When Ed Robeau heard his local general store had started selling stock, he decided to move some of his investments from Wall Street to Main Street.
"It's a business just like any other business. The fact that it's local, you get to know the people better. You get to observe the operation," he said.
Robeau is not alone. A growing number of small businesses are holding direct public offerings to sell equity stakes to everyday investors in their communities.
"They're often offering investment opportunities where the minimum investment might be as low as $100 or $1,000," explained Jenny Kassan, CEO of Cutting Edge Capitol, a company that helps businesses hold public offerings and raise the capital they need in their own communities.
And Kassan says current lending conditions make seeking out local investors an attractive option for small businesses.
"Right now, it's really hard to get bank loans and then if you go to professional investors, often they'll ask for terms like they may want control of your company and they also often want a really high rate of return," she explained.
Through their direct public offering, the general store Robeau bought stock in raised nearly $700,000 and now boasts over 1,000 shareholders.
Financial advisor Laurie Itkin says she can understand the appeal of local investing, but that people need to keep in mind the risks. The rate of return is often low and you may not be able to liquidate your investment if you need quick cash. And if the company goes out of business, she says you may have no recourse and get no money back on your investment.
As for Robeau, he says he truly believes that he will get a monetary return on his investment someday. But in the meantime, he says he's gotten something even better.
"You're supporting your community. You're helping provide employment for people. It makes me feel very proud," he said.
Another popular way for new businesses to raise capital is "crowdfunding" on sites like Kickstarter and IndieGogo. But unlike with true local investing, in these cases the contributor is making a donation in exchange for some kind of perk like a T-shirt or download. Contributions do not mean you're an actual shareholder in the company.
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