Social Investment from the Crowd

ACEVO has teamed up with the Community Shares Company to provide an alternative social investment route for organisations through Big Potential Breakthrough. Dave Boyle is Director of the Community Shares Company and was previously a third sector Chief Executive. In this blog, Dave gives his views on the potential of crowdfunding.

Hardly a day goes by without some reference to the potential for social investment, but the hype isn’t yet matched by the reality. Part of the reason for many organisations is a very reasonable debt-aversion. In order to afford repayments (sometimes with eye-watering interest rates) organisations have to do new things. Perhaps generating surpluses that are much more aggressive than they’re either comfortable with or used to. What if organisations just can’t afford it? How angelic will their angel investors be then?

There is another way though, using the power of a genuine bunch of angels – your existing supporters.

Community Shares are a specific form of crowdfunding where people invest in equity stakes. It’s a very specific form of equity, perfectly suited to the third sector. Although investors can be paid a small rate of interest and can be repaid their money, whether that actually happens is up to the Board of the organisation they’ve invested in. They decide each year whether it would be prudent to do pay money back or pay interest, after ensuring that the social benefit the organisation is trying to deliver happens.

It’s a form of ‘potentially repayable philanthropy’. It sits as equity in law, but can be repaid like a loan. So, interest is a cost of capital, not a distribution of surplus.

That potential is critical. It ensures that investors can get a tax break of 30% (50% if its a new venture they’re investing in) if they’re in the UK tax system, which can incentivise significant sums. Those significant sums are still from ordinary people though. Data from the government-funded Community Shares Unit shows the average investment is around 5-10 times higher than what individuals are prepared to donate, with an average of around £400 per person. These aren’t the high rollers though. Community shares are being bought by ordinary people on ordinary incomes; ordinary people that many charities have long had as supporters.

Hastings Pier was a ‘standard’ Charity, registered as a CLG, which needed significant investment to complete the renovation of their fire-damaged Victorian pier. They converted to a Charitable Community Benefit Society, registered with HMRC as an exempt charity rather than with the Charity Commission. They raised £590,000 from 4000 people. Those engaged investors now own the Pier through their ownership of the charity itself, and are a ready-made set of customers ready to support the Pier when it re-opens. All the evidence says investors are more engaged than donors, as they have transformed their relationship from a distant and sometimes vicarious one (donation as apathy-guilt salving, if you will) to an active and engaged one in which they feel a real sense of responsibility that translates in a real bottom-line benefit.

As interesting, was the first share issue undertaken by the Crowdfunder Community Shares platform for Positive News, a magazine that needed significant investment to relaunch in the modern web-era of publishing. They raised £263,000 people from 33 countries and it was the first big share issue for a non-geographic community. Most share offers to date have been for very tangible local assets – pubs, shops, football clubs – or pretty lucrative energy generation schemes. Positive News investors were the first ‘community of interest’ investing not primarily for a return but because they want to live in a world where Positive News thrives rather than subsists.

It’s not for everyone though. Some organisations worry about having genuinely engaged supporters disrupting a previously tight and cosy Trustee Board. Though there are ways to balance the existing charitable trustees alongside those elected from the new investor base.

So, if you have a need for capital to realise your mission and a crowd of supporters who cherish that mission, Community Shares could be for you. They’re the right kind of money on the right kind of terms from the right kind of people for the best kind of motives.

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