“[T]his is a fundamentally pluralist vision, in which multiple forms of public, private, cooperative, and common ownership are structured at different scales and in different sectors to create the kind of future we want to see. The vision begins and ends with the challenge of community. If it does not meet the test of everyday life in the communities in which we Americans live, it does not meet the test of serious long term change.”
Gar Alperovitz writes these words in his introduction to Principles of a Pluralist Commonwealth – in which he shares his vision of a new political economy. In it, he explains how a transformation in the ownership of capital is at the very core of the changes that are needed on the path toward a system that works for all and not just for the wealthiest few.
At last week’s ComCap17 conference in Monterey, we collectively put these words into practice. We brought the ideal down to the ground level and worked through how to actually create these diverse forms of ownership. And indeed, perhaps the most important theme that emerged in the conference is that there are a variety of effective tools in our toolbox to help us get there.
To be sure, much of the discussion at ComCap17 was about one particular collection of strategies – state securities exemptions for intrastate crowdfunding, which is now available in some 37 states. But as pointed out by a number of speakers, including my team from Cutting Edge Capital, there are several other strategies available to raise community capital, including direct public offerings and community investment funds.
And clearly, there is no one-size-fits-all. Each strategy has its advantages and disadvantages, and each has a “sweet spot” where it is most effective. For example, where an enterprise wants to raise capital directly from its community:
- State-specific exempt crowdfunding can work well for small offerings where the investors are all within one state.
- Exempt crowdfunding under Reg CF (Title III of the JOBS Act) can be effective for offerings up to $1 million where investors are in multiple states.
- Intrastate direct public offerings are usually best for larger raises (i.e. any amount over the applicable exempt crowdfunding limit) where investors are all in one state.
- Rule 504 offerings are often best for offerings up to $5 million where investors are in multiple states.
- Regulation A offerings are best for offerings from $5 million to $50 million where investors are in multiple states.
Of course, these strategy choices are more nuanced than this, and a big part of our work at Cutting Edge Capital is helping our clients figure out which strategy among these and others best aligns with their values and strategic goals. (And then, together with our sister law firm Cutting Edge Counsel, we take our clients through the regulatory process until they have raised the capital they need.)
And yet, even these direct offering strategies are just the beginning. Indeed, most of them remain underutilized. It remains that case that a typical person living in a typical American town has virtually no local investment options; or if such options exist, they are hard to find. So how do we move the needle much faster toward a world in which community capital is truly ubiquitous and everyone has opportunities to invest locally in any town in America?
Community investment funds are the key to scaling up community capital and taking it from the fringe to the mainstream – whereby everyone thinks about local investing before they think of investing in Wall St. Besides scalability, community investment funds also have the advantages of diversification and greater efficiency in raising community capital, and they can typically offer more liquidity (that is, opportunities to get your money back) than a typical business can.
With investment funds, there are strict legal limits on what can be done, but as with capital-raising strategies, there is an array of options – which my partner Kim Arnone and I described in our ComCap17 workshop on Wednesday morning. A few options that allow a community-scale fund to raise capital from the community include:
- Charitable loan funds, which raise debt investment and deploy it for some charitable purpose.
- Real estate funds, which could focus, for example, on urban revitalization, agricultural land preservation, or affordable housing.
- Supplemental funds that are an outgrowth of some other primary business, such as business services, co-working space, incubator, or grocery coop.
- Intrastate funds up to $10 million – though these require explicit SEC approval.
And that’s still not all; there are other innovative strategies not mentioned here that can be explored. The community capital movement is ripe for creative thinking about what could be, and what is possible under the law.
At ComCap17, there was much discussion about new laws or changes in the laws that would help our movement; and at Cutting Edge Capital we have our own wish list of changes we believe would help boost this movement. But let’s not let imperfections in the laws distract us from the fact that most of what is described here can be done in every state in the U.S. today. There’s no need to wait.
In the big picture, what we’re doing in this movement is taking back our economy, restoring economic power to communities, and leveling the playing field so that everyone of every economic class has an opportunity to participate fully and reap the benefits of our economy.
But at a deeper level, this movement is about more than just the economy. As Teddy Roosevelt said, “There can be no real political democracy unless there is something approaching an economic democracy.”
Community capital is about true democracy. Let’s make it happen!