LION stands for “Local Investment Opportunities Network.” The acronym and concept come from a group of people in Port Townsend, WA who decided to get together and start investing their own money directly in local businesses. They created a forum for connecting investors with local entrepreneurs and business owners to provide hyper-local financing for new and growing businesses.
LION Port Townsend’s experience has shown that it is possible for community members to provide fair-rate loans to local businesses with very little risk: To date, there has been only 1 non-performing loan out of more than 50 made. There are two likely explanations for this success rate. First, LION members are selective and careful about businesses they invest in. Members invest only in businesses they understand and that have produced sound financial information showing that success (and repayment) is extremely likely. Second, the close-knit relationship between investor and business owner is a strong incentive against “walking away” from challenging situations. Business owners are more likely to continue through the rough spots, and investors are more likely to offer deferrals, reduced rates, or perhaps even more capital if required for the success of the business.
The LION model has been replicated in other communities. There are active groups in Madison, WI, Bellingham, WA, and Portland, ME.
Why invest locally
An important belief of LION members is that investing locally has many benefits over more traditional investment vehicles, like stocks, bonds and funds, located in far off places and managed by people we don’t know. These benefits include:
- Growing the local economy: Research has shown that local businesses employ more local people, pay more local taxes, and spend more money in the local community than larger businesses that are have their headquarters far away. This is often referred to as the “Dollar Multiplier Effect:” that a dollar spent at a local business generates 3 times more local economic activity than a dollar spent at corporate-owned equivalent.
- Supporting local businesses that give our neighborhoods their character: Local investors place value on the unique qualities of the places they live, and want to support businesses that give those places their character. You can get coffee at a Starbucks anywhere, but can’t visit your local coffee shop anywhere!
- Building local relationships: Local investing brings investors and business owners together face-to-face. You truly know where you money is coming from or going, unlike a traditional stock or bank investment where you will likely never even know the name of a single employee of a company you might invest in. As an investor, you have the opportunity to visit the business you’ve invested in, and watch in flourish. As a business owner, you can feel comfortable knowing that your interest payments are going to someone in your community, rather than to a faceless corporation a thousand miles away.
- Diversification of an investment portfolio: Investors can look at a local investment as another asset class to invest in, to complement a diverse investment portfolio. Depending on an individual investor’s comfort level, philosophy, and resources, local investments could make up 0.1% to 100% of a portfolio!
- Having an information edge: ”Knowledge is currency,” says Ben Marks, President and chief investment adviser at Marks Wealth Management in Minnetonka, MN. Investing in a local business gives an investor an information advantage: the investor can visit the investment (or potential investment) every day, and can see first-hand how the business is doing. The local investor has an intimate understanding of the environment the business operates in and what kinds of businesses are likely to flourish in their neighborhood.
- Feeling good about investing: Many investors are trying to align their investment strategies with their personal values. Often, making investments in polluting oil companies or sweat-shop supporting apparel companies might be lucrative but does not fit our view of how we want the world to be. With local investments, investors can feel confident that their money is going to support businesses they truly believe in.
- Slow money: Do you believe in the concepts of Slow Money and feel strongly about the value of investing in your community?
Kinds of investments
LION:PDX only accepts investment proposals from established Portland-based businesses. This is because we are interested in fairly “boring,” low-risk investments. Given that LION:PDX members are not required to be accredited, it is assumed that some of them may not be very sophisticated or experienced investors. Thus we wish to only focus on opportunities where it is easy to understand the relative risk and ability of a business to pay back the investment. Start-up businesses, which have no record of successful operations, are inherently risky and potentially complex investments.
Following the experience of other LION groups, we expect most investments made by LION:PDX members to be debt (loans) investments. Debt agreements are relatively simple to set up and often may not even require legal council (although LION:PDX always recommends that inexperienced investors consult with a lawyer before completing any investment deal). Equity investments (partial ownership stake of a business) may be possible, depending on the wishes of the business and the appetite of the investor. All the details of any investment are made outside of LION:PDX, and thus reflect the desires of the individuals involved.
Businesses must submit an application to LION:PDX. The application is reviewed to ensure it is complete. No determination is made about the quality of the investment. The only requirements for presenting are that the business have a record of at least 6 months of successful operations, and be located within the greater Portland area.