Once upon a time, capital markets had meaning—before their soul was lost to an über-financialized economy that spiraled away from its purpose as classically defined: the efficient transfer of wealth from an individual’s savings to companies for development of research, products, and services.
It’s become hard to find much that fairly fulfills that function of fueling the entrepreneurial spirit. Except for a brief window when an IPO price may have connection to the value of a company and before other games begin (for example, running up its value for the “pop” in price on the first day of trading, “dark pools” that avoid transparent markets, or anonymous high-frequency front-running), exchanges look more like legitimized gambling with excess volume disguised as liquidity. For whom does the opening bell toll today?
For private companies, most funders want to see the next giant emerge. Even impact investors with noble intentions may exert the same pressures that come from managing other people’s money—the need for a quick exit.
Today, public and private markets gladly embrace the myth of shareholder primacy (that companies are legally required to place shareholder profit above all other considerations) at the expense of people, the planet, and a company’s original mission.
In the face of this maddening new world financial order, we need to step back, and rethink what capital should be and how we can connect people, companies, and community. Think about the recycling symbol—it also applies to the recycling of community capital that adds strength and helps us reconnect efficiently enough.
There is an alternative. I refer here to direct public offerings (DPOs), a tool that has been legal for as long as the federal securities laws have been in existence. For those less familiar, DPOs allow companies to self-underwrite and self-administer public securities offerings to both accredited and non-accredited investors in one or more states. A company can market and advertise its offering publicly by any means it chooses—through advertising in newspapers and magazines, at public events and private meetings, or on the Internet and through social media channels. There are several legal pathways that organizations can use to conduct a DPO. Depending on various factors, a for-profit or nonprofit can use a DPO to raise up to $1 million per year and in some cases more.
Ironically, this idea has been around long before the creation of the federal securities laws that now unintentionally support an industry of frenetic speculative trading. Today’s markets add almost nothing to support community, unless you consider that to mean your local luxury auto dealer, and your four-star restaurant beyond the gates and down the hill.
Another irony is that those very same federal securities laws (which, 80 years hence, are now caught up in a devil’s bargain of trying to provide a fair national market system while building bigger bubbles that burst more grandly each time) also carved out exemptions for the states to provide their own regulation for more modest public offerings—i.e., direct public offerings.
Long forgotten, or worse, dismissed, by the legal community over the years, DPOs had some resurgence several decades back with pioneers like Real Goods, Ben and Jerry’s (see the SSIR article “The Truth About Ben and Jerry’s”), and Annie’s Homegrown, but still languished as more of an anomaly than a solution. This model has had dozens of recent successful community raises—including Greenfield, MA-based Real Pickles, which raised $500,000 from investors in Vermont and Massachusetts, and People’s Community Market in West Oakland, which raised $1.2 million to build a neighborhood grocery.
For many private companies, DPOs provide enough funding to stay competitive, but without the external pressures and loss of control that venture capital and angel funding brings.
The time for community regeneration has arrived. By rebuilding community via a capital funding solution that allows for everyone to participate, companies can develop local loyal supporters of endeavors that understand reasonable and rational growth, and those same endeavors are in turn beholden to those who helped fund them.
And by systemically building in efficient technology solutions throughout, this approach can remain operable and maintainable for the life of the company that uses it, and for the community over the long-term. These tools should include a platform that matches investor interest to entrepreneurs, and simple online tools to plug into a website so that investors can click through to access offering materials, execute the agreement, and transfer the funds. They should also include a low-cost solution that allows a company to easily keep track of investors and payouts, and to manage communications.
Most importantly, firms must provide these services at fair, reasonable costs to facilitate and support companies that need help with reasonable growth. By avoiding overpriced fees, a model behavior gets established that companies can mirror, eliminating the need to pass on overpriced fees to others. The very same symbol of circular arrows can again be applied to fair and reasonable fees that become fair and reasonable prices for goods and services.