This is part one of a two part series on local investment. Part two will focus on local investment in the Calgary setting.
How much of your invested money stays in the local economy? Chances are, not much. I sat down with Seth Leon of the Alberta Community and Cooperative Association to discuss the up-sides of investing more of our money in our own community. The benefits are clear: a greater percentage of dollars spent locally stay local, it supports businesses that are more likely to act as a contributing member of the community, and the development of an entrepreneurial citizenry. Despite these benefits, very few people think local when they think of their investment portfolio.
There are 2 reasons why local investing is difficult for the everyday Calgarian:
- You have to be a millionaire. This rule is designed to make sure “unsophisticated” investors don’t get duped for large sums of money. Non-millionaires are stuck with conventional stock market options such as mutual funds.
- It is expensive. Set-up costs for a public offering are designed for big business ventures. This option is unaffordable for local businesses which have smaller capital requirements.
So what is currently possible if you believe in the principles of local investing? You can legally invest locally in 3 ways:
- Real estate
- Yourself through education
- Your own business.
These options are appropriate under certain circumstances but if the everyday Calgarian just wants to invest in a local business, another way is needed. This is where Seth comes in with the local investment fund model.
There is precedent here in Canada: the Community Economic Development Investment Funds have over $40 million in RRSP-eligible savings invested in local businesses. Exemptions in Alberta Securities Law allow for a similar investment vehicle: the Opportunity Development Cooperative (ODC). I asked Seth about the ODC model and the financial and social good it can do for community.
So, what is an Opportunity Development Cooperative?
An ODC is an investment co-operative that pools community capital to finance local business development. Capital is raised by selling RRSP-eligible shares to the membership of the ODC.
ODCs are based on several Albertan examples of communities that were facing the prospect of losing a key piece of their local economic infrastructure. By setting up co-operatives they were able to raise capital locally and buy the infrastructure. With these communities invested in their local economy, a turnaround started and the businesses thrived!
What are the benefits of this model?
For co-op members, it meets a need to invest in one’s community to strengthen the local economy support local businesses, increase vibrancy, and promote community ownership. For entrepreneurs it provides access to capital, and a support network of an engaged community.
ODCs provide access to capital in a way that can be patient and friendly, and equity that could help smaller businesses make it through the start-up phase. This can be used to revitalize a tired looking main-street, or ensure a key asset stays in a community.
Another benefit of an ODC is that once a community has organized around a common need and achieved it on their own, they realize they can take on just about anything.
Why would someone want to invest locally?
Local investing in Alberta connects people to their local economy, and lets them have equal say over how their money is used to support local businesses. Imagine walking by a bakery every day, knowing that customers enjoying delicious treats and each other’s company are there because you invested in your community.
The ability to participate as an individual and the opportunity for a community to decide on how its local economy is shaped is incredibly important. It’s also a lot of fun.
What are some successes so far?
ODCs are based on the success of the two amazing New Generation Co-operatives: Westlock Terminals NGC and Battle River Railway NGC, as well as the prototype Sangudo Opportunity Development Co-operative. The Crowsnest Pass ODC raised over $600,000 to renovate, and then lease, a beautiful historic building on main-street in Blairmore.
What would your neighbourhood’s main street look like if small and big business had equal access to capital?
In part two, we will talk about local investment in the urban setting.
Are you interested in learning more about local investment? The ACCA is hosting a webinar on the ODC model on Wednesday April 23rd at noon. Click here for more details.