Shaulablog

Congratulations on the recent approval of Farm Power to sell stock to non-accredited investors in Washington State! This is an exciting thing because lots of people I know are interested in the idea of how can local folks invest locally but there are very few options. I got to invest in the first round. SEC regulations designed to protect people from being defrauded mean that either you have to be wealthy enough that the SEC isn’t worried about you (an “accredited investor”: anyone with a net worth of 1 million or more) or there can’t be much money at stake (Reg D places a limit of 35 non-accredited investors in any company.) So “friends and family” investments usually fall under Reg D, and folks are usually raising less than 100K, or they’re using their own money by mortgaging their house, tapping their retirement, got an inheritance.

Farm Power used a state regulation called the Small Corporate Offering Registration (SCOR). Under SCOR you can only raise one million dollars per offering , so the going theory is that you might as well just deal with accredited investors, especially I think now that there are all these organized angel groups. Otherwise you have to do the hard work of selling your stock through advertisements and meetings. Though honestly, the angel-group route might not be that different in terms of effort-to-reward. There’s no broker distribution network for this kind of stock, it’s too small-potatoes, not enough room for middleman cuts. I think a regional broker who would focus on SCOR offerings would make a good meeting place for investors like me who are looking for something more interesting than a Shorebank Pacific CD (though that’s not a bad place to start) that is local and green.

NET: While SCOR has been around for a decade, very few offerings have been made. When I last looked into it the primary users were churches issuing construction bonds to sell to their members. So let’s hope Kevin and Daryl SCOR with this offering and demonstrate that with a real, meaningful and local project it can work. They were inspired by the MinWind projects in Minnesota where local investors have successfully invested in local wind turbines. They’re also Skagit county natives and wanted to stay focused on their community, though raising that much money inevitably means including the whole Puget Sound. Still we’re all one watershed, so that’s local in my book.

In general, in community & local finance I keep running up against the challenge that it’s tough to pay any intermediaries for due diligence or market-making on smaller investments and not eat up all the return in fees, which is a structural barrier to the local economy. The internet should be a good opportunity to do things at low cost, but that business model also generally assumes scale, which if we’re focused on local, we lose. The other tradeoff is that direct and local pulls against diversified, but I think that’s solvable too, we just have to keep it in the puzzle.