I was first introduced to the concept of the “bell curve” in college. A bell curve is described as a graph that depicts a normal distribution of a group as a bell-shaped line. The highest point on the curve, or the top of the bell, represents the most probable or common position in the group. If you are a member of a group, it is most likely that you are near the top of the curve.
The capital industry appears to work in reverse. Businesses seeking capital are more likely to be successful at both ends of the risk spectrum: low-risk and high-risk. The problem of access to capital seems to fall on all the businesses in the middle of the curve.
Studies on the challenge of “access to capital” usually focus where it is easy to collect data. This is data compiled by financial institutions and large organizations. The studies seldom track small-dollar, early-stage capital that is provided by individuals, investment clubs and other capital sources within our communities.
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There are many sources and types of capital that are simply “off the radar.” A new term for money that you can find in your backyard is “community capital.” Other names for this type of capital may be “alternative funding,” “integrated capital” and “local capital.” These names may vary with the source of the capital, the price of the money, the type of capital, the industry, the application or the level of return on investment. Trying to discuss this topic is like traveling in a foreign country where a translator is needed.
As banking regulations strangle common lending and angel groups focus on “high growth/high profitability,” there is a movement to make money available to the middle. Groups are forming to fill the capital gap.
These groups, or “capital communities” act in concert to support capitalization of one or more businesses, social enterprises or community projects. A capital community acts like a volunteer fire brigade that comes together as needed, when needed, to support the capital campaign of an organization within their community. A capital community may be framed as a geographical area, an industry, a social cause or other topic in which the members of the capital community have common interests.
When these groups begin, they may be no more than a series of coffee meetings to explore options. With more thought and time, groups may take on more structure, leading to formation of a new legal entity. Within this structure, the group may invest in selected businesses as an investment club, an impact fund or an investment fund. There are many options on how and when to put money to work.
If you have started a “capital community,” I would like to know about it. We need more examples. We need to share what we have learned.
A statewide conference on community capital and the creation of capital communities will be held on Feb. 1, 2017, at the University of Colorado Denver South Campus: ComCap Colorado, www.comcap.us/colorado. ComCap Colorado is a collaboration of Colorado Community Capital PBC (formerly Colorado Capital Congress), www.coloradocapitalcommunity.com, the Jake Jabs Center for Entrepreneurship at the University of Colorado and Hatch Innovation http://hatchthefuture.org/.
This conference represents a grass-roots movement that is attempting to fix a capital industry that is bogged down and in chaos. It is working to overcome decades of culture and tradition that have centralized decision-making with people who simply do not care about the businesses in the middle — the average business — that are the heart and soul of our local communities.
All businesses and all innovation, entrepreneur, economic-development, social cause or community organizations should consider expanding its activities to become a capital community. Opportunities also exist for entrepreneurs and community leaders to launch a capital community as a new business or social venture.
The problem of access to capital will not be solved without taking action. Talking, and specifically complaining, won’t make a difference.
Karl Dakin is a principal with Colorado Community Capital PBC. He can be reached at email@example.com.