3c hapter - Index of

194 Locavesting
residents to raise $1 million to fund growth. The company started
out in 1999 selling “made in Buffalo” items—such as Weber’s
horseradish mustard, made locally for three generations, and
Sahlen’s hot dogs, a Buffalo tradition since 1869—on the Internet.
Today, CityMade sells regional specialties and gift baskets from
a dozen cities, from Baltimore to Washington, DC, each with its
own branded web site. It plans to use the proceeds to extend its
profi table “made in” model to additional cities. According to
CityMade’s prospectus, its offering expenses, including legal and
accounting fees and fi ling fees, amount to less than 1 percent of
the $1 million it plans to raise. 5
Bissonnette Funding in Boulder, Colorado, is working with
three companies pursuing DPOs. And recent seminars conducted
by Cutting Edge Capital and Green Ladder Funding drew more
than 150 business owners interested in learning about DPOs.
“With the ineffi ciency of capital markets at an all time high, entrepreneurs
are looking for ways to approach a broader range of
potential investors,” says Cutting Edge Capital CEO Jenny Kassan.
At the same time, she says, people are looking for ways to support
and invest in the local businesses they love. The renewed interest
in DPOs could open up opportunities for both. As with any
early stage investment, there is a high degree of risk. And with
a DPO, there is no underwriter to conduct due diligence on the
investment.
The biggest drawback to the DPO model, however, is a glaring
one: a lack of liquidity. The shares are not restricted, so they can
theoretically be traded in the secondary market. The problem is
a lack of robust secondary trading options. Even long- term investors
need to know that there is some sort of “exit” that will allow
them to cash out their investment eventually and take profi ts—
either through a sale of the company, an IPO, or through secondary
trading of the shares. In fact, a lack of liquidity is an obstacle
that is shared by many locavesting models.
Some companies that have conducted DPOs have offered
to buy back shares under pre- agreed circumstances when their
investors want out. In other cases, the issuer may elect to list them
on a stock exchange. But because companies choosing the DPO