InvestmentSmall BusinessTax Planning

The new world of social investing

The financial world has changed dramatically over the past decade in ways we could not have imagined before the financial crisis. My investment banker training was suddenly not only useless; it was exposed as a liability. I remember trying to relate the shock I felt in October 2008 to my then teenage children. I said that everything that I thought I knew about finance – despite multiple academic degrees in finance and decades of experience in the field – was now just wrong and useless. Wall Street titans and professional firm heroes of my young adulthood were exposed as incompetent or worse. Some were clearly the financial rapists of middle America. The stories of fraud and greed shocked us and created nightmares for those of us paying close attention. For me, the forced change felt like the death of a friend. A close and comfortable relationship was gone. Most of us in the small business world lost access to traditional investment sources of capital for years to come.

Meanwhile, in what seems now like a parallel universe, the world of social media was exploding. I don’t need to expand on the ways this changed our lives. The overlap of the two fields – finance and social media – that began as a trickle has now grown into the most powerful firehouse in the world. I feel confident in saying that whatever positive developments are ahead for us in our world, they will come from the intersection of finance and social media.

But where are we in the realm of social investing now? The rest of this blog post is a short random listing of some of the developments affecting small business finance today:

  • The ‘crowd’ turns out to be the most reliable predictor of a business’ future success with a better track record than any analyst.
  • A business’ ability to attract and manage its tribe online is the greatest skill required to build a small business today.
  • With dozens of active crowdfunding platforms, every business that wants to put in the work can have access to some type of social funding.
  • Investors can start with as little as $25 and build a diverse portfolio from there.
  • Community investment pools are quite literally changing the world with high impact projects in all parts of the planet.
  • Cryptocurrencies changed our very concept of money and what money can do for us.
  • The evolution of nonprofit business management brings new combinations and collaborations of every imaginable type.
  • Changing tax laws make it possible for a wider range of investors to seek high tax-free profits hen they invest in small businesses.
  • Use of pass-through entities will fade in favor of c corporation structure even for closely held businesses.
  • New forms of businesses like L3C are on the rise again, drawing investor support.
  • Socially responsible investment funds are the hot topic in the investment world and some of this is benefitting smaller firms.
  • More important than anything else: the attitude has changed. Leaders today are no longer waiting for the blessing of government and powerful financial firms to move ahead with bold plans to rebuild our financial infrastructure.

None of this was even imagined a decade ago. It’s exciting to think about where social investing will go from here.

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