Crowdfunding is hot. It’s the most sweeping financial disruption to come along in decades, enabling financial shifts across professions and practices. It’s being discussed in pure hyperbole to thoughtful commentary on its potential for the democratization of capital for the most under-served communities.

At the Silicon Valley Crowdfunding Conference in February of this year, one session asked the question, ”Is the model actually building something of value or is just replicating an outsourced technology solution?”

That’s a good question. Is anything valuable happening here? And if so, who gets to reap the benefit of that value?

Is crowdinvesting just ‘Mr. Status Quo’ with a new set of clothes?

Or, is it a true financial innovation that could benefit us all? Is it fast money or friendly finance? So far, it’s both, with fast profit leading the way. But, what happens long term depends on how we approach this opportunity, and how fast.

I’m in the camp of using this financial innovation to benefit communities across our country, especially with underserved groups which have lagged behind in entrepreneurial activity and access to capital. I’m interested in how crowdinvesting could drag this country out of its “old guard,” which is sliding down a very slippery economic slope, and completely reframe the economic and community conversation.

The local economy movement originated with membership and advocacy organizations like BALLE, AMIBA, and ILSR promoting local buying power towards local resilience. Inspiring finance organizations like RSF Social Finance and Calvert Foundation have lead the way in creating vehicles to localize personal and institutional wealth. But nothing has prepared nonprofit organizations for participating in the legal and financial investing world. Economic development and community development continue to remain distinct, often existing in literally different buildings.

What would happen if we bring crowdfunding to both the community and economic development party?

Could crowdfunding be a matchmaking mechanism for community and economic developers? While they might appear to be unlikely bedfellows, powerful new strategies could arise. The benefits of community capital would be both social and economic.

The big assets to leverage are the 37 states that have created their own local investing laws—crowdinvesting—that invite ordinary people to become local investors in their own economy. Not only do these laws open up billions of dollars for wealth redistribution and access to capital for groups who have historically had little or no access, it cracks open the opportunity for professional community developers to use these brand new tools to strengthen communities.

When community development leaders, like NACEDA or NALCAB,  learn of these new finance laws that allow underserved entrepreneurs to raise capital beyond the  pool of “friends and family,” they get very excited. The key is that ordinary citizens could contribute to new kinds of local funds that could be used to develop blighted areas downtown or support the development of low income housing. Now, investment capital can be leveraged not just for business development, but for community development.

While these paths for community capital have been created through often complicated finance lawmaking and rulemaking by people like lawyers, state regulators and the SEC—all of which sounds like your head would explode if you had to mess with it—the truth is that a new foundation has been laid for community capital that is unprecedented. At the core, these laws seem to indicate that the rulemakers had been thinking about community developers and their needs from the very beginning.

We can learn from Direct Public Offering deals.

Craig Sharton created a fund using community finance law that allowed ordinary people (the non-wealthy) to invest in a fund that would have made it possible for him and others to redevelop blighted areas of Fresno, California. At EDFC, John Kuhry created a fund that invited ordinary people to invest in that they could then loan out to various small businesses. One of them was a brand-new Woolen Mill in Northern California. The opportunity for ordinary folks to invest in a local fund is rare. Remember, in the past it was not legal for non-wealthy folks to invest in anything other than publicly traded stocks on Wall Street. Both Craig and John recognized the missed opportunity. Both called Cutting Edge Capital for help, and as a result, engaged in a rare form of community development (Direct Public Offering), enabling the community to actually get involved.

We need economic AND community development professionals to know these tools exist.

Local investing laws have allowed for various kinds of funds to be created as well as direct investing to occur in small towns and communities across the country. When used creatively and put in the hands of folks who value community impact over personal self-interest, all kinds of interesting things can happen—endeavors that benefit entire communities rather than just one entrepreneur or wealthy investor. Entrepreneurs and traditional investors are still in the mix, but wouldn’t it be great if the larger community also benefited? Community developers understand these kinds of partnerships, and once they understand the potential of these new laws, magic will happen. Community magic!

Want to learn more?

Meet crowdfunding, community capital, and community development experts in Monterey in September at ComCap17, where you can learn how to implement these ideas in your community.