Phase 4: Building

You have a tested business model and a working Minimum Viable Product and you want to launch your platform and grow your membership. 

Up to now you have relied predominantly on non-repayable finance, but you now have the grounds to raise more significant amounts of funding in the forms of equity and debt. These funds are usually used to navigate the so-called “valley of death” – the phase in which you need to start growing more rapidly as your revenue from trading is not yet covering your running costs. 

Platform co‑ops have raised £200,000-400,000 in this phase, but the amount your co‑op will need is dependent on your specific sector and business model.

Available funding

• If you are set up as a Society now is an ideal moment to issue your first time-bound offer of withdrawable shares and start building your membership (pioneer offer). Co‑operatives UK offers Societies business support for their share offer via The Hive and the Community Shares Booster Programme.
• Grant funding and sponsorship still remain funding streams that are worth pursuing. An interesting way to attract this kind of funding is by asking funders to participate in your equity share offer. They can do so by investing a specific amount or by match funding. This is when a funder agrees to invest in your organisation by matching the funds you raise from your community, up to a pre-agreed upper limit. Match funding often helps boost share offers – not only by contributing the funds, but also by giving more confidence to other people to invest, therefore attracting more investors and larger sums.
• Now that you have defined products and services, you could ask users to pay in advance for a product, especially if the payments are low. Advance payments could offer extra benefits, for example allowing users to pay in regular, predictable instalments, or to access new features before other users.

What you need before you start raising funds

Fundamental

• A tested business model and robust financials with which you can go to your funders with confidence.
• A working Minimum Viable Product you can use to show how the business can operate.
• Clear roles, responsibilities and processes for running your business.
• An increased profile and reputation to attract investors and members.

Ideal

• Growing revenue from your products and services.
• Expressions of interest from potential investors.
• Ongoing relationships with grant funders.

Case study: Equal Care Co‑op and their pioneer share offer

Equal Care Co‑op is a care and support-co‑op based in the Upper Calder Valley that puts care givers and receivers in charge.

In summer 2019 they launched their first pioneer share offer of non-transferable withdrawable shares with a share price of £1, an interest rate of 3% and a minimum investment of £100. 

In two months they raised around £410,000 from 166 investors, with an average investment of £2,375. New members did not have access to the platform before the share offer, but their investment showed their desire to engage with the service and to support its purposes. 

The share offer was supported by two investments from grant funders in the form of match-funding:

• £74,000 from Open Society Foundations, as part of their support towards the platform co‑op movement
• £100,000 from Power to Change, in recognition of local communities being at the center of the co‑op’s mission. 

The investment was provided in the form of grants to Co‑operatives UK, who then invested in the co‑op on behalf of the funders. 

If we exclude the institutional investment, about 20% (£45,000) of the remaining funds were raised from 23 investors in Hebden Bridge, where the co‑op is based. In addition there were two other locations from which the co‑op was able to raise significant funds (Norwich and Leeds) showing how a share offer can be an opportunity to identify where to start building new local networks. 

Among the investors there were also two other co‑ops, demonstrating how equity share offers can be a great way for the co‑op movement to exercise principle six – co-operation among co‑ops. 

Due to the nature of withdrawable shares, no matter how much a funder invested in the co‑op, they still only hold one vote. 

In addition, Equal Care Co‑op’s multi-stakeholder structure gives their investors class a 10% weighting in comparison to the other members it aims to serve: providers and receivers of care. 

Equal Care Co‑op is a multistakeholder Co‑operative Society and has been supported by Co‑operatives UK through The Hive, the Community Shares Booster Programme, the UnFound Accelerator and a pilot financing programme with Open Society Foundations.