Part 2: Understanding finance

What is finance? 

Finance, simply put, is “other people’s money”. It is funds that other people or organisations are prepared to give to you to further the aims of your business. 

External finance usually comes with strings attached

Funders will provide finance based on their own business model and aspirations, and will expect something in return, which could be monetary, or could be related to the impact of your business on sectors your funders want to support.

Funders can come in all shapes and sizes

They can be individuals in your community, local businesses, a large grant funder, a bank or a government body. What they have in common is that they believe in the success and importance of your business idea - and are prepared to put their money in it. 

The relationship with your funders will depend on the formal agreement you have with them

A formal agreement will outline what you will give to the funder in exchange for the funds they will be providing. However, it is important not to regard finance as merely a contractual agreement. It is potentially much more. 

Funders are invested in your business and will want to see it succeed, so they may be keen to support you in other ways, for example providing you with contacts, advice and visibility. 

Choosing the right funders will be important for the success of your business 

The more aligned your funders are with your mission, the more support you are likely to receive, including more favorable terms in your agreement. 

You should be wary of funders who expect you to modify your mission to obtain their funding, especially if their main motive is to gain huge profits from your success. 

Finance for platform co‑ops

Finance for platform co‑ops is based on seven co‑op principles that provide guidance on how to safeguard the mission of your organisation. 

Each type of finance has its pros and cons and can be more or less appropriate for the different stages or needs of your business. 

External finance will be mostly necessary at the start of your journey or when you are looking to grow the business or test a new idea for a product or service. The type of finance you aim to raise might also influence your choice of legal form.