Community Sourced Capital
THE REGENERATIVE QUALITIES OF COMMUNITY SOURCED CAPITAL
Robust Circulatory Flow / Views Wealth Holistically / Honors Community & Place
Robust Circulatory Flow / Views Wealth Holistically / Honors Community & Place
Community Sourced Capital Stakeholders: Evergreen Escapes received a loan for their business of naturalist-led, small group experiences in the Pacific Northwest; Willapa Hills Cheese raised $14,100 to buy cheese production equipment for the dairy farm; three Community Sourced Capital Square Holders.
Can you create a financial system that gives everyone the power to fund the businesses they love in their own communities?
Community Sourced Capital is testing out a financing model that seems to be proving it is possible,
Here Casey Dilloway and Rachel Maxwell, co-founders of Community Sourced Capital, tell their story of how they came up with a community finance system that they hope helps drive financial capital flows toward the things people value most.
Casey: We started working on Community Sourced Capital as students at Bainbridge Graduate Institute two years ago. I was sitting in an economics class when Rachel brought a challenge forward by asking us,
That turned into a proposal to work on the business model that is now Community Sourced Capital. We worked on the plan for six months—it started out as an academic exercise—and then the summer after we got our MBAs, the summer of 2012, we took the plunge and formed Community Sourced Capital as a Washington State Social Purpose Corporation in August of 2012.
We developed a zero interest lending mechanism that brings a community together to finance a business they know and love. We do it with something we call a “Square.” A Square represents a $50 unit of a larger loan. A business sells Squares through our platform to their community; we aggregate the Squares into a zero interest loan for the business. When someone buys a Square, they become a Squareholder for that business.
A business repays the loan based on a predetermined percentage of their revenues so repayments flex with how things are going. Businesses pay us flat fees for service: An initial fee to run a campaign on the platform and then monthly fees to manage communications and repayments during the repayment period.
In January 2013 we launched our very first loan with a recycled sporting goods store 20 miles from Seattle. Now, a little over a year later, we have deployed $250,000 dollars in loans to 15 businesses and have almost 2000 Squareholders.
Rachel: When we started this many people told us no one would ever buy a square; they need an incentive or a perk or a something. We said, “Lets’ try it out without any perks.” What we are trying to do is get people to transform from a consumer role or even an investor role to a new relationship with their economic community.
Casey: We actually seem to be getting the best support by not offering financial incentives. Offering a financial incentive is not necessarily the key to making community finance work. What we are finding is that offering people a strong reciprocal relationship with a business gives them an emotional connection to their community.
Rachel: We wanted to create something accessible to everyone, not just accredited investors—that was a huge factor in the design of our lending mechanism.
We recognize that when we are working on and in a system we have to pay attention to all the attributes of the system. When we formed the team in grad school, I had just read David Korten’s book Agenda for a New Economy and the central challenge I posed the team was, “How do we drive capital flows to real value?” What we were trying to do is create a financial system that is place-based and equitable and creates a lot of personal agency.
The community has to support the entrepreneur’s drive to create and the entrepreneur is driven by that support; it is a virtuous cycle.
Casey: When you experience becoming a Squareholder, we slow you down and ask a reflective question: “Why are you doing this?” We want to give people a reason to write about their connection with money in their community. They say things like, “I understand this entrepreneur is important to my community and I want my money to work for businesses like this.”
Rachel: We have heard reflections like, “I never felt so connected to a business,” and “I feel I am a part of something that is important and I care about this in a way that I didn’t care before.”
Casey: We see people moving from a mechanical focus on money to a regenerative focus, a deeper understanding of what their money can do.
Rachel: A huge part of our goal is to let people understand the power they have in their money—even when it’s a small amount.
Casey: We still have a long way to go in terms of how we want Community Sourced Capital to grow and how many people we can get involved with. We will see whether it could become something that becomes a mainstream product that people use all around the country.
Rachel: If we can change the world through a new kind of financial mechanism, think how great it would be! We are asking people to engage with that possibility— with what could be.
Casey: We know this business model will require significant growth to be viable, which means we need to get to a larger scale.
Rachel: We intend to create a national, place-based platform. We will have nodes in different regions and they will be working with local economic development organizations and credit unions interested in promoting or having available our product to the people in their community. We will create local ambassadors, people knowledgeable about the platform that can help local businesses tap into it.
Casey: Part of our challenge is we don’t know what it will look like to work in a community totally unlike Seattle with a very different demographic.
Rachel: A couple of our cofounders are testing the markets outside the Seattle area. One is in Roanoke, Virginia, a small city in the southeast with a population and culture quite different from Seattle. In initial conversations, people there are excited about CSC.
Another interesting question we’re asking is will this work in a community that does not have a lot of financial wealth? We are operating now in middle class and upper middle class neighborhoods. In underserved neighborhoods, will we have to tweak the mechanism? Our $50 minimum Square purchase could be harder for lower income neighborhoods. Business owners in those neighborhoods won’t want to put too much of their community’s money at risk.
So we are talking about this with business owners, local CDFIs and economic development experts and have been sorting it out. We’ve also been working with a credit union to create a matching situation where they would fund half of a Square. And now we’re working with a local office of economic development where they might help businesses by absorbing some of the platform fees.
We have thought a lot about creating loan loss reserves for these underserved communities, but a big part of the regenerative financial system we see is involved with mutual responsibilities, and the loan loss reserve implies that we have to be rescued by the wealthy. In our ideal world we would figure out a mechanism that would function by helping to gather the wealth inside the community in order to drive the success of the businesses there.
Casey: We also know the average person in the country needs to grow their financial wealth and we can’t do that with this model. We know our product is not going to help people do that.
Rachel: But another way we are looking at this is to ask,
We cannot keep growing people’s money.
What we do at Community Sourced Capital is talk about and think about these issues. None of us pretends to have the answer.
We're hoping the Community Sourced Capital platform will serve communities all over the country. In order to set up CSC in your community, it's important to seek legal advice to familiarize yourself with the lending regulations and requirements in your state. We're always happy to talk to you about how you might approach this task.
After making sure that the legal requirements are met, the best approach for launching this kind of community capital formation where you live is to find two or three businesses that have a strong relationship with the community and are in need of capital for an improvement project. Starting with food businesses can be a natural way to introduce CSC to a community. We all feel pretty strongly about food!
By launching with more than one campaign initially, the word gets out strongly and more people participate. We will work with you to build a special page/portal for your community like this one, for Tacoma, Washington.
We look forward to hearing about what you think CSC might be able to help make happen where you are!
AN UPDATE FROM RACHEL MAXWELL
We put the Community-Sourced Capital platform on hold last February to take some time to discern next steps. We had run out of funding and could not responsibly take on more campaigns. Our revenues only pay for one part-timer to run the back end. We decided that person would be me. So Casey and the rest of the team have moved on to new ventures.
After taking the time to think and consider what to do, I decided it would be worth bringing CSC back to life as a non-profit. And, I am happy to say that after a 10-month hiatus, we have resumed taking applications for campaigns and will be relaunching shortly. I see our work—putting connection, trust, and love into finance—more important than ever. Enabling communities to finance the businesses they value most with our straightforward, transparent lending system brings opportunity to many community businesses that wouldn't otherwise have it.
Immediately following the election I was contacted by a Squareholder who was interested in whether or not we might be able to help finance community solar projects—she was sure the programs for such things would be gone soon!