Member/stakeholder investment

Your stakeholder are the people and organisations which have a financial, social or environmental interest in your social business.

Key stakeholders are employees, customers, suppliers, investors, community, bank, lenders, partner organisations and government. 

These stakeholders may be part of the social business membership and have democratic member control over the organisation. Members and other stakeholders may wish help the social business achieve its goals by investing in it.

Types of stakeholder investment

Member or stakeholder investment is good for the social business. It shows faith and commitment, important in the assessment of other investors. There are several types of investment your stakeholders can choose from:

Equity

Equity is the next best thing to retained profits. It reduces dependency on outside investors and does wonders for your credit rating (evaluation of the timely repayment ability of an individual or business) with suppliers.

If your stakeholders make their investment as shares, it shows right down the bottom of the page on the balance sheet. Rather than showing as a liability the way a loan would, equity investment shows up alongside retained profit as cash that belongs to the business with no imminent requirement to be repaid. It also makes the gearing ratios (the proportion of the business 'owned' by insiders versus outsiders) safer.

Sweat equity

If your stakeholders are already investing vast quantities of unpaid or volunteer working time, they may resist investing actual cash. Members might also be focused on their community, raising money for their charitable purpose or what the enterprise should do for them, rather than on what investment is required.

However, if the stakeholders want to secure employment, the achievement of their social purpose and future revenue streams, they need to consider what they need to put in to make it happen. 

How to create a balanced investment strategy

Particularly in the start-up or early stages of enterprise development, stakeholder investment can be a critical part of a balanced investment strategy. Based on your members' investments or the retained profits of the business, you can look to lever in outside investment. When levering funds you need to have something to ask the first outsider to match before turning to the second to match again.

One recent start-up was kicked off by 4 unemployed people each of whom reckoned they had zero pennies available to them. Three boot sales of accumulated life debris, one sale of a caravan, one downgrading of a car and the sale of a gold bracelet later there was £6,000 in the pot.

Other start up and expansions have been financed by:

three months of window cleaning
dinner parties where the guests paid restaurant prices
mortgages on life insurance policies
personal loans from the bank
digging a trench
doing work for other enterprises that held the pay back until it was required

Support with distribution of shares

Community Shares Wales  is funded by the Big Lottery Fund and delivered by the Wales Co-operative Centre. It provides support across Wales and works closely with the UK Community Shares Unit. The project aims to raise awareness of community shares across Wales and support communities through the process of share issue, enabling them to develop local services and facilities at the heart of their communities.