Can investment and collaboration among interested parties in rural communities help drive an economic impact that could help improve social opportunities in these areas?
Social impact is frequently highlighted as concept in urban environments because many multinational corporations are headquartered in major metro centers. Rural communities, however, are often the areas that are more resource-constrained in terms of dollars invested.
Yet, the partners who engage there often find that these areas are ripe with opportunities for more corporate investment to lift economic prosperity and community well-being. Indeed, companies are more likely to have the bandwidth and resources to convene representatives from community organizations, members of state and local government, and small-to-medium-size enterprises (SMEs) to better pool expertise and investment to create a greater return on investment than if these companies were acting alone.
At the same time, there are players operating within ex-urban settings from which we can learn, especially from those social innovation players now working in rural areas to help increase the economic welfare of rural communities.
Community capital creates thriving rural communities
Social innovation provides two primary ways of convening partners and resources to provide holistic benefits in rural areas. Bill Stoddart, Co-Founder and President of HomeStake.com, which is using finance to drive entrepreneurship and community resilience, says his goal is to connect people and ideas to use catalytic capital to transform the investment marketplace and the ways finance can work to create opportunity, build equity, and distribute power. He pools “community capital” through financial vehicles from local investors or locally minded community investors in a given bioregion to invest in SMEs that earn between $1 million to $10 million in revenue and are situated for growth.
SMEs in rural communities are starved for multiple options of financial resources, in particular for growth equity capital, explains Stoddart, adding that SMEs in third-tier cities or rural areas receive less than 1% of the overall pool of venture capital.
The consolidation of state and local community banks — which historically has been the dominant way small businesses have received financing, usually through Small Business Administration loans — has shrunk the industry from 10,000 institutions to less than 1,000 institutions over the last 40 years. While such consolidation may be positive in theory, it has left a significant gap in the lack of capital that is critical for small business growth in rural areas and a critical aspect of a thriving middle class outside of major metro areas in the U.S.
Stoddart’s theses is that community economic development and community well-being are centered on this idea of providing growth capital and equity, as well as investment from financial sources that don’t seek to control the businesses or demand an exit at a certain period of time to satisfy investor needs. Instead, the capital that Stoddart’s group provides grows along with the businesses, while still providing a return to investors. It is not something that is targeted to an investor’s timeline or a fund’s timeline per se, but rather is more in-line with the organic growth of the business itself.
Using public-private partnerships for prosperous rural communities
Another way to benefit rural communities through social innovation is by bringing together local and regional players from the public and private sectors to collaborate collectively for the benefit of a particular rural community. Josh Jacobson, CEO at Next Stage Consulting, is a key player doing just this in North Carolina, and he documents his methodology and case studies in the firm’s 2021 Profit and Purpose report.
Next Stage operates at the intersection of nonprofit organizations, municipalities, faith institutions, philanthropic groups, and community-based organizations to generate social impact in rural communities. It also specializes in building investments through social innovation and partnership with community-based organizations by acting as a trust broker to attract resources outside of the immediate area by within the regional geographic area across counties. These catalytic public-private partnerships enable a multiplier effect by pooling resources that can be quantified by measuring how much activity is generated for every $1 spent.
Next Stage’s typical clients are single-employer companies in a rural setting usually within the mining, energy, agriculture, and advanced manufacturing sectors. These companies are an essential foundation for economic prosperity within an ex-urban community and oftentimes have challenging environmental impacts because of the industry in which they operate.
Jacobson says he sees growing demand by mid-size companies operating in ex-urban areas that want to help build a community-based strategy that looks beyond their isolated efforts. This demand is driven by public companies’ efforts to extend their influence in the environmental, social & governance (ESG) space to their suppliers, which include other mid-sized companies operating in rural areas. There is no playbook, Jacobson says, noting that working in rural areas in this way “is a new space, and we are learning as we go.” Next Stage’s lessons from working in rural communities were documented in the ESG addendum of its recent report.
Capitalism and taxation are the two big mechanisms to making a better world, especially for people who are less well-off financially, Jacobson explains, and collaboration that leverages a local community’s resources is really the force-multiplier for driving higher returns on each $1 of public money spent.
Likewise, Stoddart says he believes a strong, viable middle class is central to a functioning democracy, and he sees the deep connection between people who are able to provide for themselves and their families and their ability to work with each other as community members as part of a that middle class. “We’re trying to fill a gap by working with one community at a time to try to develop locally owned and driven community capital,” Stoddart states.