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Community Shares: Owned by the Crowd

Illustration from the Community Shares Company guide

Community shares are a new way of describing an old concept: withdrawable share capital. It’s a concept with its roots in co-operative societies, where member-owners would invest their own capital in a co-op and receive interest on their investment. By such means the co-operative movement became a nineteenth-century retail behemoth (tragically squandered over the twentieth century, but that’s a story for another day).

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%.

In order to issue community shares, you need three vital ingredients. Firstly, a capital project. People need to see that their investment will change the dynamic of the enterprise over the medium to long-term, not just make things alright for the current financial year. Secondly, you need to be happy being owned by the crowd of supporters who invest. For some groups, there’s no one better to own a community asset than the community itself, but not all enterprises feel that way. For example, a charity that has been run for years by a self-regenerating board of trustees might baulk at being subject to democratic control by investors. Thirdly, you need a crowd for whom the opportunity to own you has a genuine and irresistible pull. It needs to matter to them, and the values they hold dear, that your project succeeds and is sustainable.

Beyond those three key factors, you’re effectively running a very big crowdfunding campaign and that requires a plan, along with imagination and people to help promote it. The Community Shares Company has partnered with Crowdfunder to create a platform where groups can organise community share campaigns, build support, promote share offers and manage payments. Your narrative should inspire people enough to want to invest but your system for getting that investment needs to be as frictionless as possible lest the enthusiasm fades. (You also don’t want the hassle of returning lots of money to people in the event that you’re not successful in reaching your target).

Crowdfunder also provide the marketing tools to promote offers using social media, where the global is as important as the local. Social media doesn’t just allow you to promote a campaign’s existence, it also provides essential social proof that other people are investing in the project, a vital part of persuading potential investors that they should, too. 

The first community shares campaign on Crowdfunder was for Positive News, who (at the time of writing) have raised over £135,000 from people in eighteen different countries to provide the working capital for a re-launch. Positive News have shown that you don’t need to have an asset, like a pub or a club, just something people believe in, something they want to succeed and something they’d be privileged to own. 

Community shares are not regulated by the Financial Conduct Authority in the same way as normal share offers to the public. That means that instead of the £100,000-plus you have to spend to do a public share issue, a community share issue can be created for much, much less—often only a few thousand pounds and sometimes even less. 

And the final benefit? People get a thirst for owning the things that matter to them. It starts with the pub, but rarely ends there. Successful projects seed other community enterprises as people start to see how they can use their own money to make good things happen, without asking for permission from politicians or banks or foundations. Being in control is infectious.

Dave Boyle is the founder of the Community Shares Company, and has spent 15 years helping groups bring the things that matter to them into community ownership. He has helped groups raise over £1M in community shares. He lives in Brighton.

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.

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Published in STIR magazine no.10, Summer 2015

Written by Dave Boyle