INVEST LOCAL COLORADO LLC
A Money Marketplace Where Ordinary People Can Financially Sponsor Local Businesses!
By Karl Dakin
Dakin Capital Guild LLC, Local Money Marketplace PBC, Invest Local Colorado. LLC and Associated Fund Raising Co-ops and Funding Financing Funds within a Proposed Colorado Capital Eco-System
In 2007, Colorado, with the rest of the world, fell into the Great Recession. The public consciousness came to recognize entrepreneurs and innovation as the solution to re-start and re-energize the economy.
When the recession started, the capital industry was governed by federal and state laws that have their foundation in the Great Depression of the 1930’s. The Congress enacted laws in 1933 and 1934 that set as a default the concept that ordinary people were incapable of making good investment decisions without the oversight of the government.
Since that time, additional laws and rules have led to a highly distorted capital industry where nearly all investment in startups and small businesses are made only by wealthy individuals. These wealthy individuals are known as ‘accredited investors’. They make up less than 3% of the population.
These arbitrarily qualified individuals are permitted to invest with only limited restrictions. An accredited investor rarely has any experience or training in making investments or any training or experience in management of innovation or small businesses. As a result, these favored individuals historically invest in less than 2% of the investment opportunities that they review.
This great mismatch between wealthy individuals as a source of capital and the capital needs of the Main Street business accounts for the recurring fact that ‘access to capital’ is commonly considered one of the top five challenges to startup and small businesses decade after decade.
As a consequence of Great Recession, scare capital became non-existent capital. Money needed by startup and small businesses largely disappeared. To make matters worse, this economic downturn followed closely after shrinkage of the capital markets caused by 9/11.
And nothing happened for four years. Then, despite political partisanship in Congress, the federal JOBS Act was passed in 2012
And nothing happened for four years. The Congress tasked the U.S. Securities and Exchange Commission with adopting rules for implementation of the law. In a demonstration of bureaucracy and a federal government that caters to financial institutions ‘too big to fail’, the SEC failed to adopt rules and enable the law to take effect till May of 2016.
The Colorado Crowdfunding Act was passed in March of 2015 with unanimous approval of both the Colorado House and Senate. The Rules were adopted in August of that year.
And nothing happened for two years. This year, CFEX registered as an intermediary and listed its first campaign. Despite attaining the goal of the capital campaign for a real estate development project, the project fell apart and was unsuccessful. Invest Local Colorado, after a number of false starts beginning in 2015, listed its first campaign on October 13, 2017 for Paradox Ventures.
Investment crowdfunding has proven not to be a simple expansion of the existing capital industry to include non-accredited investors, but an alternative capital industry with its own requirements for success.
There are a large number of factors that have delayed and constrained the potential of the Colorado Crowdfunding Act:
In summary, the passage of the Colorado Crowdfunding Act represents an enabling event. To realize the potential of the Act, it will be necessary for new processes, methods and services to be developed, understood and culturally accepted that match ordinary people with investment opportunities in Main Street businesses. Fundamental marketing principals should guide the formation of a marketplace instead of expectations biased by historical preferential treatment of angel investors.
Although there is room for improvement of the Colorado Crowdfunding Act, legislative changes and new rule making will not address the key issues. It will be necessary for businesses and the 4.3 million adult residents of Colorado to become respectively aware of investment crowdfunding as an alternative source of capital and as a means to supporting their favorite Main Street businesses. This will best be accomplished by a series of successful investment crowdfunding campaigns that demonstrate successful crowdfunding is achieved by:
Karl Dakin, President
Dakin Capital Guild LLC
Have you ever received a stock tip – information that caused you to get out your check book and call your broker? Ordinarily, this person is a friend, a family member or a work associate. Did you trust the person who gave you the information? Did you act on the information and buy the stock?
Would you act on a stock tip from someone you don’t know? Someone you don’t know, possibly even the business looking for money, contacts you and asks you to invest?
Worse yet, the contact is in the form of an email. It has been sent to you and many others. It may not be clear why you have been selected to receive the email. You are directed to a website where you are asked to make payment. No one has actually talked with you. Yet, the business seeking money expects that you will simply make a payment.
Will you invest? Probably not. Statistics say no. Yet, this is the situation commonly presented by investment crowdfunding. It is the common practice of businesses to post their offering on a crowdfunding platform and wait for money to arrive. This is the reason most crowdfunding campaigns fail.
What would improve the likelihood that you would invest? If you are seeking money, what would improve the likelihood that you will meet your capital goals?
Let’s start with an introduction. The art of raising money is based upon relationships. The investor either knows a principal in the business seeking money or has received an endorsement from someone they trust.
Let’s identify benefits. Benefits from the success of your business and benefits from investing (these are not the same). Trying to understand investors is a fundamental marketing principal where the investor is the customer and your business is the product. Promotion of a capital campaign should focus on those investor candidates who stand to gain the most.
Let’s seek feedback. Before you structure your offer, find out if it is attractive. Talk to lots and lots of investor candidates. Find out what they want, what they need and what they will financially support. Shape your offer to custom fit your profiled investor candidate.
Let’s build trust. Demonstrate care for your customers. Support your community. Contribute to your charity. Better yet, integrate all of this within your business plan, policy and practice.
Otherwise, investment crowdfunding is simply a professional form of begging – little better than a panhandler standing on a street corner and hoping for someone’s generosity.
Successful crowdfunding campaigns will seek investment from people within whom they have a relationship, that will offer an attractive deal, that will engage in a true long-term relationship that is representative of a kind of business that everyone wants in their community.
Invest Local Colorado LLC
Paradox Pride launched its investment crowdfunding campaign on the Invest Local Colorado crowdfunding platform.
DENVER, CO—October 14, 2017 Invest Local Colorado kicked off its investment crowdfunding platform with the listing of Paradox Pride - a Western Slope startup business that is engaged in the farming of hemp and extraction of hemp oil for healthcare applications.
Paradox Pride held a press conference at the State of Colorado Capitol Building. State Senator Don Coram, one of the principals in Paradox Pride, explained that “In rural Colorado, we don’t need consultants. We need capital.” He went on to explain that investment crowdfunding gives the ordinary person, the people who live in western Colorado, a chance to participate in investment offerings and financially support the small businesses that create the new jobs within rural communities. He pointed out that Paradox Pride is creating jobs in Nucla, Colorado – a small town that is facing an economic downturn from the closure of the power plant. http://www.paradoxpride.com
Senator Coram expressed praise for Invest Local Colorado for establishing its investment crowdfunding platform and providing Paradox Pride with the expertise to raise money through this new capital source.
A listing by a business on the Invest Local Colorado platform has three levels: a short paragraph, a business summary page and a proposal for financial support page. To conform to federal and Colorado law, only individuals who have demonstrated that they are residents of Colorado may view the offering of Paradox Pride and other capital campaigns listed on the Invest Local Colorado platform.
Invest Local Colorado developed a unique business model to manage demonstration of residency and meet the objective of the Colorado Crowdfunding Act to enable low cost capital campaigns by Colorado businesses. It has established the Colorado Capital Club as an association of Colorado residents that have an interest in financially supporting Colorado Main Street businesses. For a small annual fee of $10, Invest Local Colorado provides members of the Club with education materials and programs on ‘Investing in Main Street’ published by the Local Money Marketplace. http://www.localmoneymarketplace.com. This fee also covers the cost of verifying state residency. Only members of the Colorado Capital Club can see proposals and invest in businesses, social enterprises and community projects listed on the Invest Local Colorado platform.
“We studied and experimented with many different possible business models,” said Karl Dakin, President of Invest Local Colorado. “Unlike other crowdfunding platforms that are focused on wealthy people, we wanted a low cost approach that would empower ordinary people to financially support Main Street businesses. These businesses always face the challenge of ‘access to capital’ which hinders innovation and the startup and growth of small businesses.”
Invest Local Colorado is now engaged in making the 4.3 million adult residents of Colorado aware of this new opportunity to support Main Street businesses. It will be conducting workshops, making presentations at civic and business organizations, publishing information on its platform and supporting fund raising co-ops. Organizations interested in having a speaker on investment crowdfunding at one of their meetings are encouraged to contact Karl Dakin at firstname.lastname@example.org.
Invest Local Colorado is also in negotiations with several existing and startup organizations about listing their investment crowdfunding campaigns on its platform. It is projected that it will list 40 to 50 capital campaigns during the next 12 months seeking to raise a total of over $25 million in funding.
In order to perform services as an investment crowdfunding platform, it is necessary for Invest Local Colorado to:
We chose to set up a two-step process, join the Colorado Capital Club and make an investment by mailing a check, to keep the costs of these services as low as possible.
As an illustration, everyone uses credit cards (which we cannot use in an investment transaction), where the merchant pays a fee up to 5% of the transaction out of the money paid by the customer.
If this same fee rate is paid on a $500 investment, the charge to the merchant would be $25. On a $25,000 investment, the charge to the merchant would be $1,250.
The fee could be paid by the investor as a surcharge to the investment or by the company raising money resulting in a reduction of the net money raised from their capital campaign.
In addition, we have to visually examine a copy of your driver’s license to verify you are a Colorado resident (just like when a seller of alcohol ask to see your driver’s license) in order to conform with Colorado and federal laws.
We have chosen to charge an annual fee to investors of only $10 for an unlimited number of investments during a one year membership. This allows us to charge a lower flat fee to the business raising money and thereby enabling more businesses to use investment crowdfunding as a new way to obtain needed capital.
In addition to the opportunity to invest in Main Street businesses, people who pay the $10 and join the Colorado Capital Club will receive information, education and other programs to help them become skilled in investing in Main Street businesses. We will provide a digital copy of the Local Money Marketplace publication Investing in Main Street Workbook, free passes to workshops and other items of value throughout the year.
We welcome your suggestions on what we can do for you to make the $10 fee you pay to join the Colorado Capital Club one of the best purchases you ever make.
We appreciate your understanding and your time in financially supporting your local Main Street businesses, social enterprises and community projects.
Access to capital remains a ‘Top 5’ challenge to new and small businesses that need money to start and grow their operations. When seeking capital, entrepreneurs automatically default to seeking an investment from angel investors – wealthy people who meet the Securities and Exchange Commission (SEC) definition of an accredited investor. This singular decision tree largely accounts for why so many businesses are frustrated when raising money.
To put this in perspective, I like the majority of wealthy people I know. But, just because I like them and they have money (two key criteria for any capital source), does not mean that I would invite them to repair my car or fix a crown on one of my teeth. Similarly, it does not mean that they would make a good investor in one of my projects. Wealth does not translate to knowledge or good judgment.
Nearly all wealthy people have little or no formal training in making an investment or running a business. The small minority of wealthy people with business experience may have worked in a large business or a different industry where their knowledge is not portable and cannot be used in supporting a particular small business. There are angel groups that are working hard on filling this gap with training on conducting due diligence and sharing information about investment opportunities. However, statistics indicate that less than 5% of wealthy people participate in these groups.
Wealthy people make up less than three percent of the population when measured as individuals. When a couple invests as a family unit, about ten percent of the population may qualify as accredited investors. Accredited investors are people with a net worth of $1 million excluding the net value of their primary residence and/or people who generate $200,000 of income per year individually or $300,000 as a couple.
Wealthy people commonly invest in only two percent of the pitches they receive from entrepreneurs. So, do the math. Three percent of the population makes nearly all of the investments which are completed in only two percent of all the businesses. This means that 97% of the population does not get to pick the entrepreneurial winners based upon their preferences and needs. This suggests that almost all investing is biased to improving the lifestyles of the wealthy. And, 98% of the businesses are not getting funding. This is why access to capital remains a persistent and continuous challenge to almost all businesses.
If it were not for the recent establishment of investment crowdfunding, these observations would amount to little more than a complaint best repeated in a bar over a beer. There would be no workable alternative to angel investing. However, investment crowdfunding rolls back the multi-decade restrictions on investing imposed on ordinary people. Through the federal JOBS act and intra-state legislation of most of the individual states, it is now possible for non-wealthy people to invest in businesses, social enterprises and community projects of their choice. A revolution within the capital industry is in the making.
The new fact that entrepreneurs can now seek money from everyone does not entirely address the access to capital challenge. Many businesses cannot afford investment money at any price. Their profit margins are too thin and their probability of success is too low. Many businesses do not know how to raise money and do not have a ‘crowd’ of ordinary people ready to invest. More work is needed. That being said, it is still a whole new ball game.
It is my opinion, based upon nearly forty years of experience in raising money and other forms of capital from all kinds of capital sources, that investment crowdfunding will enable 60+% of all businesses to raise money from 80+% of all people.
Those entrepreneurs who understand the value proposition that the success of their business brings to their community and who will engage in a rich one-on-many relationship with their customers now have an alternative source of capital that may knock access to capital off of the business challenge chart.
At a recent conference, attendees were polled on the greatest obstacles to innovation and business and once again ‘Access to Capital’ was ranked as the top obstacle. At another conference, an angel investor stated that there was a surplus of available money for investing in new businesses. It is impossible to reconcile these two statements with classical approaches to raising money.
Crowdfunding is the answer. Not charity crowdfunding (GoFundMe.org) or rewards crowdfunding (Kickstarter and Indiegogo), but investment crowdfunding. And, not investment crowdfunding just for wealthy people who meet the securities law definition of ‘accredited investors’ (who comprise only 3 percent of the population), but investment crowdfunding for everyone (the other 97 percent of the population).
The Colorado Division of Securities and the University of Colorado School of Business will conduct a forum on Wednesday, Oct. 25, from 3:30 to 5 p.m. to discuss why investment crowdfunding has yet to realize its potential in Colorado. The forum will be at the University of Colorado-Denver in the Laube Collaboration Commons, on the 5th Floor at 1475 Lawrence St. For more information, contact email@example.com.
Colorado passed the Colorado Crowdfunding Act (C.R.S. 11-51-308.5) in 2015 to enable everyone to invest in Main Street businesses. This action followed the United States’ passage of the JOBS Act that established multiple forms of investment crowdfunding at the federal level.
However, almost all investment crowdfunding has been focused on selling investments to accredited investors who are seeking 10-times returns on investment within five years and expect the small business to be sold in order to create a cash exit for the investors. This is a complete mismatch for the 99.9 percent of new and small businesses that cannot attain such an extraordinary profit level and who have no interest in building a business only to sell it off.
Investments by everyone represent a new type of investment decision making that is based upon more than simple “return on investment” criteria. Investors will consider a wide variety of issues about how they will receive value, their relationship with the business as a customer and the role of the business in its community.
CFEX (Fort Collins) and Invest Local Colorado (Centennial) have recently launched their investment crowdfunding platforms and act as intermediaries under the Colorado Crowdfunding Act. (Disclosure: I am the majority owner of Invest Local Colorado and helped draft the Colorado Crowdfunding Act and associated Rules). Both companies expended great amounts of time and money to comply with the intent of the law to make raising capital affordable to Main Street businesses.
The forum will be an opportunity to:
• Learn about investment crowdfunding as an alternative approach to raising capital.
• Overcome 80 years of laws and regulations that have forced everyone to outsource their investment decisions to invest in Wall Street businesses.
• Suggest ways to make the Colorado Crowdfunding Act to work better.
Karl Dakin is principal with Dakin Capital Services LLC. Reach him at firstname.lastname@example.org.
Individuals interested in authoring a paper on investment crowdfunding are requested to submit an abstract for possible publication in a special edition of the Bentham Sciences Journal on Technology Transfer and Entrepreneurship. http://benthamscience.com/journal-files/flyers/tte-flyer.pdf
Karl Dakin will act as the editor of the edition. Mr. Dakin is a principal in the Dakin Capital Guild, the Local Money Marketplace and Invest Local Colorado. He has previously authored articles in the Journal and is a frequent speaker, educator and author on topics related to early stage capital formation with a focus on investment crowdfunding. Mr. Dakin may be reached by email at email@example.com.
The special edition will be limited to the general topic of investment crowdfunding and will focus on investments from average people (non-accredited investors) into Main Street businesses (average profit and growth performers).
Suggested topics include, but are not limited to:
For consideration for inclusion, an abstract of the article should be submitted to Mr. Dakin in the same format that it would be published in the Journal. It “should be its clear, concise and accurate summary, having no more than 250 words, and including the explicit sub-headings (as in-line or run-in headings in bold). Ideally, each abstract should include the following sub-headings, but these may vary according to requirements of the article.
To be considered for acceptance, abstracts must be submitted by October 31. Complete articles are due by December 31. The projected publication date of the special edition is March 2018.
7148 S. Andes Circle
Centennial, CO 80016
With the launch of Invest Local Colorado (http://www.investlocalcolorado.com) and other investment crowdfunding platforms targeting average people (non-accredited investors – not wealthy people), for the first time most people will have an opportunity to invest in a Main Street business. Such an investment will not follow the same criteria that may be used by angel investors or financial institutions. The needs of the average person are different. The benefit or value that the average person may obtain is different. The deal structures offered by Main Street businesses should be different. All of these factors constitute a new and different capital industry.
So, how does an average person evaluate an investment opportunity in a Main Street business?
A scorecard has been developed by the Dakin Capital Guild (http://www.dakincapitalguild.com) which is being published and distributed by Invest Local Colorado – Investing in Main Street Scorecard. A copy may be downloaded from the Invest Local Colorado website.
People familiar with common due diligence reviews of investing opportunities will find this scorecard very different. The scorecard has five categories:
This scoring system assumes that each investor’s decision to invest in a particular Main Street business will be unique. The factors are all subjective from the perspective of the person considering investment. There are no hard guidelines. There is no one size fits all approach.
This scoring system assumes that each investor’s decision will be based upon an existing or future relationship between the Main Street business and the investor. Neither the business nor the investor treats the other like an ATM machine. The act of investing is simply one level of engagement. It is anticipated the investor may realize many different types of value or benefit and that the Main Street business may receive many different types of support.
Everyone may choose to design and use their own scorecard. After giving some thought to one’s personal goals, value systems, buying preferences, social causes, charities or any other preferences, a person may come up with their own approach to picking candidates and making investment decisions.
To learn more about the Investing in Main Street Scorecard, Invest Local Colorado is offering a free copy of the Investing in Main Street Workbook, an in depth exploration of how and why someone may support a business in their community, to anyone who join its Colorado Capital Club (a $10 fee – limited to residents of the State of Colorado). Copies of the Workbook will be offered for sale to the public soon (priced at $10). Click on this link to learn about the Club.
A special forum will be held at the University of Colorado on October 25 to discuss the status of the Colorado Crowdfunding Act and investment crowdfunding within the State of Colorado. Two years ago the State of Colorado passed the Colorado Crowdfunding Act (CRS 11-51-308.5) to improve access to capital for small businesses. The act enables a Colorado organization to publicly raise up to $2 million from every resident of Colorado (both accredited and non-accredited investors).
Since the Act was passed, there have been no successful investment crowdfunding campaigns. The forum will examine the issues surrounding the implementation of the Act. Issues will include complexity, costs and market demand while soliciting proposals to realize the potential of this approach to raising money.
The Forum will be moderated by Monica Mendoza with the Denver Business Journal. Panelists will include Karl Dakin with the Dakin Capital Guild (also a principal in Invest Local Colorado), Jack Donenfeld with Boom Town Accelerator, Herrick Lidstone with the law firm of Burns, Figa and Will and Andrew Schwartz with the CU School of Law. The Forum will be held at the University of Colorado School of Business in the Laube Collaboration Commons on the 5th Floor of 1475 Lawrence Street, Denver, CO 80202. RSVP to Jillian.Sarmo@state.co.us.
Since announcement of the Forum, Invest Local Colorado has launched its investment crowdfunding platform (http://www.investlocalcolorado.com) with its first capital campaign listing by Paradox Ventures to start on October 13th. Invest Local Colorado is the second platform to open in Colorado. The first platform was CFEX (http://www.cfex.co).
Additional information about investment crowdfunding is available on the Invest Local Colorado website and on article posts by Karl Dakin on LinkedIn (http://www.linkedin.com/in/karldakin) and through briefings and workshops of Local Money Marketplace (http://www.localmoneymarketplace.com) on Investing in Main Street and Customer Crowdfunding.
Every adult in Colorado may now invest in Main Street businesses.
DENVER, CO—October 2, 2015 Two years after passage of the Colorado Crowdfunding Act, Invest Local Colorado has completed its investment crowdfunding platform that enables residents of the State of Colorado to financially support local businesses.
Access to capital remains a key challenge to starting and growing businesses, social enterprises and community projects in Colorado. Without capital there is less innovation, fewer new products and services and fewer jobs – all important factors in strong, sustained economic growth in local communities.
Investment crowdfunding platforms have sprung up by the hundreds across the United States after enactment of the federal JOBS Act and laws similar to Colorado in other states that authorize resident only offerings. However, these platforms have had little impact on access to capital because nearly all of them have focused on wealthy individuals as investors (that represent less than 3% of the population) and on fast growing ‘gazelle’ and ‘unicorn’ businesses as opportunities (that represent less than one in a thousand of all businesses).
“The average Main Street business grows too slow, makes too little profit and does want to be acquired to enable a cash exit for investors. Therefore, these Main Street businesses do not meet the criteria of angel investors or financial institutions and cannot get the money they need,” said Karl Dakin, President of Invest Local. “Likewise, the average person does not have money sitting around to invest. Representing a new and different type of investor, any investment will be made out of their grocery money. Investment offerings to the average person must take into account their normal spending on products and services that they commonly buy from Main Street businesses in their community.”
Invest Local Colorado will list proposals for the financial support of Colorado Main Street businesses. These proposals will focus on the customers of the businesses by pairing the sale of securities with rewards in the form of product or service discounts. Investors in Main Street businesses will not only have an opportunity to participate in the upside of the business, but they will gain value from the rewards that may exceed the amount of their investment.
“We have established the Colorado Capital Club as a membership organization to help all 4.3 million adult residents of the State of Colorado learn about investment crowdfunding. For a small annual fee, Invest Local Colorado will provide members with educational materials and programs about supporting Main Street businesses,” said Mr. Dakin. “We want to give tools to the average person so that they can financially support their favorite businesses.”
Invest Local Colorado is preparing for the listing of its first Main Street business scheduled for October 13, 2017.
Address:7148 S. Andes Circle, Centennial, CO 80016