So while the concept isn’t new, the boom that’s currently taking place in the world of community shares is. In the past five years over 200 enterprises in the UK have raised over £60 million by issuing community shares. Some of those projects have attracted national attention, like the £2 million raised by FC United of Manchester to build their new stadium. Some pay meaty interest rates, mostly in the community energy sector where returns can be confidently predicted thanks to the Feed-in Tariff. But most are smaller scale: a few hundred thousand pounds for a pub or community centre.
So community shares can raise substantial capital for enterprises that provide social benefit. But there’s more than just the prospect of money raising at play here, and it’s these other factors that are fuelling the boom and making community shares such an attractive option.
When you buy shares in a ‘normal’ company, you get a share and a stake equivalent to the size of your investment. You get a claim on future profits (aka dividends) and you can make a capital gain by selling your shares on to someone else, if they’re prepared to pay more for your shares than you did.
Community shares work differently. Investors can put their money in, but whether they earn interest depends on whether the enterprise they’ve invested in has made a profit. They might be able to withdraw their money but, again, only if there is money to do so, and only in amounts that don’t threaten the stability of the enterprise. It’s the Board of Directors that decides if and when investors can earn interest or withdraw shares, and that Board is elected on a one-member, one-vote basis. Everyone gets one vote, no matter how much they’ve invested. And because community shares are not transferable, they can’t be sold on.
The only way investors can see any kind of financial return is for the enterprise to make enough profit, after social benefit has been provided, for interest to be paid. That makes the people who buy community shares patient investors, whose own interests are aligned for the long-term with the enterprise they’ve invested in. In short, money raised through a community share issue is the right kind of money, from the right people, on the right terms, at the right cost, over the right time frame.
People who buy community shares aren’t just buying a chance of success for projects close to their hearts, they are also buying legal ownership of those projects. That helps lift the average amount that people invest to eight times what they would donate. Research by NESTA into alternative finance methods found that whilst money for donations comes from people’s day-to-day income, investments in community shares come from their longer-term savings. Community shares represent a marriage between people’s values and an enterprise’s ability to show that their project represents the perfect way for those values to be put into practice in the world.
This has also been helped by historic low savings rates following the 2008 crash. Given the rate of inflation, savings pots are effectively being whittled away over time, so people are much more open to considering more interesting and creative things to do with their savings. What’s more, because community shares are risk equity investments, they’re also eligible for a range of tax breaks, hitherto only used by the 1%.