Supported by The Co‑operative Bank
How to finance your platform co‑op start-up
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Seed: Phase 5 – growing

Thanks to the funding raised you’ve now been able to hire new staff with specific skills and roles. 

The business model is working, and you have an operating platform. But you want to improve it, increase membership and trading revenue. The growth of the business will be an ongoing iterative process, so you might find yourself using the following funding options and processes multiple times. 

Platform co‑ops in this phase have raised between £400,000-600,000 per round.

Available funding

  • You can also launch other rounds of time-bound share offers for specific growth goals. You will need to show clear progress between each round to attract new investment. 
  • You can ask your existing shareholders to re-invest their share interest and/or dividend payments into the co‑op. It’s an easy way for them to reinvest their money in the co‑op while increasing their share capital. Depending on the scale of these payments, this can be a significant source of new capital.  
  • You could decide to operate on a federated model where the platform is a digital asset owned and governed by multiple organisations, each one with its own co‑op structure  and membership. The platform could be owned by a secondary co‑op or, if not all member organisations are co‑ops, a co‑op consortium. Alternatively the platform could be managed in common ownership through a not for profit organisation.
  • With a solid business plan and a good track record of achieving results, you should find it easier to access loans in this phase. Consider applying with loans from ethical, mutual and co‑op banks who are more likely to understand and support your mission and therefore can provide you with better rates.
  • You should still be looking for grant funding and sponsorship opportunities, but you should be for larger funds at this stage. 

What you need before you start raising funds

Fundamental

  • Constant revenue from the transactions occurring through your platform.
  • A viable platform that is operational and able to deliver your services.
  • A good track record of honouring financial agreements.
  • New market research to identify the changes needed to your product and your new potential users.
  • A new business plan that incorporates your learning up to now and defines the next phase of your business’s growth.
  • A new funding runway for the next phase of growth.
  • Solid teams and processes for the different aspects of the business that can easily adapt to the growth of your business.
  • Democratic processes that can operate effectively with growth.
  • Good retention numbers  of existing members and validation from your users of the value of your product or service.

Ideal

  • A steady growth of users.
  • Growing revenue from your existing services.
  • Expressions of interest from potential investors.
  • Ongoing relationships with grant funders and sponsors.

Case study: Open Food Network’s federated model

Open Food Network is an open source platform that enables ethical food supply chains. It provides a digital shopfront for ethical food producers and distributors.

The Network is formed by three layers: 

  • The global commons layer, that looks after the software and shared common resources.
  • The regional/country layer of entities that run instances of the platform in their regions (like Open Food Network UK). 
  • The local layer, which supports the co-producers that use the platform and develops tools and resources for the local context. 

The global commons layer is not set up as a legal entity, instead its relationship with the regional instances is governed by a contractual agreement called a ‘community pledge’, which sets out the rights and responsibilities of regional instances when using the common resources (brand, platform, knowledge base).

Each regional layer is a not-for-profit platform co‑op and an autonomous legal entity, whose members are the co-producers. Each regional entity is free to develop their own business model autonomously and are currently mainly financed via co-producer fees and grants. The aim, not yet reached, is for the global level to be financed entirely by regional entities, who should contribute 40% of their revenue to co-fund the common resources.

The UK entity, Open Food Network UK has up to now raised £750,000 from grant funders (Esmee Fairbairn Foundation and National Lottery Fund) of which 60% has been shared with the global commons network. 

Open Food Network UK is a Company Limited by Guarantee with no share capital, and is set up as a Community Interest Company. Co‑operatives UK supported Open Food Network UK via the UnFound accelerator.