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Can Crowdfunding Give Capitalism a Good Name?

Posted to MichiganNow.org on Thursday, April 10, 2014

INTRO: Michigan is leading the nation in crowdfunding. What’s that mean? It’s when any person can invest just a few dollars or up to $10,000 in a business. You could support someone trying to start a coffee shop or a food cart nearby. They can take in $1 million without government red tape. You could earn a profit. This has not been possible since 1933. Crowdfunding has got environmental and renewable energy players excited. Michigan Now’s Chris McCarus spent an evening with them.

One can argue that Michigan shows the failure of capitalism. Crowd funding might mean capitalism that saves Michigan. It’s still based on investment. But check out these possibilities: making money with friends and neighbors, no hassle from government, and avoiding Wall Street, foreign oil and pollution.

“Michigan is literally leading the nation in crowd funding right now. We have the best bill out there.”

That’s Chris Miller, Downtown Development Authority and Economic Development Director for the City of Adrian. He led the discussion at a bar in Lansing recently.

Websites like Kickstarter and IndieGoGo sound like crowdfunding. But they help make gifts not investments. A credited investor is someone who is worth $1 million, not including their home. They make $200,000 a year if they’re single and $300,000 if they’re married.They’re the wealthiest 3% of America. No one else can invest. That was the law from1933 until December 30 of last year.

“What’s possible now is for us non-accredited investors to invest in businesses in our own community up to $10,000 per business per year.”

Governor Rick Snyder signed PA 264 December 30, 2013. There’s no limit on how many businesses you can invest in. A lot of entrepreneurs don’t bother with hiring an accountant. They don’t pay a CPA to produce documents called audited financials. So accredited investors can’t entertain the next great idea. The law requires them to see financials. Now entrepreneurs can skip the big investors, compete with big old companies and raise up to $1 million.

“There’s a big opportunity for crowdfunding renewable energy, community owned renewable energy and also things like broadband internet and these other sort of utilities that big giant almost monopolies that aren’t doing a good job of providing.”

That’s New York Times reporter and author Amy Cortese. In 2011, she published a book called Locavesting. The City of Adrian invited her to come and speak.

“What I noticed was not only were people looking for alternatives to Wall Street that would help them rebuild their communities but they were out there creating them. It was easier for most people to invest in companies halfway around the world than one in their own backyard.”

Amy Cortese was invited to the White House Rose Garden to celebrate the Jobs Act of 2012. It allowed states to change their finance laws. A republican state representative, Nancy Jenkins, from near Adrian, sponsored the bill that the governor signed into law.

Cortese told the pro environment and clean energy folks at the Lansing restaurant:

“As Americans we have collectively $30 trillion in long term securities, 401-k’s, pension funds, mutual funds etc. Almost all of that is invested in the stocks and bonds of very large publicly traded corporations and that’s fine but a lot of these companies are sending jobs and profits overseas.

“So if we were able to shift even a small part of that $30 trillion to locally owned companies it would have a big impact whether it’s 10%, 5% or even 1%. So 1% of 30 trillion is $300 billion. To put that in perspective that’s ten times the venture capital invested every year.”

With one of the first crowdfunding laws in America local investment advisers have sprung up here. Angela Barbash works in Ypsilanti. She is founder of Time to Reconsider and Revalue. Barbash explains why investors are paying her.

“If a client can rationalize a lower return in exchange for a high community impact like community solar projects that helps get them to that lower return.”

How much money do investors want back? Barbash says that inflation is 3% so that’s the minimum. Then 5-7% accounts for taxes. And her management fee is 1%. Her clients don’t ask for more than10% generally. Kevin Hitchen is a financial adviser in Indianapolis who’s found $6,000 for the Tecumseh, Michigan Brewery near Toledo.

See his company Localstake that shows the day by day investment in the brewery.

For years the free flow of capital devastated our industrial towns. Corporate money left the state and the country. Now, Michigan investors with just $500 in their hands can start to grow business here again.

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Amy Cortese has dug into a subject that touches Michigan perhaps more than any other state. The home of homegrown jobs lost 1 million of them from 2000-2010. Cortese has a formula for growing new ones. The Edward Lowe Foundation in Cassopolis has long talked about 'economic gardening.' But even that is top down compared to what Cortese writes about. This week she's speaking in Seattle.

Amy Cortese has dug into a subject that touches Michigan perhaps more than any other state. The home of homegrown jobs lost 1 million of them from 2000-2010. Cortese has a formula for growing new ones. The Edward Lowe Foundation in Cassopolis has long talked about 'economic gardening.' But even that is top down compared to what Cortese writes about. This week she's speaking in Seattle.

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