4.4.1 Purpose

The purpose of a pioneer offer is to raise share capital for a new society that will be spent on getting the enterprise investment-ready. Investing in an enterprise at this early stage is a high-risk activity, and because of this, pioneer offers should only be made if a society is unable to raise the risk capital it needs from grants, gifts or donations.

 

Developing pre-start initiatives can be expensive, time-consuming and highly risky.  Pre-start development costs may include professional fees for legal advice, society registration, financial advice, planning permission, asset valuations, market appraisals, feasibility studies and business plans. The society will be unable to recoup these costs if its plans turn out to be unfeasible, or if the society subsequently fails to attract the investment capital it needs to implement its business plan. If the society is planning to acquire an existing business or property, there is the risk that the society will lose a competitive bid, and will be unable to proceed, even though the proposition is viable and the society  is able to raise the necessary capital.

The best way of financing these development costs is through grants, gifts, donations and other voluntary fundraising methods. However, there is a limit to how much money can be raised this way.  Supporters may be prepared to provide more development finance if there is a possibility, however remote, that they could get their money back.

 A pioneer offer invites the public to invest share capital, which will be spent by the society to get investment-ready. If the society is unsuccessful and ceases to exist, pioneer members  could lose most, or all, of their investment. However, if the society’s plans succeed, and it becomes a profitable enterprise, then pioneer member may be able to withdraw their capital in accordance with the terms of the pioneer offer, and subject to any renegotiated terms set out in subsequent offer documents.

Before making a pioneer offer, the venture needs to prepare a development plan that identifies all the costs that will be incurred in becoming investment-ready. Development costs should be kept in scale with estimates of the start-up costs of the venture, and should not normally be more than 5% to 10% of these start-up costs. 

If you have any questions or suggestions for new information you would like to find in the Handbook, contact the team by email at communityshares@uk.coop