Private investors matched with businesses that need capital
By Ann McCreary
A group of investors and Methow Valley business owners got together at TwispWorks last year to see if they could make some deals that would help the businesses grow. As a result, more than $800,000 has begun flowing into the local economy.
“It blew our expectations out of the water,” said Hannah McIntosh, who helped launch the Methow Investment Network, which brought the investors and businesses together. “We have five deals that have been 100-percent funded. Four are manufacturing companies and another is a service business. Two more are almost completely funded.”
The idea behind the Methow Investment Network is connecting investors who want to put their money to work in their community with local business owners who need capital to start up or grow, said McIntosh, who is program director at TwispWorks. TwispWorks has acted as facilitator, bringing together potential investors with business owners at social gatherings, trainings, and for “pitch sessions,” where business owners present their funding proposals to investors.
The Methow Investment Network is modeled on similar programs, including one in Port Townsend, where the average loan made by investors to businesses is about $12,000. One of the deals that is nearing completion through the Methow Investment Network is for $325,000, with buy-in from several investors, McIntosh said.
Investments made through the Methow network so far total $820,000. “We certainly didn’t expect this in terms of the dollar figure,” McIntosh said.
The infusion of new capital into the local economy is already producing results through new construction, property purchases and new jobs.
“A big measure investors use [to decide whether to fund a proposal] is jobs,” McIntosh said. “It’s all about jobs. The three-year projection from companies that have gotten these investments is that they’ll be able to hire 15 more people.”
The businesses receiving investments so far include a yurt kit manufacturer, a brewery, a specialty bag and backpack company, a custom apparel business and a plumbing business.
Methow Investment Network has attracted 29 “investing members,” who are interested in supporting local businesses. “There is a small subset, seven to 10 members, who have been really active, and probably have more financial capacity,” McIntosh said.
“At least two of our most-committed investing members came out of the woodwork. They really like the idea of taking some of their portfolio and putting it to work especially around local jobs and economic resilience,” McIntosh said.
About half of the investors live here full-time, others are part-time residents. “It is a nice mechanism for people who are not able to be in the valley full-time to feel like they’re supporting the valley,” McIntosh said. “They have a connection to the business they’re investing in.”
Phil Davis, who has a home near Winthrop and one in Seattle, said he has enjoyed becoming an active member of the Methow Investment Network. Investing in new and growing businesses is nothing new to Davis — he’s been doing it for years in Seattle. When he learned of the effort to launch an investment network in the Methow Valley, he got on board.
“I said I’ll volunteer, given my interest in investing,” said Davis, whose background includes commercial banking, business, start-up companies and nonprofit organizations. “Like a lot of things in the valley, when a bunch of people with a vision get together, there’s a good chance it will come to life.”
Making an impact
It’s rewarding “to come to a small community and see an impact,” Davis said. “If a company increases employment by four people, in the context of Seattle it’s not a lot, but in the context of a single business in the valley with four living-wage jobs, not seasonal or part-time jobs, that’s pretty good.”
“What’s really cool is there is a source of capital that now appears to be available, helping local businesses who thought about things they want to do and have been constrained because for local banks, it’s outside of their lending criteria, or because the businesses didn’t know how to go about raising $50,000,” Davis said.
The network helps “put capital to good use with fledgling or established business — capital that has less strings attached than traditional financing,” he said. “It’s enlivening the spirit” of the local economy, he said.
In addition to providing capital to help local businesses grow, investors are acting as mentors, sharing their experience and expertise with the business owners they are supporting.
“A side benefit of this, that is bigger than I anticipated, is the mentoring hours,” McIntosh said. “A lot of investors are retired or partially retired after successful careers, so they have a lot of expertise. They have the time and the interest.”
McIntosh said investors have given more than 100 hours of one-on-one mentoring to their business partners. “They develop a personal dynamic. This has been a nice way for people get to know each other,” she said.
The Methow Investment Network was launched in February last year, when TwispWorks hosted a social hour to allow investors to get together and learn more about how local investing networks work. That meeting, which included two faculty members of Washington State University with expertise in investment networks, generated considerable interest and convinced TwispWorks to sponsor the program.
To join the network, investors complete an application form and membership agreement. TwispWorks has held two “pitch sessions,” where businesses present opportunities to investors. Businesses can also submit investment proposals at any time, and TwispWorks sends them to investing members for consideration.
The Methow Investment Network has also offered training sessions on local investing for investors, and trainings for businesses on developing strong businesses proposals. Businesses seeking investors provide information on their background, what they hope to achieve, and what they need to reach their goals, McIntosh said.
“For some of the deals the turnaround time was pretty tight, so conversations started right away,” she said. Investors and businesses sit down and work out the terms of the loan, such as interest rates, length of the loan and balloon payments.
Some businesses “are extremely savvy” and have helped coach other businesses, McIntosh aid. Most of the deals involve attorneys to draw up agreements.
Investing “starts with an interest in what these folks are doing with their businesses,” said Davis. He and other investors may ask business owners to provide more information, help them develop their proposals more fully, or even help them restructure their business plan.
“Some investors will dig deep on questions and concerns about a particular business proposition. It’s a good mix of people wanting to dig deep, and others with a more casual approach. It’s been really fun to get to know other investors,” he said.
In cases where more than one investor chooses to support a project, it spreads the risk, Davis said, and is encouraging to the business owners. “There’s some validation when they say, ‘Here’s what we want to do,’ and you have five or six people saying, ‘Here’s a check.’”
Investors are willing to accept some degree of risk because “it’s exciting to be at the early stages” of a business venture, Davis said. “I approach it from the perspective that if I write a check, I’m not going to be angry if I don’t get it back.”
Methow Investment Network is helping local businesses expand their markets beyond the valley, strengthening the valley’s economic sustainability, Davis said. “What’s cool is that with some of these businesses they are talking about projects that don’t just get consumed within the valley, but are exported (to) outside markets.”
The success of the Methow Investment Network has prompted TwispWorks to consider creating another vehicle to support businesses and boost the local economy — a revolving loan fund.
“I still think there is additional financial capacity in this valley if we could pull together a loan fund, that people could write a check to and get a return on their money,” McIntosh said. TwispWorks plans to hold an exploratory meeting early this year to consider next steps.
“The end goal is to have a fund that’s working locally, probably administered through TwispWorks,” McIntosh said. “It would be for people who would love to take a little bit of their investment portfolio out of Wall Street and put it on Main Street.”