A role for financial intermediaries
In the previous issue of the Newsletter we reported that the focus of the Community Shares programme had expanded from “how to do it” to include “how to regulate it”. We now need to add a third “how-to” to the list: “how to finance it”. Banks and other financial intermediaries have a vital role to play in supporting community share offers that could be pivotal for the future development of the sector.
Support is needed in three important areas. Firstly, many new groups struggle to obtain the resources they need to fully investigate and develop their proposals in a timely fashion. We have been promoting the concept of pioneer share offers, where members and known supporters of these groups invest in withdrawable share capital at an early stage. There is a role for financial intermediaries, especially grant-giving bodies, to support these pioneers by matching their investment and sharing the risk of investing in pre-start organisations. Elsewhere in this newsletter, we report on how Brighton Energy Limited has successfully completed a pioneer offer.
Secondly, there are many people who want to invest in community enterprises, but do not have the ready cash to invest. Investment by subscription, a concept we explored in Newsletter No.2, where members make small monthly payments over a number of years, is a way of making investment affordable. To incentivise such investment, financial intermediaries could provide short-term bridging finance, secured by the sale of subscription investments, which would provide the society with the capital immediately, rather than having to wait several years for subscriptions to accumulate.
Finally, financial intermediaries could play a part in co-regulation by offering to underwrite community share offers. The due diligence entailed in underwriting offers would ensure that offer documents comply with guidance and best practice, as well as giving potential investors the confidence that the offer has been professionally vetted and approved.
The government has promised to create a Big Society Bank, getting £200m from Britain’s banks to invest in civil society. Given the success of the Community Shares programme, described elsewhere in this newsletter, the Big Society Bank could hit the ground running by enabling financial intermediaries to back community share offers.
Supporters’ trusts turn to community shares
Over 70% of supporters’ trusts may be interested in launching a community share offer to purchase their club or stadium, according to a recently published survey by Supporters Direct. Inspired by the example of FC United of Manchester, which is well on the way to completing its £1.5m share offer, many trusts are now looking at how they can follow suit.
Supporters’ trusts already have a proven record of raising money, with over £30m raised over the years from largely traditional fundraising methods. Now there is real excitement about the potential community share issues have not only to raise money, but also to engage communities. Supporters Direct is also investigating how some of this money retained in Trust reserves could be used to lever in additional funds, and enable more clubs to become community owned.
Supporters’ trusts have now been established at over 160 football and rugby league clubs, ranging from Premier League’s giants such as Manchester United and Arsenal, through to small local clubs like Chesham United and Halesowen Town. Already, more than 20 clubs are owned or majority-controlled by their supporters’ trusts and there are over 100 trusts that have a shareholding in their clubs.
Given the range in the scale of clubs, different solutions will be needed to enable supporters to invest in and own their clubs. At Arsenal FC, where shares in the club are currently trading at over £11,000 each, valuing the club at more than £600m, share-ownership is beyond the reach of most supporters. Arsenal Supporters Trust has created a society called Arsenal Fanshare that allows fans to invest regular monthly amounts, ranging from £10 to £1,000. Money invested in Arsenal Fanshare is used to buy shares in the club itself. Since its launch in August 2010 over 1,600 fans have joined Arsenal Fanshare and invested more than £350,000.
Supporters Direct is now developing a campaign to promote community shares, making sure that supporters trusts understand the concept, and have access to advice and support. Later in the year it will be publishing a policy paper on raising finance for community ownership, and it will be featuring community shares at its annual conference in July.
How big can community shares get?
Making predictions about how big something may become is a perilous activity. It is easy to sound ridiculous, especially given that size is a relative matter. What is huge to some people is absolutely tiny to others. A couple of years ago, when the Community Shares programme was still in its infancy, I bragged in a workshop about the scale of what had already been achieved: 84 enterprises in total, 41 of which had been established in the last ten years. One member of the audience expressed their amazement, “I thought you were going to say there were 8,400 enterprises, not 84”.
Of course it all depends on what you are comparing it with. If you compare the number of enterprises funded by means of community shares with the total number of enterprises in the UK, which currently stands at 4.8m, even 8,400 seems paltry, let alone 84. A comparison with the number of social enterprises, currently estimated to be 62,000, merely confirms the impression that community share offers are still pretty rare.
Today there are 177 enterprises that have issued, or plan to issue, community shares. That’s more than double the number two years ago. At the same rate of growth, the numbers should swell to over 750 by 2015 and at least 3,000 by 2020. Even so, the numbers still seem quite small: less than 5% of the total stock of social enterprises.
But are these comparisons really fair? Wouldn’t it be fairer to compare the number of community share offers with the number of initial public offers (IPOs) in the private sector? Here the numbers start to look much more respectable. There were 123 new admissions to the Alternative Investment Market (AIM) during the period 2009-10, compared with 76 new community share societies during the same period. On current growth projections, the number of new community share offers could overtake the number of initial public offers in the private sector by as early as 2013. Perhaps the private sector has a thing or two to learn from the Community Shares programme about how to popularise equity investment.
Market News: New registrations
The following new societies, all of which are planning a community share offer, have been added to the Community Shares directory since the last newsletter in December 2010:
- Red Brick Building Centre Ltd Regeneration of derelict building as arts and cultural centre for Glastonbury and Street, in Somerset
- LARC Ascending Ltd Social care for young people with learning difficulties in Lincolnshire
- Portland Works Little Sheffield Ltd Community buy-out and development of a historic building and workspace
- Dunsfold Community Shop Association Ltd (no website) Community buy-out of last remaining shop in this Surrey village
- Community Energy Warwickshire Ltd (no website) Renewable energy initiative
- Cybermoor Networks Ltd Rural access to broadband services in Cumbria
- Norton Energy Community Ltd Renewable energy initiative in Yorkshire
- Hinton St George & Locality Rural Community Services Ltd (no website) Community buy-out of village shop in Somerset
- Cumbria Community Renewables Fund Ltd (no website) Renewable energy initiative
- Spaxton Community Shop Society Ltd (no website) Village shop in Somerset
- Cottingham and Middleton Community Shop Ltd (no website) Village shop and cafe in Leicestershire
Current share offers
The following societies have recently launched community share offers, which are still open to investment:
Recently completed offers
The following societies have recently completed their share offers:
Another (red) brick in the wall? Supporters are being urged to invest £140,000 in community shares, representing £1 for every one of the 140,000 bricks that make up the Red Brick Building Centre near Glastonbury in Somerset
4CG Limited, a community benefit society established by the people of Cardigan, in rural south-west Wales, has purchased a large part of their town centre
The Ethical Consumer Research Association has raised over £140,000 Read more
- New co-operative society, Cybermoor Networks Limited, aims to make a community share offer later this year Read more
- Brighton Energy Co-operative has raised £20,000 from a pioneer offer to members and supporters Read more
- Mustard Seed Property Limited has launched a community share offer Read more
- Community Shares will be exhibiting at Voice 11, the UK’s biggest social enterprise event, on 30th March 2011 at the prestigious London venue O2 Read more