2.2.5 Investment Propositions
The Booster Programme aims to develop new forms of investment proposition, institutional support, and business appraisal methodologies that will improve the formation rate and success of community businesses. We will be devising new approaches to business appraisal for specific community business trade sectors, and using these appraisal methodologies to encourage institutional support for community businesses. We want to experiment with innovative forms of investment proposition that can be targeted at other institutional investors, with a view to building a more robust capital market to support community businesses. Our pilot programme helped us to identify ten types of investment proposition we want to explore and develop further.
We are now looking to support community businesses that can explore and develop one or more of the following investment propositions:
1. Match funding as an incentive
How can institutional match funding be used to encourage local people to invest in community businesses? How do people respond to the proposition that for every pound they invest, another pound will be invested? Does the presence of match funding give local people confidence in the business proposal? We are interested in novel approaches to the design, marketing and promotion of match funding arrangements.
2. Incentivising local membership
What can be done to incentivise local people to invest in a community business, and what do we mean by local? How big or small can local be? How does the idea of local apply to communities of interest? How does the size of the community business relate to the scale of the community it serves? Are there ways of incentivising or prioritising local applicants over other applicants? What about targeting hard-to-reach groups within a community? We would like proposals for using match funding to incentivise local membership.
3. Encouraging individual members to invest more
Many societies adopt a low minimum shareholding level to encourage people to join. Can match funding be used to encourage local people who can afford it, to invest more than the minimum shareholding? Are there ways of structuring a match fund, so that it attracts larger individual shareholdings, without prejudicing those who can only afford the minimum shareholding?
4. Supporting acquisitions
Some community businesses are established to acquire an existing business or asset that has been put up for sale. Even where the community has obtained an “Asset of Community Value” the community is still faced with the problem of having to competitively bid for the business or asset, without any security that the money they raise to finance their bid will be sufficient or successful. We are interested in novel approaches to this problem, that will enable communities to bid for community assets, without compromising negotiations with vendors, or incurring undue costs in raising funds for failed bids.
5. Supporting early stage investment
New community businesses may find it difficult to enter some trade sectors, such as affordable housing, because they need to raise comparatively large amounts of capital at an early stage. Local people may be unwilling to invest large sums for the long term, but would be more responsive to a part-equity, part-loan arrangement. We would like to explore innovative arrangements for raising capital from members that acknowledge the risks of early stage investment, especially those where match funding is central to the process.
6. Opening-up new sectors, regions or communities
Community share offers are under-represented in some trade sectors and in some regions of England. There is also under-representation among specific sections of our communities, including black and minority ethnic people and young adults where these people make up the majority population in the community. Under-represented regions include parts of London, the West Midlands and the North East, and to a lesser extent the East of England. Under-represented trade sectors include affordable housing, community finance, health and social care, transport services, libraries, craft production, and to a lesser extent, community buildings, arts and cultural projects. We are particularly interested in how match funding can be used to encourage new community businesses in these areas.
7. Institutional start-ups
Most community businesses are grass-roots initiatives, led by local people responding to opportunities or challenges facing their communities. In some cases, and for some communities, this expectation that they do it themselves is unrealistic. The alternative is for local public and civil institutions to take the lead in establishing a community business, de-risking the start-up process for communities, but with a clear transition plan, for replacing initial institutional funding, from the Booster programme and elsewhere, with community shares funding.
8. Local initiatives by national membership organisations
We would like to work with national membership organisations that want to encourage local groups of members to develop independent community businesses in response to the needs, interests and aspirations of their members. We are particularly interested in co-financing arrangements with these national membership organisations that encourages local participation, autonomy and sustainable community businesses.
9. Supporting member share subscriptions
We recognise that in some communities, members cannot afford to invest large amounts as one-off lump sum payments, but may be willing to invest smaller amounts or a regular basis over an extended period. We welcome proposals for using match funding to support share subscription schemes, especially those where early-stage institutional funding would be replaced by member share subscriptions over the medium-term.
10. Supporting the transition to open offers
Much of the Community Shares Unit experience to date has focused on time-bound offers made by new community businesses. However, there is a growing number of societies that have now been trading for more than three years, and should ideally be making open offers, as a principal way of maintaining membership and share liquidity. Reasons why this might not be happening include the problems of predicting demand for share withdrawals after a period of suspension, and stimulating the supply of new investment and new members. We are interested in how match funding can be used to support the transition to open offers in established community businesses.
Other investment propositions
New investment propositions may be added to this list in the future, as our understanding of institutional investment in community shares improves over time. Exceptionally, we will consider innovative investment propositions that are not addressed by any of the above propositions, as long as the propositions meet the Power to Change eligibility criteria for funding.