Forget globalization. Here's how to profit from 'localization.'

How ethical investors can get involved in this trend.

from the August 6, 2007 edition

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An accredited investor means having how much money?

Katovich: A two hundred thousand-dollar income; $1 million dollars in net worth. It could be a $300,000 [net income] with a spouse.

You're working to change those rules.

Katovich: Yes, we have been working for a couple of years on attempts to find an approach that would allow small investors, nonaccredited investors, to be able to invest in local issues much like they invest in publicly traded issues today.

Cherry: We also have been looking at ways to achieve local investment. And we've really been thinking about it from the perspective of aggregating our venture fund investments with other investments across the country and creating an investment vehicle sufficiently large to be traded on a national exchange. So people in fact could invest just like they do today, but it would be ultimately into companies that are investment vehicles for community-based venture funds.

Like a mutual fund?

Cherry: It could be. [But] there are many issues associated with any of these vehicles…. Part of it is you need to have a sufficient number of shares trading…. The other thing I would say is that equity investments are complicated investments. And when you have small local entrepreneurs, they're often not so sure that they actually want an equity investor in bed with them. It often means sharing control.

Why does investing locally mean lower returns?

Katovich: What many [small companies] that we've talked to would prefer, if there were such a vehicle, is an easier approach to be able to go public in a way that provides safe, secure opportunity for local investors to invest in their company. [But] there is less liquidity when that occurs. And as a result of that, the expectations of the investor have to be quite different. Our thinking around this is that this is not an answer for retail private investors for all of their funds. But it could be a very interesting answer for a small portion of their funds.

How soon might average investors see such options?

Cherry: I think we're a distance [away] for a couple of reasons. Investing in small business is a pretty risky undertaking…. It's important for people not to underestimate the risk of that. In fact, the reason that loan funds and community venture funds got started in the first place was because individuals were out putting their money into companies and promptly losing it…. I also would say: Ethical investing is not necessarily local investing…. I'm reminded of a company that I visited several years ago in the southeast corner of our state that was running such a sweat shop that they couldn't get people to come work there because the folks down there thought McDonald's was a better deal -- gave them more money, better benefits, and better working conditions. So I think the critical issue with respect to ethical investing is to invest in companies that produce a good quality good or service, that have good employment policies and so forth, and are generally ethically run – whether global or local.

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