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Local Stock Exchanges Offer Hope to Small Businesses Looking to Raise Capital

Scott Cooney | Wednesday June 15th, 2011 | 0 Comments

The almighty dollar. Acquiring it is the most commonly cited challenge for entrepreneurs: how to raise sufficient capital to grow, expand, hire, or simply survive.

The growing fields of impact investing and socially responsible investing also make it clear that the investment environment is ripe for locally-sourced capital infusions in mission-driven businesses….if only the dollars were accessible by those companies. The main challenge is not interest…it’s mostly legal.

Some advocates of impact investing and others who may fall under the umbrella of the “loca-vestor” movement are looking at local stock exchanges, a concept that almost went extinct as the Nasdaq, NYSE and other major exchanges bought up smaller ones and modernized. It appears they may be poised to make a recovery.

Local stock exchanges offer a number of advantages:

  1. fees associated with public offerings through NYSE or Nasdaq can be too high for the small to mid-sized companies that need equity infusions the most…according to the Wall Street Journal, a smaller company would have to pay about $1M to raise $15M through a public offering. Given that the company might have to buy those shares back, that price is simply too steep.
  2. people get to invest right in their own community, helping to keep dollars local and giving locally owned companies the capital needed to hire and retain a quality workforce, thus making them attractive as economic development engines for municipalities
  3. they can leverage some “wiggle room” in SEC regulations that allow companies to sell stock through these smaller exchanges to citizens of the same state (this, indeed, was how Ben & Jerry were able to raise capital in 1984…and how different would the world be now if they hadn’t been able to?)

Toronto, Lancaster (PA) and Hawaii are exploring the possibilities, and local exchanges are being set up in Europe, Africa and Asia as well.

Scott Cooney is the author of Build a Green Small Business (McGraw-Hill), and teaches sustainable business web classes through GreenBusinessOwner.com, including an upcoming class in raising capital.

Follow Scott on Twitter.


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