UK’s social businesses develop taste for financial democracy
THE Bristol Wood Recycling Project (BWRP) built a solid business out of selling people used wood for their houses, but the 15-year-old shop has had trouble finding a permanent home of its own.
So now, it has turned to crowdfunding to help it settle down.
BWRP, based in the West of England, is a social enterprise – a business that aims to do good as well as make profit – that collects, resells and refurbishes used wood that would otherwise end up in the chipper or incinerator.
BWRP has joined thousands of other social enterprises around the world in launching a crowdfunding campaign to help their businesses survive and thrive.
They are hoping to raise £430,000 (RM2.25mil) via crowd-funded bonds to buy the property it currently rents for £35,000 a year.
“We didn’t have the necessary deposit for a normal mortgage,” said BRWP’s co-founder and co-director, Ben Moss, whose business is arranged as a co-operative with 11 staff and 40 volunteers, many of whom are out of work.
“Doing the bond offer gives us much more space to grow our core business. We wanted to keep focused on the community and environment aspects of what we do,” he told the Thomson Reuters Foundation.
Crowdfunding – where people donate to support a cause, idea or product – has become a growing source of investment for social enterprises over the past decade.
In recent years, a raft of crowdfunding platforms that allow consumers to invest directly in social enterprises for a financial return has emerged.
These include Britain’s Ethex, Abundance and Triodos Bank UK and the Netherlands’ Lendahand.
“There is a growing awareness that people should make a positive choice about where they put their investment money,” Oliver Hunt, an associate at law and consultancy firm Bates Wells, said.
“Crowdfunding is an easy means of finding projects that you believe in and also generate a financial return,” he said.
Triodos became the first bank in Britain to offer its own crowdfunding platform when it launched last year.
It has raised about £20mil for eight projects, such as community renewable energy companies, so far.
“Since the financial crisis, in the absence of banks lending, crowdfunding and peer-to-peer lending took off,” Bevis Watts, managing director of Triodos Bank UK, said.
“That awakened an appetite in the public psyche to invest in things directly,” he said.
Triodos allows consumers to choose projects to invest in via its site, issuing them with a bond paying a fixed rate of interest over a certain time period if the business succeeds.
BWRP’s bonds pay 4% interest over the next six years, for a minimum investment of £50.
Not all social enterprises are geared up for crowdfunding, however. Depending on how they are structured, they might struggle to make regular payments to investors over a long period.
Setting up and creating publicity for the crowdfunding campaign, which typically involves a lot of social media marketing, can be arduous.
Social enterprises must weigh up whether they have the resources to crowdfund, or whether the time is better spent applying for funding grants, Peter Baeck, head of collaborative economy research at innovation foundation Nesta, said.
There is always a risk that investors will not get their return if a project fails, which can damage a social enterprises’ reputation, he adds.
Because people often view these investments in the same way as a charity donation, especially if they invest small sums, a potential loss is less bruising, said Hunt.
Moss is aware of the potential reputational risks with crowdfunding.
“If we were to fail, we would be mortified. But both parties are confident that won’t happen,” he said.
BWRP was required to present Triodos with a strict business plan, showing how it will make money to pay back investors. It is also required to issue annual reports to investors.
BWRP pays the bank a fee of £2,500 for arranging the crowdfunding campaign and an additional £16,500 if it reaches the target.
Still, the interest BWRP has had in the campaign appears to be a vote of confidence. One day after launching the bond offer, BWRP made almost half of its target. — Reuters