Neighborly, the world’s first Community Investment Marketplace enables you to “invest in the change you want to see in the world.”
The issuance of bonds to fund community projects is not a new phenomenon in the United States. For over 200 years, trillions of dollars have been funneled into neighborhood projects to build anything from a local elementary school to the iconic Golden Gate Bridge. “Our cities borrow over $1 billion each day to build and maintain schools, parks, and other important civic projects, through a process that’s been taken over by the middleman and global banks,” Neighborly CEO, Jase Wilson posted on a Product Hunt discussion.
Neighborly has created a relatively simple and personalized process for individual retail investors to access the $3.6 trillion municipal securities market. In doing so, Neighborly users can invest in secure and tax-exempt securities that impact their own communities and particular projects of interest. By allowing individuals to search municipal bonds by location, cause and yield, investors can support community projects close to home. This social venture not only improves the conditions of local communities but also promises a safe and attractive return to investors like you and me.
Jase Wilson launched Neighborly out of San Francisco in March of 2012. Wilson grew up amidst poverty in the Midwest, later studying engineering, urban planning and design at the University of Missouri– Kansas City and MIT. As he started his career working for city governments through a civic software company, he quickly saw huge potential in the municipal bond market that was highly profitable, underserved and restricted to a few traders.
Wilson thought of the idea that became Neighborly during a casual breakfast with a municipal bond trader. He pondered the inefficiency of so many middlemen getting in the way of capital reaching the ground, into the hands of community builders. That’s when he asked why there wasn’t an AngelList for cities or a Kickstarter for municipal bonds. What began as a relatively simple donation-based crowdfunding idea transformed into an even greater platform for actual investing in securities.
The latest round of seed funding generated $5.5 million from Ashton Kutcher’s Sound Ventures and Joe Lonsdale’s Formation 8, as updated on AngelList. Neighborly now has offices in Kansas City and San Francisco.
A Part of the FinTech Revolution
Like other FinTech startups of today, Neighborly is bringing a product to the public that was once solely exclusive to those with a breadth of financial resources. (To learn more, read: 5 Ways Technology Will Change Your Finances in 2016.)
Neighborly is about empowering democracy to make an impact in the communities we live in. Today, investors and average consumers are more socially conscious than ever, reflected in the growing popularity of crowdfunding, peer-to-peer lending and impact investing. (To learn more, see: The Rise of Socially Responsible Lending.)
How Neighborly Works
A municipal bond is essentially an IOU from the U.S. government. When you buy a municipal bond, you become a lender to the government. In return you are guaranteed a stream of future interest payments from government entities over a set period of time and the amount paid in total when the bond reaches maturity. Tax-exempt municipal bonds are of particular interest to investors since they generate income shielded from federal, state and local taxation. (To learn about municipal bonds, see: The Basics of Municipal Bonds.)
Neighborly allows users to set up a personal profile with their preferences for risk, amount of capital willing to invest and expected return. Based on these details, Neighborly uses technology to send individuals personalized recommendations, sales and issuance notifications. On Neighborly, you can search by location, and also by type of project, such as “Transportation,” “Urban Spaces,” “Sports” and other groups. After receiving a list of prospective projects, you can follow a bond deal, and ultimately provide funding to those that you choose.
The value add proposition is huge for users of Neighborly, which cuts out third-party tasks and fees. Machine learning techniques rate the risk of municipal bonds alongside the traditional agencies and analysts. To the benefit of local government bodies, Neighborly provides a platform to locate, organize and manage documentation. This eliminates the need for costly and often inefficient legal and advisory services.
An Ambitious Future
Eventually, Wilson hopes to change the way the municipal bond industry functions. He anticipates allowing municipal bond issuers to post deals directly to Neighborly. Full project life cycle reporting will also be incorporated into the long-term vision. In this future, smaller projects such as community solar infrastructure and low-income housing in high-priced markets will have a greater chance of getting the funding they need to hit the ground running. Neighborly’s long-term goal includes democratizing access to the broader market of fixed-income bonds.
How Neighborly Makes Money
As a privately funded company, Neighborly is able to focus efforts on improving and expanding its services. CEO Jase Wilson responded to the question on how Neighborly plans to make money on Product Hunt, stating that "we're less focused on revenue/business model at the moment, more focused on doing something revolutionary in a market where there are lots of little evolutionary fixes happening."
At this time, it seems Neighborly is gaining traction before it tackles a means to generate revenue with a profitable business model. Neighborly is "waiving all platform and transaction fees for a limited time," suggesting that such ideas may become a reality. As a social venture, it's not likely that the startup will not sell information, or quickly adopt in your face advertisements to turn a profit.
The Bottom Line
The world’s first community investment marketplace grew out of a city worker’s observation of the inefficiency of the current U.S. municipal bond market. Neighborly successfully took a trusted market and made it accessible and personalized to the mass of Americans looking to diversify their portfolios and invest in their local communities.
As FinTech has created avenues for the average retail investor to access the stock market, little has been done before Neighborly to democratize access to the fixed-income space. Moving forward, Neighborly will take its social mission to the next level, expand its reach to not only transform the municipal bond market but also offer other products in the fixed-income space. (For related reading, see: FinTech Outlook Positive for 2016.)