Lions, tigers, and local investing
Area investors consider putting their money into Olympia’s small businesses
A new group of Thurston County residents is gearing up to take the “buy local” concept to a new level. Working off of a model pioneered by a Port Townsend group called LION (Local Investment Opportunities Network), the Olympia cohort is forming a network of investors interested in funneling funds into the local economy. Instead of investing in bonds or stock in the formal market, investors in the new network would work directly with local small businesses to provide private loans or financing from anything to stocking supply, expanding capacity, or refinancing credit debt.
“It’s really a do-it-yourself kind of investing, and that is definitely not the kind of investing that Wall Street has gotten us used to,” James Frazier, co-founder of Port Townsend LION, explained to an audience of 40 or so people interested in starting a similar Thurston County group. The audience was gathered at an local-investment event sponsored by Sustainable South Sound and Enterprise for Equity in late June. Sunlight filtered through the tie-dye window coverings in the Olympia Ballroom as Frazier and co-founder Steve Moore explained the concept of LION.
Port Townsend LION was formally established in 2008 just before the financial crisis hit. Many of its founders had the foresight to begin looking for alternatives to Wall Street investments before then. Since 2006, LION investors have lent $3 million to small businesses in Jefferson County. Currently, there are around 50 people are involved in the network.
How LION’s model works
“They hate it when I say this, but it’s sort of like a dating service,” Moore joked after the presentation. “I’ve got two people that are interested that would like to meet somebody, one has money they’d like to loan, the other has a need they’d like to fund, and so what I’ll do is facilitate your meeting.” He chuckled, “I’m not going on the date with you, I’m not promising this is going to work out, I’m just facilitating. ”
Although LION members discuss opportunities, the group doesn’t engage in vetting and there’s no centralized committee or person assuming liability for the investments.
“It’s a collective effort but only informally,” explained Frazier. “When it comes to the bottom line, everyone is responsible for making their own decisions.” He pointed out that direct negotiations “remove the middle people” which allows investors to take home a bigger return while offering more favorable interests rates for businesses. (For LION, most investors earn between 5-7% compared to 1-3% they’d typically received on a CD.)
Port Townsend’s LION functions as an informal network of people performing private transactions. That allows businesses in the network to operate under the “non-public offering exemption” of state and federal laws so that businesses don’t have to register with the SEC or state, or file certain disclosure reports. That enables businesses to save on the cost hiring lawyer or dedicating time to completing the disclosure reports with the SEC or state.
“Most ‘corner-store’ type local small businesses do not have the time or money to undertake registration,” Frazier elaborated in an email, “or have the connections to wealthy people to do Reg D offerings [another less costly registration option under the SEC].”
In order to qualify for this non-public offering exemption, businesses can only raise money from people they know well. As investors and businesses built relationships, Frazier described how LION became an unintentional method of community building.
“Along with that sense of community, there’s more of a sense of duty for the person that’s accepting investment, like ‘Oh I better take this seriously, this is my neighbor, this is not just some bank that I can walk away from if things don’t work. We feel that it has a practical effect of lowering the default rate.”
The default rate of LION loans is currently around 8.6% which is slightly lower than the 9.3% average charge-off rate of Small Business Association loans in Washington state, according to the 2011 Coleman Report. (The charge-off rate is based on the percentage of loans in default the SBA needs to repay).
What would a local investment group mean for Thurston County?
The idea of not investing in Wall Street was appealing to some audience members. Thad Curtz, a retired Evergreen professor and fellow WIP volunteer explained, “I’d like to find some way to have less of my retirement money in the gigantic global capitalist flux of dollars.”
While some potential investors expressed interest in de-linking from the volatility of markets, others emphasized the community and economic development potential of the group.
“To me [local investing] makes much more sense than investing in something abstract in the electronic netherlands,” argued Elayne Crow, a finance and accounting student at Baker College and potential Olympia investor. She smiled, “I like the whole idea of using money to create community.”
At a small gathering after the event, 19 people met to discuss how a LION-style network could operate in Olympia. Potential participants observed that the Olympia network would likely include investors with a spectrum of thinking—some drawn to the network’s sustainable, community-building aspects, others just looking for practical investment opportunities.
Lisa Smith of Enterprise for Equity, an organization that provides training and microloans for local low-income businesses, said she hoped the new network would encourage “heart-centered and profit-centered” investments in the local economy.
In a follow-up phone interview, Aslan Meade of Sustainable South Sound said the group is open to drawing on various forms of alternative lending and investment practices whether that means borrowing from the Port Townsend’s LION model, relying more on microlending or participating in online crowd-funding made possible from the JOBS Act.
“This is a new wave,” Marie Poland of Sustainable South Sound and BuyLocal said spreading her arms wide as the event closed. “We are the ones who can create a unique network for our community to really keep the beauty of local businesses alive.”
The group lacks an official name at the time of print, although one member suggested it be called TIGER or Thurston Investment Group for Economic Resilience. Their next meeting will be August 3 at 11:30 pm at the Enterprise for Equity office. For more information, contact Marie Poland at firstname.lastname@example.org or Aslan Meade at email@example.com.
Marissa Luck is a freelance journalist and regular contributor to Works in Progress. When not reporting on local issues, she works as a content director at a web-design firm. Marissa graduated from Evergreen with an emphasis in political economy and international studies. Contact her via Twitter@marissaluck7 or email firstname.lastname@example.org.