How to find Investment Opportunities
Local investment securities vary significantly in how and to whom they are offered, advertised, and sold:
- Private Offerings: generally not advertised, not as heavily regulated by governments, and arranged directly between the parties. The vast majority of local securities fall into this category, so the resources on this site provide guidance for both investors and businesses that want to facilitate these kinds of direct investments. They can be offered by a wide variety of local businesses such as retail stores, small manufacturers, farms, construction businesses, and professional service providers. Creating or joining Local Investing Clubs & Networks are a great way to meet businesses that offer these local investing opportunities.
- Direct Public Offerings: (DPOs) are like local IPOs (Initial Public Offerings) that enable small businesses 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 selling 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 through online listing services like CuttingEdgeX.
- Investment Crowdfunding: unlike donation- and reward-based crowdfunding models such as Kickstarter and iFundWomen, Regulation Crowdfunding (Reg CF) and many state-based crowdfunding regulations allow an issuer to offer securities to investors. This gives investors the possibility of eventual return on investment, rather than just product or service rewards.
A great way to create the relationships that lead to local investments is to attend periodic gatherings to showcase local businesses and nonprofits that want to connect with the community and potentially raise investment money. These events are similar to community outreach events, but the whole point is to support the presenters, who represent local small businesses and nonprofits. The events are often open to the public, but sometimes may be private for a particular investment group’s members and their invited guests, such as potential group members, ecosystem members, and other interested guests.
As we mentioned earlier, most businesses should not speak publicly, or even privately among people they do not know, about their current, future, or past investment opportunities. Therefore, the focus of a local business showcase is not on financial information, including projections, investment terms, past investment results, or amounts people want to raise, but instead, it is on the businesses themselves and the people behind them: who they are, the values that matter to them, their history in the community and elsewhere, the impact they have on the local economy, and the opportunities and challenges they face in the local economy. These events are also called pitchfests, but that term can be misleading, since the point is not to “pitch” investment ideas to the audience, à la “Shark Tank,” so much as it is to educate the community about the issues and opportunities that specific local small businesses face, and rally support and connections for them.
The most crucial part of the local investing process happens after a business showcase, when follow-up meetings are arranged between business people and interested group members/potential investors. These meetings can lead to relationships being built, and if things go well, additional meetings can be arranged to discuss and negotiate investment terms, and ultimately, investments can be made. Therefore, it’s extremely important for local investing groups to support and facilitate this follow-up process, which is what leads to successful outcomes for the group. Organizers should provide sign-up sheets for each entrepreneur at the showcase where people can write down their name, e-mail address, and phone number if they want to participate in a follow-up meeting. After the showcase, a meeting can be scheduled at a time that works for the greatest number of people using a website such as Doodle.com, or the old-fashioned way of consulting everybody involved for a time that works for everyone. At this point, local investing networks should stand back and let the individual parties take it from here. Networks should not be involved in the investment research, negotiation, or decision-making process. Clubs, on the other hand, might hold private showcases, form a due diligence committee for each entrepreneur the members are interested in, and have the committee schedule a follow-up meeting with the entrepreneur.
There are other models for connecting investors with businesses that can be used in addition to, or instead of, business showcases. Some networks have a “master connector” who leads the local investing network (typically an open membership network) and personally introduces investors and business people. Much like a “matchmaking” arrangement would work, the connector arranges meetings between the parties, similar to Business Showcase follow-up meetings, which serve to introduce everyone and pave the way for relationship building and business/investment discussions. Another model, used by LION, invites businesspeople to fill out and submit an online or paper “Business Opportunity” form to the group which shares similar information to what would typically be presented at a Business Showcase (i.e., personal and business history, the business opportunity, but no investment or financial information), plus their contact information, references, etc. These forms are e-mailed to all members, who, if they are interested in meeting with the business person, respond either directly to that person or to the group’s volunteer business opportunity coordinator, indicating their interest and availability. From there, follow-up meetings can be arranged, mirroring those that occur after a Business Showcase. Essentially, this model replaces the showcase with online “introductions,” and while it is not as entertaining and community-building as a showcase, some groups may find it to be a more efficient way to connect people than the relatively work-intensive showcases.