Small Business Investing: A Kinder, Gentler Alternative to the Stock Market

Gentle readers… shit’s straight fucked.

This Bear Market (i.e., when the stock market plunges and investors start sweating bullets, not a charity auction event I’m sure is occurring somewhere this Pride Month) is scary stuff. It can be incredibly difficult to stick to a long-term investing strategy when it looks like you’re losing hundreds or even thousands day by day. Cutting your losses and pulling your money out of the stock market is a strong temptation.

For the record, we don’t recommend doing anything so hasty. But we also feel your pain! Which is why we’ve always recommended mitigating your risk by diversifying your investments. Remember our classic lesson about horcruxes and investment diversification? If not, go read it now. I’ll wait.

Welcome back! Today we’re introducing one of my favorite diversification horcruxes: small business investing—a lovely little option for the nervous stockholder looking for another way to grow their money outside of the stock market… while keeping their ethics intact.

What is small business investing?

By February 2021, the coronavirus pandemic had been ravaging the world for a full year. Not only were people dying, but small businesses were too. And while we’ve never condoned lamenting the suffering of the economy with the same heartfelt compassion and grief as we lament the suffering of, y’know, actual people… it still sucked. Small business owners were struggling to keep their doors open.

A close friend we’ll call Kali (because like the Hindu goddess, she is a master of death, time, and change, and works with the efficiency of a many-armed, all-powerful being) is an insanely talented brewer of craft beer. She’s a young, ambitious lesbian entrepreneur dedicated to her craft and her community—exactly the kind of boss bitch we believe in around here.

In early 2021, Kali owned a 25% portion of her brewery, while her business partners owned the other 75%. Given the straight fucked state of the world, her partners got cold feet. They wanted out. But Kali didn’t have the money to buy out her business partners. And small business loans from major banks were thin on the ground during a global economic crisis.

So Kali turned to her community. She asked me and a couple other friends to invest in her so she could buy out her business partners and gain full ownership of her brewery.

How does small business investing work?

Lest you think I am as guileless as I am beautiful, charming, and humble, the first thing I did was check out the brewery’s books. The second thing I did was nod sagely and pass those books to someone who actually knows what the hell they’re doing when it comes to business accounting.

Assured that the brewery was neither bleeding cash nor fronting an underground money laundering scheme, I drew up a contract with Kali outlining the terms of my investment. I literally found a template online, filled it out, signed it, and got it notarized. Then we went to the bank to transfer the money.

On a small, peer-to-peer scale, that’s all we needed to do! There are normally two ways to structure a small business investment:

Profit sharing

Most small business investors get involved to collect a share of the profits. They fork over an initial investment, and in exchange, the business turns on a faucet of shared profits into the future. This is a pretty traditional style of investing. It looks a lot like buying shares on the stock market, just on a smaller scale.

The risk, of course, is that the small business will fold, or be way less successful than predicted. Which is nothing new if you’ve ever invested in literally anything at all ever. There’s always risks.

Personal loan

My investment in Kali’s brewery is structured like a personal loan, complete with a repayment schedule and a fixed interest rate.

This means the money we get out of the arrangement is not based on how well or poorly the brewery is doing (it’s crushing it, thanks for asking), but on Kali repaying her debt to us plus interest. This made sense for us because all Kali wanted to do was buy out her business partners, not expand the business, buy new equipment, or make other expensive improvements.

It’s less risky for us because whether or not the brewery is profitable in the long term, we get our money back. And it’s less risky for the business owner because we could negotiate simple terms, including a very forgiving repayment schedule. More on that in a sec.

Why invest in a fucking brewery when no one can leave their homes?

And here we get to the crux of the matter: I invested in Kali’s brewery not because I expect to get rich off the business. I did it because I care about minority-owned businesses, centers of community, ethical business practices, high quality craft beer, and above all…

To be perfectly honest, I don’t expect to get rich off my small business investment. And I’m ok with that! That wasn’t my original goal. My goal was to keep a woman-owned local business afloat so that it could continue to serve our neighborhood as a community gathering spot and source of delicious craft brews with punny names like “Queerly Beloved” and “Gender Fluid.” (Everyone who works there is either gay or a dad.)

Getting a return on my investment in a few years would be awesome! But it wasn’t my primary motivation. I wanted to help a friend. And I wanted to try investing in something I believed in.

Ok so what if you do want to earn a nice fat pay day? And what if you don’t have a close personal friendship with a small business owner?

Mainvest: Small business investing, crowdfunded

Obviously, not everyone is able to handpick a small business investment on their own. My investment in Kali’s brewery is far from the norm! Which is why we’re pleased as punch to introduce our brand new partner: Mainvest!

Mainvest brokers small business investments on the crowdfunding model. They help bring individual investors and small businesses together to democratize business investing and empower small business owners. And you guys? I think they’re fantastic.

How Mainvest works

Small business crowdfunding was made legal in 2015 when the SEC regulated the crowdfunding model. Since then, Mainvest has stepped in to create a platform for crowdfunding investments. They vet the small businesses seeking investors, and they give investors all the information they need to find the right businesses to support.

They’re investing in MAIN Street, not WALL Street! Get it?! (Every politician ever is mad I just stole their line. Sorry not sorry.)

My favorite part of Mainvest is how they mash together traditional investing with the personalization of crowdfunding. Every small business approved for Mainvest not only comes with pages of financial information to help investors weigh risks and rewards, but they also get to submit a personal story, photos, and a detailed business plan.

Did I know before Mainvest that it was important to me to invest in minority-owned, environmentally sustainable companies? Yes, of course. But did I have a way of finding investments that perfectly matched those values? Not really, no.

My Mainvest small business investing experience

Proud citizens of Bitch Nation will know that we’re incredibly picky about sponsors. We don’t give space on our blog to just anyone. This is prime internet real estate! We’re worth literally dozens of dollars! DOZENS.

So worry not: I’ve personally done a lil’ small business investing through Mainvest myself to make sure it’s good enough for our readers. I’ll walk you through my experience so you can see a) how easy it is, and b) the expected returns.

How I invested in Mainvest

It’s the goal of Mainvest to crowdfund small businesses through tiny investments from many investors. With this in mind, I decided to commit $1,000 across five small businesses on the platform. This would spread my risk around and allow me to experiment with different industries. Also, $200 per business is probably a pretty average investment for the Mainvest beginner (their minimum investment is $100), and I wanted a realistic case study, dammit!

When choosing my investments, I decided to prioritize minority-owned businesses and anyone with strong environmental or community values. Which, uh… was almost all of them! Mainvest clearly vets its partners not just for solid business acumen, but for what they stand for. And that warmed my salty little SJW heart.

At the moment, most of the investment opportunities are in the restaurant, alcohol, cannabis, and artisan crafts industries, but they aren’t strictly limited to those. Previously funded opportunities include grocery stores, venues, hotels, salons, farms, real estate, cinemas, child and pet care, and clothing boutiques.

My five Mainvest investments:

1. A Black-owned, father-daughter run food truck turned restaurant in Chicago, IL. Investment multiple: 1.5x. Target return: $300.
2. A Black-owned bar and music venue in Brooklyn, NY. Investment multiple: 1.68x. Target return: $336.
3. A woman-owned, Black-owned cannabis cultivation and processing operation in Detroit, MI. Investment multiple: 1.5x. Target return: $300.
4. A craft beer brewery in Keene, NH. Investment multiple: 1.5x. Target return: $300.
5. An environmental- and labor-conscious chocolate shop reinvesting in rain forest conservation in Washington, DC. Investment multiple: 1.4x. Target return: $280.

Over the next several years (each business is on a different schedule), I’ll receive quarterly returns until I’ve gotten my initial investments back, plus a share of the revenue. If everything goes according to plan and all five businesses succeed, by 2030 I’ll have received $1,516 back, or a return on my initial $1k investment of $516.

All investing comes with risks

Note my careful use of lanugage above: “If everything goes according to plan and all five businesses succeed.” Because all investing comes with risks, everything might not go according to plan! I could be out $1000! Or, more realistically, I could be looking at a return of $1080, significantly less than I expected, but still more than what I started with.

The difference between investing in an index fund that tracks up and down along with almost the entire stock market, and investing one by one in a handful of small businesses, is that it’s a lot easier to notice when one of those small businesses goes tits up.

And remember what I said about most of Mainvest’s vetted companies being in the bar, restaurant, and cannabis sectors right now? There’s a reason for that. Cannabis, while definitely on the road to federal legalization, is not legal in many states, which precludes them from a lot of traditional funding. And restaurants are widely known for being on the riskier side of the investment scale.

The alcohol industry, on the other hand, has a reputation for being recession-proof, which is true to varying degrees.

Make good while doing good

Given these caveats, I’m still happy with my decision to invest in small businesses through Mainvest. Here’s why.

When I invested in Kali’s brewery, I did it because I wanted to do something tangible to give back to my community. I wanted to share my financial good fortune with an entrepreneur I believed in. And I did it because there are vanishingly few women brewmasters in the country, let alone queer brewmasters. Representation fucking matters, you guys.

Mainvest is specifically set up for likeminded angel investors. It’s for those who want to cut mainstream, large financial institutions out of the process of funding and supporting local businesses. Transparency and high ethical standards are the norm with Mainvest’s small business investing opportunities.

We’ve gotten a lot of questions about ethical investing recently. ESG investing (which stands for environmental, social, and corporate governance and encompasses companies actively trying not to be dicks) is a hot topic. And while we have mixed feelings about some mainstream ESG investing opportunities, we both agree that it’s certainly more ethical to invest in a transparent small business than a giant corporation with questionable labor or environmental practices.

Click the link above to get started with Mainvest and give back to Bitches Get Riches. They give us a little cut in exchange for our endorsement, and that helps us do things like pay our hard-working assistant Ducky and buy new microphones for season four of the podcast (which we desperately need).

Alternative investing

What did you guys think? Are you interested in learning more about other alternative forms of investing? Real estate investing is next on our list, but we’re open to ideas. Sound off in the comments below!