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Neighborly Raises $5.5M From Formation 8, Ashton Kutcher To Transform The Municipal Debt Market

Stashed in: economics, Cities, @aplusk, Investing, Crowdfunding, Crowdfunding

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Wow, a $3.7 trillion market opportunity:

So Neighborly is shifting back to its original idea, which was to create a platform for retail investors to invest in municipal debt that actually affects where they live. It’s an enormous market with a size of roughly $3.7 trillion.

The company’s founder Jase Wilson grew up in a broken home in a poverty-stricken factory and farm town in the Midwest. But he had access to decent parks, which helped him escape tough situations at home. Later on in college, he studied both engineering and urban planning and ended up working in civic software for city governments for about a decade.

Several years into the job, Wilson started getting to know municipal bond traders, who were exchanging and issuing the debt that cities need to fund projects. A trader walked Wilson through underwriting and compliance, and then over to a fax machine with stacks of papers and contracts. The trader explained to Wilson that just by switching from corporate to municipal debt, he could double his income without doing any extra work. This was because public city governments ended up with extra layers of fees throughout all the steps of municipal debt issuance that corporate issuers were more rigorous about holding accountable.

“I thought — why isn’t there an AngelList for this?” Wilson said, adding that 2.2 percent of a cities’ total debt issuance goes toward the cost of borrowing on top of interest. On top of that, city governments can end up on the bad side of a deal that they are unable to evaluate as well as investment banks, which see deals day after day.

After the last financial crisis, Oakland got in a tussle with Goldman Sachs on an old interest-rate swaps deal that would have protected them if interest rates rose. Instead, interest rates fell after the housing market crashed, and the city ended up on the hook for $4 million in annual interest payments to the bank.