Two Manchester football teams are at the top of the Premiership, battling it out to be this year's champions. But a third Manchester club is also feeling decidedly upbeat. FC United of Manchester has just proved the viability both of supporter-owned football clubs and of community share issues.
FC United of Manchester is a rebel club, set up by Man United fans who walked away from their old club in disgust when it was taken over in 2005 by US businessman Malcolm Glazer. Starting from scratch, the team has worked its way through a series of minor leagues to its current place towards the top of the Northern Premier league. Importantly, the club has just reached its target of £1.6m towards its own football ground, contributed in investments through a community share issue. Moston, the site chosen for the stadium, may not be Old Trafford but the green light for the builders to move in can now be given.
Andy Walsh, FC United's General Manager, regards the successful completion of the share issue as a big step forward. "Community shares give a tangible way for fans to raise significant sums of money while preserving the football club as a community asset. We believe community shares is a preferable way of raising finance to borrowing from banks, and more sustainable than relying on wealthy individuals who may not always have the best interest of the club at heart," he says.
The money which FC United's fans have contributed for the Moston ground is investment capital rather than donations. Nevertheless, the new shareholders are aware that they are not investing primarily for financial gain. The FC United prospectus promises no interest at all for three years after the stadium is complete, and then up to 2% above base rates if the club makes profits, interest being "at the discretion of the Board having regard to the long term". And investors do not have any extra rights over other members of the club, which is co-operatively structured: "Shareholders all have just one vote regardless of the number of shares they hold, preserving the common ownership of the club," Andy Walsh confirms.
FC United is the latest in a rapidly growing – and disparate – group of organisations and community enterprises who are getting the equity capital they need from the savings of their friends and supporters. Just to the south of Greater Manchester, the Derbyshire community of New Mills raised over £120,000 towards the UK's first community-run micro hydroelectricity scheme in the nearby Torrs gorge. Across the Pennines, a much-loved local foodstore in the Colne valley town of Slaithwaite was successfully converted into a co-op, the Green Valley Grocery, again funded partly through community investments. There were 16 such share issues completed in 2009, 19 in 2010 and 22 last year.
Community share issues are available to enterprises incorporated through the Industrial and Provident Societies Act, the venerable legislation which has historically given both co-operatives and so-called "benefit of the community" (BenCom) societies their legal status. It was the way that thousands of locally-owned village co-operative societies became established in the nineteenth century, and according to Hugh Rolo, director of Innovation for the charity Locality, it remains relevant today. "It's old but it's fit for purpose. It's proved quite a resilient business model, whether for football clubs, pubs or community energy schemes," he says. And because local people have put in their own money, it helps convince other investors to get involved, he adds: "People can see that there is genuine local commitment for something."
Locality and Co-ops UK have recently run a joint project to promote the idea of community shares and there are high hopes that the government may be persuaded to build on this work by stumping up the funding for a dedicated new Community Share Unit. In the meantime, much useful information is available on the community shares website, and in the booklet the Practitioners' Guide to Community Shares. Its author Jim Brown of Baker Brown Associates points to the rapid growth of new IPS co-operative and BenComs registrations (over a hundred last year) as evidence of the upsurge of interest. He also praises the new Seed Enterprise Investment Scheme, which potentially offers 50% tax relief on qualifying community share investments, as a highly significant development: "This is the government putting in the equivalent of matched funding," he says.
Another separate initiative has been the launch this year by Co-operative and Community Finance (CCF) of its new Community Shares ICOF Fund a dedicated fund which is offering the equivalent of an underwriting service for new community share issues. As CCF points out, its backing of a share offer can offer welcome reassurance to potential investors of the strength of the business plan. CCF's fund is also available where money has to be raised very quickly, for example so that a building can be purchased.
Anyone thinking of investing in a community share issue needs to be aware that, as with all equity investments, there are risks. One issue is that the shares, once bought, may not be readily convertible back to cash. Although some pioneers in the community investment movement are discussing developing community equivalents of local stock exchanges, at the moment shareholders may have to wait either until new investors can be identified or until the business has surplus funds available to repay them.
Unlike public share issues by conventional companies which are controlled by the Financial Service and Markets Act, IPS organisations are less tightly regulated. It means that a co-op or BenCom can usually launch a share issue for less than £10,000, considerably less than the £50,000 or more than an equivalent small company would need to find. But, as Jim Brown explains, this means there is an onus on ensuring that new community share issues are responsibly run. "There is still work to be done on understanding what constitutes good practice," he says. Unfortunately, a small number of businesses launched with community share issues have gone under.
But at least community share issues are now a respected way of raising money. Jim Brown is less sanguine about some of the activity on the increasingly popular crowdfunding websites. Some of these, he claims, are inviting large amounts of investment capital from the public with very little in the way of external regulation.
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