Communities thrive when people invest in each other. Entrepreneurs and small businesses gain access to “neighborly” capital to grow their company, while investors work toward their financial goals by investing in businesses they believe in. The whole community benefits as local jobs are created and wealth is recirculated through the local economy.
In June 2014 and again on July 11, 2015, Vermont's Department of Financial Regulation announced modifications to the state's securities regulations. These modifications, originally called the Vermont Small Business Offering Exemption (VSBOE), now called VSBO, have made local investing possible in Vermont. Now Milk Money is making it easier by creating a place were Vermonters and Vermont entrepreneurs can meet. Vermont-based companies can post a video and their business plans, along with the offering details and other information for you to review. Then Milk Money helps take care of all the paperwork and in many cases will help the business owners keep you informed on how their company is performing over time.
Before you make an investment, take the time to evaluate your personal financial situation and set guidelines for the types of investments that are in line with your personal values and that match your risk tolerance and financial goals. Milk Money does not give investment advice, nor does a posting on Milk Money's website suggest any type of guarantee that a company will be a good investment.
The guidelines below are provided purely for educational purposes and we strongly recommend consulting a Registered Investment Advisor before making an investment.
INVESTMENT GOALS AND VALUES
1. Evaluate your personal financial goals, needs and risk tolerance. Ideally, you should consult a personal financial advisor for guidance and tools for this evaluation. Following are some questions to get you started.
- How old are you?
- How much income do you need from investments?
- What is your time horizon for getting a return on your investment?
- Do you have enough cash on hand for emergencies?
- How much can you feel comfortable losing? (nobody wants to lose money but you need to consider this likelihood!)
2. Many people are interested in Impact Investing and want to invest in companies that are making a beneficial social or environmental impact.
- Do you want your investment to go directly into companies or programs that are aligned with certain social, environmental or religious values?
- Do you want to avoid investing in companies that work against your social, environmental or religious values?
3. Define what Local means to you. All companies featured on Milk Money are Vermont companies but you may want to be more targeted with your investments.
- Do you consider Local to mean a certain county, town or region?
- What parts of a business (owners, staff, office, etc.) need to be locaed in this area for you to consider it local?
4. Get advice from your personal financial advisor and/or accountant on all of the above as well as tax implications of certain types of investments.
Once you’ve determined your personal goals and guidelines, you can evaluate investment opportunities to find a good fit. This is called the Due Diligence process. Milk Money requires all businesses to post a comprehensive yet concise business plan that’s written in “plain English” so potential investors can find the information they need to make a decision. You don’t need to be a financial wiz or even a businessperson to evaluate the plan. Much of the process relies on good ol' common sense and some tips we’ve listed below.
1. Product/Service and Industry
- Do you understand it/does it make sense?
- Who is the target audience for the product/service and do you think there is demand for it?
- Is it in an industry that is stable/growing or one that is stagnating/declining?
2. Management team – arguably the single most important factor to consider since these are the folks who will make the magic happen
- Who is on the team?
- How many are on the team? There is no magic number but one founder doing everything is risky…i.e. Me, Myself and I is not a management team!
- Do they have relevant experience/skills to perform their role(s)?
- Are there any key roles that are not currently filled, and if so are there stated plans to fill those roles in the near future?
3. Financial review – this is the part that scares many people but it’s really about using the fundamental financial statements of a company as a scorecard of its past and future (forecasted) performance. See our FAQs (link to FAQ page, can we anchor this?) for more detail on how to read financial statements.
- Income Statement – also known as Profit & Loss Statement, shows Revenues (sales) and Expenses and whether there is Net Profit or Loss at the end of a year. Most start-ups experience losses for the first few years as they’re building their business. Look for long term potential.
- Balance Sheet – shows a company’s Assets (what they own), Liabilities (what they owe) and Owner’s Equity (net worth). Key things to look at are Cash, Inventory and Debt (i.e. how much is owed and to whom).
- Cash Flow Projections – shows whether a company has sufficient cash to cover its operating costs each month. This is especially important for product companies that usually have to spend money to make their product (i.e. build inventory) long before they get paid for a sale. Milk Money encourages all campaign companies to post a monthly cash flow projection showing at least 12 months of operating cash flows.
4. Deal structure – this tells you what type of Security you’ll get for your investment. The Security will depend on the type of company, its financial needs and long-term goals of the current owners. Each company’s campaign page will include an explanation of the Security being offered and why. Here are some examples of Securities that may be offered on Milk Money. More detail can be found in our FAQs.
- Equity (stock) – could be common or preferred stock.
- Royalty agreement – rights to a share of income/profit.
- Convertible equity - the right to buy stock in a future equity round
1. Don’t rush – this is an important decision and deserves time to think it through.
2. Ask questions – please contact Milk Money with any questions. We will answer to the best of our knowledge and/or put you in direct contact with the entrepreneur when appropriate.
3. Get advice – consult a diligence team that includes any/all of the following: personal financial advisor, attorney, estate planner, accountant, anyone with investment or entrepreneurial experience, etc.
4. Trust your gut -- after you've done all the diligence work and understand the risks, if something bothers you about the deal, don't invest. On the other hand, if an opportunity just "feels right" this feeling can be a valuable guide -- as long as you've done the diligence work to back up that feeling.