In a World of Mr. Potters, Be a George Bailey
Investment Crowdfunding Allows Every One of Us to Be a Community Builder
It’s been a few years since I watched It’s a Wonderful Life with Jimmy Stewart. The classic holiday movie played so often on television when I was growing up that I came to feel I had the script memorized. I didn’t.
This year, a kind bit of cajoling from Gail got me to watch it again with her. I saw the bank run scene in the YouTube video above through a new lens. As an avid crowdfunding investor, I recognized what George Bailey was doing. It’s what I’m doing. It’s what all community and impact-focused crowdfunding investors are doing.
In the clip, George Bailey, Jimmy Stewart’s character, explains how his little Bailey Brothers’ Building and Loan business works when a nervous depositor named Charlie demands a withdrawal of $242, and there is literally no more cash in the vault.
You're thinking of this place all wrong. As if I had the money back in a safe. The money's not here. Well, your money's in Joe's house. That's right next to yours. And in the Kennedy house. And Mrs. Macklin's house and a hundred others. You're lending them the money to build, and then they're going to pay it back to you as best they can.
The movie portrays young George Bailey explaining convincingly that the family’s building and loan business was an essential part of the community, lending money to families who couldn’t qualify for loans from banks to build homes. In the film, a thriving subdivision is built one home at a time with loans from Bailey Brothers.
This pivotal scene is set in the 1930s when bank runs were common. They are rare these days, but we saw a few earlier this year. Silicon Valley Bank and then shortly after, Signature Bank and First Republic experienced digital bank runs of billions of dollars and were forced to close. In the 1930s, 9,000 banks failed, typically after experiencing a run.
The context is important. As the economy cratered—in part because the central bank tightened the money supply at just the moment it now understands it should have loosened it—investments outside of banks also failed.
The result was a host of laws regulating securities markets, most notably the Securities Act of 1933 and the Securities and Exchange Act of 1934. These laws—with hosts of amendments over the years—still govern the way businesses sell securities to raise money. Any time a business sells a note (except to one bank or a small group of banks) or sells equity, the issuance of those securities is subject to the regulation of the Securities and Exchange Commission (SEC).
One of the artifacts of those laws was the prohibition (with narrow exceptions) of the sale of securities to people who were not deemed “accredited investors.” Until this year, when a narrow exception for licensed securities brokers was implemented, accreditation has always been defined exclusively based on wealth, as if only rich people can possibly understand business.
So all of us who are adults grew up in a world where ordinary folks were generally not allowed to invest in startups and other private businesses. Venture funds and wealthy angel investors could do so, making money for themselves and their rich clients, but ordinary folks were excluded.
In 2012, that changed. With broad bipartisan support, Congress passed, and President Obama signed into law the JOBS Act, more formally known as the Jumpstart Our Businesses Act. The point was to allow small business issuers to invite their friends and family members—and customers and potential customers—and anyone else who wanted to invest in their businesses. Policymakers understood that small businesses use capital to hire people.
It took the SEC four years to implement the rules, but ever since 2016, every adult in the United States can legally invest via crowdfunding on regulated portals and with broker-dealers approved to conduct regulation crowdfunding offerings. There are about 100 companies in the market today.
So, today, you can invest in small businesses and startups across the country—and often, right in your own community.
You can be George Bailey, not investing in people’s homes, but in their small businesses. You can back all sorts of little businesses, from daycare businesses to breweries and distilleries. You get to pick what you want to support in your community—or someone else’s.
You can invest in companies that are working to improve global health, fighting climate change or striving to improve social justice and reducing poverty. You can choose to back diverse founders, including women who face genuinely unbelievable odds in the venture capital markets, netting just about 2 percent of funds. (How can that be in 2023?!?)
You can invest in the world you want to create!
And let’s be clear about something, this isn’t charity. We’re not talking about making donations or pre-paying for widgets, t-shirts or downloads. We’re talking about investments that pay returns that are comparable to stock market returns.
The stock market is risky. Ask anyone who was fully invested in the stock market in 2007 and 2009 how it felt to be down about 60 percent from the peak! You can lose a lot of money in the market, but the average long-term return is an unremarkable 10 percent. That’s if you perfectly track the market. Most of us don’t—and very few people consistently beat the market. Those who do often prove to be charlatans and thieves—think Bernie Madoff.
You can do just as well—with comparable risk and infinitely higher social and community impact—with investment crowdfunding. Lending money to small businesses at 9 to 12 percent is common in the crowdfunding space—easily matching stock market returns.
When you focus on impact—including on your community—I call it impact crowdfunding.
When you become an impact crowdfunder, you become George Bailey. In a world full of Mr. Potters, please be a George Bailey.
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