Campaigns, Kickstarter, & Collection Plates: We Need to Start Seeing Ourselves as Investors
Most of us think of investing as the percentage of our checks we automatically allocate to our 401K. But Dr. Rodney Sampson, author of Kingonomics: Twelve Innovative Currencies for Transforming Your Business and Life Inspired by Dr. Martin Luther King, Jr. points out the many ways we invest without even realizing it.
“We do it every Sunday at church, where a crowd of people give a certain amount of money to fund that cause, that mission or that outreach,” Dr. Sampson clarifies. “That’s known as donation-based crowdfunding. That’s what Kickstarter is. That’s what Indiegogo is.”
And the Jumpstart Our Business Start-Ups Act better known as the JOBS Act, which Obama and Congress passed last year, includes a specific provision for crowdfunding.
“What the JOBS Act does,” Dr. Sampson illuminates, “is allow individuals, or an individual or a company to raise up to a million dollars per year through non-accredited investors.”
This provision is particularly significant to African Americans trying to generate capital for business ventures, Dr. Sampson believes. He will be hosting a dedicated “Kingonomics” boot camp on crowdfunding on August 23rd in Washington DC where the reality show Shark Tank will be on hand to recruit minority and women-owned businesses.
“An accredited investor is any individual that has a personal net worth, not including their personal property or residence, that’s $1 million plus. Or they generate $200,000 as an individual, or $300,000 as a couple for at least two years,” Dr. Sampson explains. “Everybody else is considered to be a non-accredited investor.”
He continues, “Let’s say you are in an under-served community or a minority community, you don’t know any accredited investors.”
Add this to the fact that minority-owned businesses typically receive limited access to financing, and when they do get loans, the borrowing costs are usually higher than their white counterparts; and crowdfunding offers a unique opportunity to create black wealth.
Conversely, a recent Forbes.com review of the crowdfunding provision thinks “the crowdfunding exemption will do little to help small start-ups raise capital.”
Securities lawyer Brian Korn cites the caps on how much a person can raise or invest as well as the requirement that entrepreneurs file disclosure documents and annual reports among the barriers to entry for some.
In addition to the donation-based funding that takes place when you drop a check in the collection plate or back a friend’s Kickstarter project, there are other types of crowdfunding including equity which enables funders to receive equity in the companies they fund, and debt-based crowdfunding that rewards funders with a financial return or future interest.
Dr. Sampson thinks debt-based funding, in particular has immense potential to strengthen vulnerable communities.
“[If] you and a group of people come together, crowdfund and buy an old building and turn it into a commercial real estate enterprise or something… you think there’s going to be any trash around that building? People going to be hanging on the side corner? No, because if those micro-investors drive by the location, they’re going to say ‘Hey, I own that building. What are you doing over here?’”
But first, Dr. Sampson says, we need to start thinking of ourselves as investors.
“I’ll go into an audience or conference or even a church and I’ll say how many of you would like to own a business? Most people in that audience raise their hand. I say ‘How any people are investors?’ majority of people don’t raise their hands. I say ‘This is an upside-down eco-system because there’s not enough money in this community for the finances to fund all of these businesses.”
Dr. Sampson believes, “We have to see ourselves as investors and learn what it means to take money from our savings, money from our earnings, from our wealth, what have you, and invest toward, you know, companies and start-ups that we’re interested in helping… not just to invest and get a return, but also advocate for as well.”
Of course, investing comes with the responsibility to educate yourself.
“Any investor should want to know: Is the company incorporated? Does it have an executive summary? Does it have a business plan? Who’s on the management team? What’s their background like? Have they gone through background checks? What’s the business model? What’s their experience of executing the business model? Does the company have an operating business plan? What are the appropriate investment documents that I have to review?”
But perhaps even more important is checking out what other investors have to say about specific projects or ventures seeking capital. “You have 10,000 people looking at a business plan, somebody’s going to find the holes and people are going to speak out.”