussions and negotiations.  These legal restrictions are another reason why local investing activity thrives on relationships and networking, which is what your local economy ecosystem is intended to promote.


Building Your Local Economy Ecosystem

As a community organizer, the best thing you can do to facilitate local investing in your community is to help build your local economy ecosystem, which we define as a network of well-connected individuals and organizations that are interested in seeing local small businesses and nonprofits prosper, and are motivated to help make that happen.  Once they are on board, your ecosystem allies will spread the word about local investing and your mission of growing it to people that need to know, such as businesses, investors, and other community leaders, and will collaborate with other members of the ecosystem as needed.

Networks Empower CollaborationsOf course, there are likely to be plenty of existing relationships among the people you would consider to be members of the ecosystem.  If you’re fortunate, there may already be some “local economy” synergies occurring between many of them, perhaps even including ongoing collaborative projects or organized initiatives.  Your work should begin with what already exists, and expand on that by reaching out to potential allies who are less involved.  While the primary focus of your efforts is to spur local investment, the success of that initiative will depend in large part on having as large and interconnected a network as possible.

Here’s a list of groups that can be valuable members of your local economy ecosystem.  You should consider key members and leaders of the following locally-based groups as well as locally-focused representatives of chapters of larger regional or statewide groups:

  1. Business organizations, such as Chambers of Commerce, Main Street groups, AMIBA and BALLE networks and other “Buy Local” groups, and local industry groups in sectors that are important to your local economy.
  2. Economic and business development groups such as Economic Development Councils (EDCs), Small Business Development Centers (SBDCs), and business incubators.
  3. Investor groups, including local investing groups and angel (accredited-only) groups.
  4. Financial institutions and independent financial professionals such as bankers, financial advisors, and accountants.
  5. Educational institutions, especially those that teach entrepreneurship and business-related classes in locally-important sectors.
  6. Attorneys, especially those that specialize in business and securities law.
  7. Government, including executives, councilmembers, legislators, and their staff.
  8. Journalists and media that can help report on local investing developments.
  9. Nonprofits that are active in local investing, such as community loan funds.
  10. Sustainability groups, such as Transition Networks, that want to increase local financial self-reliance.

Note: SBDCs, incubators, and similar small business technical assistance programs, entrepreneurship courses (and those that teach them), private business consultants, and helpful financial professionals are extremely important for your ecosystem because they can help businesses that want to raise money locally with their business plans and entrepreneurship skills, leading to a greater chance of business success and, in turn, better investment outcomes and more positive community impacts.

To begin developing the local investing part of your local economy ecosystem, start by convening a core group of ecosystem participants that you work well with and who share your goals and vision around local investing.  While this initiative may begin with you or your organization, it’s more synergistic to expand the core group to include people from multiple organizations.  Your core group should meet and stay in touch regularly to track progress.  At one of your early meetings, collectively make a list of who else might be valuable parts of your local economy ecosystem, and decide who in your group is best connected to those groups or individuals, and best placed for reaching out to them.  Begin by focusing on “centers of influence,” key people who are well respected in the community and whose opinions carry weight with others.  If you can successfully recruit these people, whether to join your core group or actively support your efforts, they can make great allies.  When reaching out to a potential ecosystem participant, your core group’s members may need to provide basic education about local investing and its benefits to the community.  You may want to create a short written overview to help explain the concept and provide links or references to further information, such as this guide.  Talk about what you are trying to accomplish, who’s on board, who else you may want to join your local economy ecosystem, and what the potential participant can do to support your mission.  Be available to answer follow-up questions, and stay in touch.  Keep them posted about your progress, and try to involve them with your project as much as possible.

Mobilizing Local Investors

It’s safe to say that local investing cannot happen at all without the continued participation of motivated local investors, which is why you need to attract them into the conversation and educate them on the benefits of local investing and how to go about it.  Approaching investors to talk about money can be daunting.  It can be hard to know who has money to invest, and difficult to broach the topic of investing without seeming like you are trying to sell them something.  One way to help with this is to introduce local investing as a part of a broader local economy initiative, like a “Buy Local, Invest Local” campaign that all kinds of citizens can engage with, not just people with wealth.  Next, if possible, start by reaching out to reputable, well-connected investors who already share your values about supporting local small businesses and who may be more open to investing some of their money locally, even with the extra work it entails.  Investors tend to know one another, so once you have a few well-respected investors on board, they can more easily recruit others to the cause.  Often, the people that are most open to, and comfortable with, investing in local small businesses were successful entrepreneurs themselves.  They already understand the small business environment, how to read financial statements and projections, how to evaluate management, and best of all, they may be open to mentoring the business people they invest in.  These kinds of investors are also great because they can help inspire confidence in novice local investors that may not have entrepreneurial backgrounds.  Reach out to local citizens that fit this profile to see if they might be willing to support your efforts.

The Power of GroupsAre you in a position to be a local investor?  It’s far easier to “lead by example,” than it is to persuade others to do something new.  Even if you can only invest small amounts, you can make a stronger argument for investing locally if you are doing it yourself, or at least starting to engage in the process.  Do you want to have a local investing group in your community to facilitate local investments?  Help start one, either as a founder, or as an outside catalyst.  All that’s required of the founders is a modest amount of investable cash and a desire to learn and engage with the community.  We provide substantially all the education that’s needed in the How to Invest Locally course on this site.  Refer new local investors here, especially focusing on Local Investing Clubs & Networks.  Generate some excitement and new recruits for the cause by organizing community outreach events to educate and attract new investors, and business showcases to connect investors with business people.

Organizing Business Showcases

Once you have educated and inspired local investors, you need to help them connect with business people that can offer high-quality investing opportunities.  This can happen naturally through ecosystem-related networking, for example, entrepreneurs may hear about your local investing efforts through the local Chamber of Commerce, where they are members and the Chamber leadership is a part of your ecosystem.  However, to really kickstart the networking process, consider organizing business showcases, which are a fun way to bring your community together to hear presentations from specific local small businesses and generate support and connections for them.  Members of your core group could organize a series of these events, perhaps in conjunction with a local investing group.  The next guide in our How to Catalyze Local Investing series is Organizing Business Showcases, which will explore every aspect of how to create these events and obtain positive results from them.

Between your ecosystem networking activities, investor education efforts, and organizing business showcases, you will have done a phenomenal job of increasing the profile of local investing in your community, getting businesses and local investors to connect with one another, and hopefully, inspiring some investors to jump in and make local investments.  When this happens, ask for permission from the investors and the investees to share their story either privately (via word-of-mouth) or publicly (via news stories, social media, at business showcases, etc.), because the best way to build confidence in local investing is to share examples of success so that others may follow.  If you can generate a positive buzz around local investing, momentum will continue to build.  Be sure to document what worked for you, and what did not, then share it with us here at the Local Investing Resource Center so that we can share it with other communities and help grow the local investing movement.  Thank you for being a part of the journey!


How to Get Started

Here’s a brief review of how to get started catalyzing local investing in your community:

  1. Educate yourself.  Read our whole How to Catalyze Local Investing course, and ask any questions you may have on our Catalyzing Local Investing forum.

  2. Identify and recruit your core Local Economy Ecosystem group to focus on local investing issues.  With them, identify other potential ecosystem allies and approach them to talk about how you can work together to catalyze local investing.  Be sure that you have business technical support resources (like SBDCs and entrepreneurship classes) and investors as part of your ecosystem team.

  3. Consider joining, creating, or encouraging the creation of a local investing group.  Your goal is to build a critical mass of investors who are motivated to put some of their money to work locally.  If starting a group is more than you can take on, then find others who can do it; you could become a member, or you might focus your efforts on supporting them by doing the rest of what is outlined here.  Either way, a viable local investing group is a crucial part of your local economy ecosystem.

  4. With your core ecosystem group and/or your local investing group, organize a series of business showcases, and follow-up meetings, to facilitate connections between local small businesses and investors.

  5. With luck, your activities will generate community interest, and even excitement, around local investing, which will lead to local investments being made.  Get the word out if things go well, so that momentum can build on itself.  Let us know what worked for you, and what didn’t.


Resource List

New Possibilities EmergingModules in our How to Catalyze Local Investing course:


General Resources:

Local Banks & Credit Unions:

Crowdfunding Portals:

Peer-to-Peer 0% Lending:


DPO Listings:


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Created and curated by James Frazier of the Local Investing Resource Center.

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