LanX: A Local Securities Exchange Project
This entry has been selected as a finalist in the
Strong Communities: Engaging Citizens, Strengthening Place, Inspiring Change competition.
LanX is a local securities exchange project aspiring to serve the South Central Pennsylvania region of 8 counties. If successful, this regional exchange model could be replicated throughout the country. Local securities markets, which provide ultra micro-cap financing to small businesses, could rejuvenate local communities by providing more financing options and shrinking the equity gap that currently hampers the development of small and medium size firms.
About You
About You
First Name
Jean
Last Name
Zouck
Organization
LanX: A Local Securities Exchange Project
Country
United States, PA, Lancaster County
About Your Organization
Organization Name
Susquehanna Sustainable Business Network
Organization Website
Organization Phone
877-500-6552
Organization Address
Marietta, PA 17547
Organization Country
United States, PA, Lancaster County
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Your idea
Name Your Project
LanX: A Local Securities Exchange Project
Country your work focuses on
United States, PA, Lancaster County
Describe Your Idea
LanX is a local securities exchange project aspiring to serve the South Central Pennsylvania region of 8 counties. If successful, this regional exchange model could be replicated throughout the country. Local securities markets, which provide ultra micro-cap financing to small businesses, could rejuvenate local communities by providing more financing options and shrinking the equity gap that currently hampers the development of small and medium size firms.
Website URL
Innovation
What makes your idea unique?
America faces a problem financing small and medium businesses sufficiently and "locavesting" is one answer. LanX will help qualified investors invest in local businesses in their own community. It solves the financing problems of smaller businesses in a way that has not been contemplated for several generations. Made possible by modern internet trading technology, it is the logical complement to the "buy local" movement sweeping the country, and adapts elements of traditional securities markets to help local firms issues stocks and bonds that can then be traded within state. Compared to other economic development solutions centering exclusively on banks, local exchanges would provide a more robust and sustainable financial infrastructure in key regions, each exchange anchored around a large city or several smaller cities. It is both old and new at the same time. LanX is the first pilot project of this kind, but it builds on precedents in emerging markets around the world and American history. In the past, dozens of U.S. regions had their own exchanges to facilitate local business development. Done right, this regional concept can be replicated throughout the United States and empower to make micro-investment as common at home as microcredit has become abroad. Offering a platform that provides access to the regional capital and bond markets, LanX enables small and medium sized businesses to raise funds in their own community, among those who know them best, while giving investors a concrete way to improve their neighborhoods. Through the LanX platform, local citizens can invest in the businesses that make a difference in their lives and that directly impact their community in meaningful ways. Investing through a regional exchange could give investors financial rewards, but it also produces other rewards as well: local economic stimulus, innovation and job creation, and flourishing and vibrant local communities.
Do you have a patent for this idea?
Impact
This Entry is about (Issues)
What impact have you had?
Impact so far has primarily been outreach, engagement, and project refinement. LanX has intrigued local business owners, investors, and community development experts. Working closely with the Susquehanna Sustainable Business Network (SSBN), LanX volunteers primarily associated with nearby Franklin and Marshall College have met with business owners throughout the targeted region who are interested in issuing securities. These business owners tend to be SSBN members who, while small business owners, think big about their embeddedness in a regional economy. They tend to be very concerned about environmental and social sustainability, and are seeking to expand their visions sooner. A restaurant that serves only local and organic foods, a paper company that emphasizes recycled and environmentally benevolent products, or a local brewer--each has a unique story to tell and a local following who would appreciate the chance to take next steps together. In addition, the SSBN has hosted LanX workshops for the community and investors aimed at stimulating dialogue about the mechanics of regional exchanges. These have taken place in local bookstores, Rotary chapters, campus settings, and so forth. The discussion and feedback from these outreach efforts have helped people to think in new ways about economic development and finance. Local and national news coverage (e.g. New York Times, local newspapers, local radio) has generated buzz as people have begun to think about raising money for local firms through place-centered capital markets. Recently, LanX was judged the most innovative nonprofit at the JustMeans/Financial Times Social Innovation award. And now, the prospect of foundation grants to fund the startup period seem more likely to materialize. One six-figure grant is pending and others contemplated for the near future to raise the $700,000 in startup funds.
Problem
Local businesses need more funding options in the "equity gap" between startup and appropriate scale. In textbook corporate finance, business firms select an optimal balance between the dual capital sources of debt (e.g., loans and bonds) and equity (e.g., common or preferred stock) in order to finance their business growth. Generally, the ratio of debt to equity among large U.S. publicly traded firms is roughly 1.5 to 1 (depending on industry). However, the vast majority of firms (up to 97 percent) do not have access to equity financing, nor do they issue many bonds. Most small and medium size private enterprises, employing about half of all U.S. workers, depend mainly on bank loans to finance their growth, and banks have severely cut back their business lending. One of the primary reasons that these smaller companies have been unable to issue securities in their own communities is because there is no affordable way to do so on existing exchanges. Large national exchanges (NYSE and NASDAQ), deal with companies looking to issue at least $25 million in shares or bonds, although the effective entry point is $100 million. In this "equity gap," businesses lose opportunities to grow.
Actions
Working with the SSBN and other interested community partners, the LanX team has engaged the community in discussions about local investing, economic development, job creation, and community empowerment. This outreach involves an online and print presence that helps articulate the project with potential funders. In addition to building our network and keeping it informed of progress through online updates, the staff are at the point of forming an advisory board and pursuing startup funding. Our business plan for first-year operations outlines a budget for six staff who can bring the exchange online in six months. Two problems remain to be solved: quantifying demand and ensuring regulatory compliance. The LanX staff have solved many logistics problems but continues to compile a list of local firms that might issue securities and investors who are willing to look at prospectuses for them. In addition, LanX has a provider in mind for handling trading and account management compliance, and is working to present the business model to state and federal regulators.
Results
The key to LanX's benefit is the local multiplier effect. There are many results stemming from our activity so far, but the real impact will occur when the exchange issues its first securities and the money begins to circulate. The implementation of the local exchange concept will lead to profound socioeconomic changes in the region. The LanX plan calls for helping 10 firms a year issue an average of $1 million worth of securities through a combination of both equity and debt instruments. With this added capital, local SMEs will be able to fund ambitious, forward looking plans. These local firms will reinvest much of this capital in their communities in the form of jobs and goods and services. In addition to the economic multiplier effect that will result, new businesses will move to the area or start in anticipation of access to capital. New jobs, new firms, and innovation will enhance the labor pool and tax base of the community, allowing it to embark on even more ambitious efforts. In the end, environmental, social and economic sustainability will be more realistic when there is a solid business base for it.
What will it take for your project to be successful over the next three years? Please address each year separately, if possible.
LanX aims to do three things: 1) Issue high quality securities that are well subscribed and responsibly traded in the local market, 2) articulate through its listing requirements and educational programs the core ideas of sustainable business practices and empowered local communities, and 3) create other regional exchanges around the country to change the face of small and medium sized businesses finance. The first year will involve startup, hiring, and the core mission of listing firms and their securities, and facilitating trading. As en exchange, it is necessary to provide the securities that simultaneously meet the financing needs of the local businesses and provide investors with an attractive investment opportunity. Second, the SSBN and LanX missions center on business as a vehicle for implementing visionary sustainability strategies. LanX will contribute to this goal by encouraging all listed firms to adhere to meaningful mandatory and discretionary practices above and beyond the financial. The first year will involve this mission through the listing requirements, but in the second year of operations, an educational program will kick in. Last, the SSBN and LanX are developing a pilot project in one region; logically, a successful innovation should be disseminated quickly to areas that need it beyond South Central Pennsylvania. Using the LanX blueprint, 30 to 50 other areas could adopt local exchanges nationwide. This outreach is already underway, but would ramp up in year two. So, in summary, year one involves start-up funding, staffing, and core business model refinement. Year two involves continued firm securities generation and trading, with more attention to outreach locally and nationally. Year three expands on these goals through the creation of a national association to coordinate the many potential local exchanges, share best practices, and achieve some economies of scale in the areas of compliance, trading platform, and public outreach.
What would prevent your project from being a success?
There are several impediments that could stall the project. These include: startup funding, too few companies seeking to issue securities, too few investors seeking to invest locally, new regulatory requirements or limits. While we are very optimistic regarding the future success of LanX, attaining the appropriate startup capital could be a problem: this is an idea that has not been tried in recent memory. While the LanX goal is self-sufficiency through charging fees at the time securities are issued, raising the startup budget of $700,000 requires reaching the right people and demonstrating a high probability of success. In addition to the costs associated with the start-up of LanX directly, it is possible that compliance and other transaction costs that are part of listing securities on an exchange could exceed our estimates. The LanX funding goal is to help put securities into circulation at a percentage rate cheaper than that offered anywhere else, which effectively means 10 percent of the amount issued or less for stocks, and 5 percent or less for bonds. Some of these fees are paid directly by businesses for professional services and some are incurred by LanX. But either way, if we exceed the 10 or 5 percent fee level, LanX will be too expensive to use except for larger firms. This, in turn, could limit the pool of businesses that we can draw upon. Second, there are also transaction costs involved with the actual trading of the securities after issuing. These come in a variety of forms: paying the trading platform provider fees for transactions, account maintenance, and clearing functions; revenue sharing with brokers and other professional partners who help the exchange, and so forth. Last, there is always the possibility that despite best efforts, securities regulators will take an inhospitable view towards the LanX concept. While this is sure to require ongoing attention, obviously the exchange will be more successful with the encouragement of regulators.
How many people will your project serve annually?
101‐1000
What is the average monthly household income in your target community, in US Dollars?
More than $4000
Does your project seek to have an impact on public policy?
Yes
Sustainability
What stage is your project in?
Idea phase
Is your organization a
Non‐profit/NGO/citizen sector organization
Is your initiative connected to an established organization?
Yes
If yes, provide organization name.
Susquehanna Sustainable Business Network
How long has this organization been operating?
1‐5 years
Does your organization have a Board of Directors or an Advisory Board?
Yes
Does your organization have a non-monetary partnerships with NGOs?
Yes
Does your organization have a non-monetary partnerships with businesses?
Yes
Does your organization have a non-monetary partnerships with government?
Please tell us more about how these partnerships are critical to the success of your innovation.
Our partnership with the SSBN brings together like minded individuals who are dedicated to seeing reinvigorated local economies. While most of the LanX volunteers are based at Franklin & Marshall College, the SSBN provided early sponsorship of LanX for a feasibility grant in 2008 from the Pennsylvania Department of Community and Economic Development. The SSBN's staff and board of directors have offered support and guidance to the LanX project whenever possible. This includes SSBN-hosted events for community members, including local business owners and investors curious about the potential of the LanX regional exchange concept. The SSBN's list of business members, its vision and reputation, and its status as a 501(c)3 nonprofit provide additional legitimacy for the LanX project, allowing us to pursue various collaborative funding opportunities that could spur on the project into the operational stage. In summary, the SSBN/LanX partnership is an incubation model for other sustainable business networks around the country. Local investing promises to enhance the sustainable business movement as much if not more than local purchasing and sponsoring relationships are logical.
What are the three most important actions needed to grow your initiative or organization?
Concentrating mainly on the LanX project, the three most important actions needed to grow our organization include: 1) obtaining start-up funding and hiring six staff; 2) developing a larger network of contacts with businesses and government officials, and 3) launching a successful pilot exchange for possible replication across the United States. At the moment we are seeking start-up funding and establishing relationships with local businesses who might issue securities later on. We help them articulate their aspirations for their companies, and educate them on the benefits of LanX. Relationships with investors will also be important as the project moves forward, although those are secondary to the primary task of helping local firms tell their story and inviting participation. Once we have 10 local businesses listed each year for 5 years, the exchange can be considered a full-fledged successs. Once the pilot exchange is considered up and running in year one, LanX will begin using the pilot model to create exchanges in other motivated communities areas around the country.
The Story
What was the defining moment that you led to this innovation?
At its inaugural event in 2007, the Susquehanna Sustainable Business Network brought local business advocate Michael Shuman to speak at Franklin & Marshall College. Shuman suggested that local investing was desirable but not feasible. A local F&M professor who attended that talk began looking into this assertion to see what stood in the way. After giving a talk to an enthusiastic sustainable business audience in Cornwall, England, in late 2007, he began several research projects involving now more than a dozen undergraduate students at F&M to understand both the historical and cross-national exchange picture. That research and early collaboration with the SSBN led to a feasibility study in 2008, the launch of the LanX project in summer 2009, and its current search for startup funds in 2010.
Tell us about the social innovator behind this idea.
W. Trexler ("Trex") Proffitt Jr. is an assistant professor of organization studies in the Department of Business, Organizations, and Society at Franklin and Marshal College. Among several other entrepreneurial endeavors, Trex has been exploring the Lancaster Securities Exchange since 2007. In 2008, his feasibility work with the SSBN garnered local press and eventually was featured in the New York Times Magazine's annual listing of the most innovative ideas of the year. Emboldened by the study and its accolades, Proffitt began engaging students in solving some of the issues that stood in the way. The collaborations with students since then have helped answer numerous practical and theoretical questions about the history and operation of local exchanges in the U.S. and abroad. In spring 2010, the LanX team was awarded the JustMeans/Financial Times Social Innovation Award for "most innovative nonprofit."
How did you first hear about Changemakers?
Through another organization or company
If through another, please provide the name of the organization or company
Susquehanna Sustainable Business Network board member recommendation
 | 138 weeks ago LanX: A Local Securities Exchange Project has been chosen as a finalist in Strong Communities: Engaging Citizens, Strengthening Place, Inspiring Change. |
| 144 weeks ago Jean Zouck updated this Competition Entry. |
| 144 weeks ago Jean Zouck updated this Competition Entry. |
| 144 weeks ago Jean Zouck updated this Competition Entry. |
| 145 weeks ago Jean Zouck submitted this idea. |
