Investors go local with investments - WDAM-TV 7-News, Weather, Sports-Hattiesburg, MS

Investors go local with investments

More people are now investing locally to help the community. (Source: NPN) More people are now investing locally to help the community. (Source: NPN)

(NPN) - A new movement is encouraging people to "invest local."

The idea is to put money into community businesses instead of the stock market.

When Ed Robeau heard his local general store had started selling stock, he decided to move some of his investments from Wall Street to Main Street.

"It's a business just like any other business," Robeau said. "The fact that it's local, you get to know the people better. You get to observe the operation."

Robeau is not alone. A growing number of small businesses are holding direct public offerings to sell equity stakes to everyday investors in their communities.

"They're often offering investment opportunities where the minimum investment might be as low as a hundred dollars or a thousand dollars," said Jenny Kassan, CEO of Cutting Edge Capital.

Cutting Edge Capital is a company that helps businesses hold public offerings and raise the capital they need in their own communities.

"We're seeing more and more people looking for alternatives to investing in Wall Street. Something that doesn't just provide a financial return but also actually benefits their own community in ways that they can actually see and experience," Kassan said.

Kassan says current lending conditions make seeking out local investors an attractive option for small businesses.

"Right now it's really hard to get bank loans and then if you go to professional investors, often they'll ask for terms like they may want control of your company and they also often want a really high rate of return," she said.

Through their direct public offering, the general store Robeau bought stock in raised nearly $700,000 and now boasts over 1,000 shareholders.

"I had people come up to me actually and say, ‘Well this is more of a gift isn't it?' And I had to tell them, "No you're actually buying stock in the company and there is potential to get a dividend, there may be an increase in value in stock someday," said Marty Gay, Store Chief Financial Officer.

Financial advisor Laurie Itkin says she can understand the appeal of local investing.

"It just feels good. However you have to ask yourself what is your objective for investing the money?" Itkin said.

She says people need to keep in mind the risks: the rate of return is often low, and you may not be able to liquidate your investment if you need quick cash. And if the company goes out of business?

"You may have no recourse and get no money back on your investment," Itkin said.

As for Robeau, he says he truly believes that he will get a monetary return on his investment someday. But in the meantime, he says he's gotten something even better.

"You're supporting your community. You're helping provide employment for people. It makes me feel very proud," Robeau said.

Another popular way for new businesses to raise capital is crowdfunding on sites like kickstarter.com and indiegogo.com.

But unlike with true local investing, in these cases the contributor is making a donation in exchange for some kind of perk like a t-shirt or download. Contributions don't mean you're an actual shareholder in the company.

Copyright 2014 NPN. All rights reserved.

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