Invest. Here. Now.

Move Your Assets! Rick Feldman and Scott Foster Presentation Summary (January 13, 2014)

14 Jan 2014 11:35 PM | Scott Reed

Nuts and Bolts of Local Investing

Rick Feldman, CEO at Universal Quality Machine LLC, 650 Beaulieu St, Holyoke, MA 01040, (413) 533-7001,

Scott Foster, Partner, Bulkley, Richardson and Gelinas, LLP, 1500 Main Street, Suite 2700, P.O. Box 15507, Springfield, MA 01115-5507,

Audio Recording:

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NOTES by Lynn Benander

Securities laws say you’re either an accredited investor or a hopeless rube. Accredited investors either have a high annual income or they have a lot of assets. Securities laws assume people with a lot of money can do their own research on the investments and loans offered to them. They assume people without a lot of money can’t know if they have enough information or not. The Securities and Exchange Commission (SEC) is worried about people making an investment without all the facts.  If you have unaccredited investors, there are more strict reporting requirements (and these external reports are often cost prohibitive for local small businesses).

We’re swimming upstream when we try to make it possible for unaccredited investors to invest in local small businesses.

Securities laws in the US include federal securities laws and state blue sky laws. The State laws cover equity investments and loans that happen within a state’s boundaries.  The federal laws address equity and loans that include two or more states. 

Securities are either registered or they are private placements. Private placements are friend and family investments from people you know. They are not advertised publically.

Securities laws are constructed for corporate America and Wall Street.  If you add up all the investments in the US it’s about 30 trillion.  1% goes to local small businesses.  99% goes to large corporations and international corporations. 50% of all employment and 50% of the total value of the economy resides in local small businesses.  If you want to invest in the part of the economy that has the most immediate impact in your life, you have to grapple with these securities laws. 

We’re looking at the laws and the opportunities to find ways to invest locally. Local investment often carries a high risk. Securities Laws have been created to control and reduce risk for small investors.

There has been a lot of talk about Crowd Funding. There are two kinds:

No Return Funding – Kickstarter and other tools like that are moving forward.

Crowd Investing – The SEC was supposed to set up regulations to make this more possible, but it looks like it will be cost prohibitive.  It looks like people will only be allowed to invest $2,000 per year up to a $10,000 max. It’s just too expensive and not that useful to spend a lot of time raising a large number of very small loans.

Cooperatives and Non-profits are exempt from registering under Securities Laws, so they do offer a useful way for people to make local investments.

If you are interested in investing or in securing local investments, start with this question:

What is your purpose for investing?  Are you investing out of social consciousness or to get a return to finance your retirement or your kids education?


In order to come up with local opportunities for investment, you have to hunt and peck.  It’s just not easy.

  • ·        If you want to invest locally in something that gives you a return, you might want to invest in Common Capital.  It gives loans to businesses in the local area.  It gives you a return on your investment.  It’s a great way to support local economy and local growth.  You’ll be doing good and getting something back. These loans are also exempt from securities laws because they’re a non-profit.

  • ·        You can join a cooperative. 

  • ·        You can invest in the Slow Growth sector – agriculture, food, small businesses and co-ops – where you’ll find great local small businesses to support and invest in.

  • ·        Investment Clubs are a great way to pool money, where you take small bits of money and invest as an entity.  You have to find people you agree with who have the same outcome goals. Once you do, you’re able to get around some of the barriers.  Local Investment Opportunity Networks give you opportunities to match up with small businesses in your area who are looking for neighbors to invest in.  These fit within the laws of Massachusetts and have intra-state exemptions.  Start a LION or work with one that already exists.

  • ·        The Eastern Bank of Mass has created CD’s that bank customers can selectively purchase. Those CD’s are dedicated to invest in local businesses in the Boston area.  You can ask your local banks to set up a CD program like that.  Banks are licensed to do this work.  They have banking regulations and don’t have to deal with securities laws for these offerings.

  • ·        Self Directed IRAs require a Trustee who makes your investment decisions.  There is a lot of paperwork required, mostly to protect the Trustee.  It will take you 30-45 days to set up.  The Trustee isn’t obligated to do the due diligence for you.  It’s still up to you.

Who can provide financial planning support for local investments?

Financial planners can charge you a fee or they collect a fee from whoever you invest in.  Unless an advisor has a lot of integrity, they sell investments that pay them. To find someone with integrity, you have to do a lot of research.  If you work as a group, you can get the advice from advisors on a volunteer basis.

Questions to ask when you’re deciding whether to make a loan or investment in a local business

It’s challenging to research an investment opportunity.  It takes months.  There are many things that need to be researched.  It makes sense for you to do this research as a group if you can.

  • 1.     What do you think your company is worth?  Do you have a professional valuation? 
  • 2.     Do you have audited financials? Audited financials don’t guarantee there isn’t fraud.  It just means if there is fraud, it wasn’t obvious enough for an auditor to catch in an audit.
  • 3.     Do you have interns? How much do you pay them? If you’re a for-profit business, you can’t have people helping you out that you’re not paying.  You can have college credits that are getting credit for working for you.
  • 4.     Are you paid up with all of your payroll and payroll taxes? If not, the business has big penalties.
  • 5.     Have you had an environmental study?  If there are any environmental clean up problems, you can lose everything in a blink of an eye.  If they are involved in a business that could have environmental problems, and they say no, walk away.
  • 6.     How strong is your management team?  What happens if you can’t work for any reason?  Do you have a succession plan?
  • 7.     Who are your employees?  Can we depend on them continuing? Can we recruit new people easily for positions that open up?

It’s important to ask the questions above first before you dig into the terms of the loan or equity offering.

  • 1.     Are you offering a loan or equity investment?
  • 2.     If it’s a loan,
  • a.     What other debt the business already has.  If there is bank debt, the bank debt comes first. At any time the bank can make the business owner stop paying on other debt. 
  • b.     Are you going to personally guarantee the debt if the company can’t pay it?  If yes, “What is your personal financial statement?” and you need to make sure the owner has assets that can cover your loan.
  • c.      What will you pay me and when.  In the amortization mode you get a lot of interest up front and a fixed payment.  You can also get a fixed principal payment plus interest.
  • 3.     If it’s an equity investment,
  • a.     What are the terms?
  • b.     What’s my exit strategy?  Can I force an exit?
  • c.      Do I get a seat on the board of directors?

Facilitator:  Scott Reed, Invest Here Now (,

Notes: Lynn Benander

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