Investing in Community Sourced Capital

“Be the change you want to see in the world...” -Gandhi

This oft-repeated saying is one of the all-time greatest inspirational slogans. It's constantly being regurgitated on Facebook walls, bumper stickers, and sappy motivational materials. It's concise, and it's a call to action without a specific goal, so it's broadly applicable. To top it off, it's apocryphally attributed to a revered activist and martyr.

The truth is, it's not actually a quote. At best, it's paraphrasing something Gandhi said in an interview. But it's still strong, so there's no harm in appropriating it and changing it to fit your specific needs.

That's what Community Sourced Capital, SPC has done.

Their motto?

“Fund the world you want to live in.”

Like the famous inspirational Gandhi quote, it's a call to action; to invest your money in the businesses you want, and into the causes in which you believe.

Community Sourced Capital offers a way for people to do this. It invites individuals to invest small amounts of money into businesses in their local communities. They can look through businesses that have set up campaigns to obtain funds, and then contribute money to the businesses they choose.

How it's different

This is where that inspirational motto does a good job explaining the purpose of CSC.

Investors buy $50 “squares” that become parts of a bigger loan to local businesses. These “squares” are paid back in distributions taken from the business's revenue. The investor earns no interest.

The only thing the investor gains is the satisfaction that he helped a local business, and of course, the benefits the business itself brings to the community. In other words, “funding the world” the investor wants to live in.

Essentially, a “square” is a $50 bond that yields no interest.

Let's say your local coffee shop wants to buy a roaster so it can start making its own brews. How is CSC any different from, say, walking up to the owner of the shop and just cutting him a check for $50

Here's how CSC puts it:

“Once you’ve purchased a square, you join a growing community of community funders called Squareholders who support small businesses with capital. CSC keeps you up-to-date about the loan you funded and the business you are financing with once-a-month email updates. You can cash out repayments at any time or recycle them right back into another loan on our website.”

The benefit is that lots of investors are pooled together, and the architecture of the site is such that you're not responsible for getting the money back yourself.

As businesses repay their loans, CSC makes funds available to investors on a pro-rata basis (sort of like a dividend). Because it's done proportionally, repayment can change at every monthly disbursement. If 10% of the total loan principal has been repaid, then 10% of each “square” is made available to the investor.

“We send monthly reports to Squareholders so they know how much has been repaid. At the end of the day, this revenue-based financing is healthy for small businesses with seasonal revenue or projected growth,” the company's documentation states.

For Companies seeking Funds

For a company to set up a profile and start a funding campaign, CSC has pretty loose demands. It prefers companies with one year of proven revenue, or with some qualified background in a similar enterprise. A financial background check is done to make sure there aren't outstanding debts or other commitments, and that's it.

Campaign pages include information about the groups seeking funds, the amount of money that has already been committed, and the number of “squareholders” involved. If there are other financing partners, that information is also disclosed on the CSC campaign pages.

As you'd expect, most of the projects seeking funds are straightforward and easy for anyone to understand. There are restaurants, hotels, craft businesses, salons, farms, bakeries, outdoor adventure companies, dog walkers, animal control organizations, clean energy groups, and more. They're each seeking funds for some different type of growth. Some are building new businesses, some are expanding their current ones.

This aspect of the site is much like other crowdfunding sites, but it has a decidedly “local” flavor to it.

Also, CSC has been a certified B corp (“Benefit Corporation”) for a little more than a year. Those companies, which we talked about a few months ago. adhere to a higher standard than simply making money. Clearly, based upon the lending structure of the site, money is far from the primary concern of CSC.

What's more, it's encouraging its community of small businesses to take the B Corp quick impact assessment themselves. It's kind of an evangelistic organization in that respect, spreading the “mission first” gospel of the B corp to companies seeking money.

And that's a message we can get behind.