Three Applications of Community Capital and a Home Town Makeover
A discussion related to community capital can take on a number of different directions but from an economic development perspective, we like to focus on three primary applications including, 1) successful business growth, 2) start-up financing, and 3) blighted redevelopment.
The first two are fairly straight forward. You may have never have heard of the third one - we’ll get to it.
Growth of existing businesses
Taking this concept a step further, the same approach fosters the successful growth of existing businesses in a community. Think of your favorite local bakery, tavern, or produce market – all with a loyal customer base, a proven business model, and the capacity to grow. The value of community capital to these businesses is not much different from that of start-ups but with the added value of a built-in crowd that already supports those businesses.
For these existing businesses, not only can investment crowdfunding provide an alternative way to raise growth capital, but if done right, the buzz around the raise itself alone can help accelerate the growth as the business draws some attention to itself through significant local proposal and excitement.
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Our communities all have a subset of friends, family, and/or other community-members that foster an entrepreneurial spirit. Combined with a great idea and the drive to be successful, some of those individuals choose to start companies to fulfill an underserved need in the community, provide a better alternative to what already exists, or simply bring something new and exciting to the local market.
The National Association of Community Capital (NC3) simply defines community capital as “money that comes from the community and goes to the community.” Let’s take a look at two reasons this brings a fresh new way of providing capital to local businesses.
First, all start-ups need financing. Traditional local bank loans, grants, tax breaks, and other economic development incentives are historical forms of community capital since at the end of the day their funds come from all of us in the community either from deposits we keep at the bank or the taxes we all pay. Investment crowdfunding is a new form of community capital. It’s unique in that is provides an opportunity for all residents to directly invest in exciting, new start-ups they believe improves the community.
This not only provides a new source of capital for the business owner, but it naturally creates a crowd of advocates, promoters and new customers from its group of investors – all of which have a vested interest in helping it succeed. A crowd of invested customers (literally) and local advocates? Can you imagine a better platform from which to start a business?!
Lastly, blighted redevelopment is something we see in rural communities across North Carolina. In fact, it’s so prevalent that a series from HGTV called Home Town Makeover, was actually created to address the need.
This segment from WWAY TV3, an ABC affiliate in Wilmington, explains how the town of Whiteville, North Carolina is hoping Home Town Makeover will help restore some of the buildings, and in turn, the businesses, that the community enjoyed in their once-thriving downtown area.
According to Whiteville downtown property manager, John Fisher, “Any promotion or any exposure to investors would be good for our business, for all the businesses here in town, for everybody.”
Herein lies a perfect example of this third community capital application. By rallying a community around something as large as downtown revitalization or as small as a single building project, investment crowdfunding can come into play to supplement both volunteer and municipality-based economic development efforts. And it doesn’t require a television show to make it happen.
By rallying together a crowd of people to support the community in which they live, community capital can represent a powerful force. Whether the community decides to support start-up endeavors, empower growth opportunities for existing small-businesses, or tackle blighted redevelopment one building or block at a time, the ability to grow together within the community is now in the hands of its citizens. While this makes sense, it has been illegal for most local people to invest directly into small businesses in their community. The JOBS Act of 2012 and the investment crowdfunding laws that came out of it has made it all possible.
To learn more about how community capital and investment crowdfunding could potentially support economic development efforts in your local economy, register for our upcoming webinar on this very topic. Or feel free to contact us directly to discuss any specific questions.