4.4.1 4.4.1 Purpose

The purpose of a pioneer offer is to raise share capital for a society that will be spent on getting the enterprise investment-ready. Investing in an enterprise that is not investment-ready is a high risk activity, and because of this, pioneer offers should only be made to existing members or known supporters who have already expressed an interest in investing in the society. Pioneer offers should not be promoted to the general public.

Developing pre-start initiatives can be expensive, time-consuming and highly risky.  Pre-start development costs may include professional fees for legal advice, financial advice, planning permission, asset valuations, market appraisals, feasibility studies and business plans. The society will be unable to recoup 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 has raised the necessary capital.

The best way of financing these development costs is through grants, gifts, donations and other voluntary fundraising methods. However, there is usually a limit to how much money can be raised this way.  Members 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 members and known supporters to invest share capital, which will be spent by the society to get investment-ready. If the society is unsuccessful, pioneer investors will lose all that they invest. However, if the society’s plans succeed, and it becomes a profitable trading enterprise, then pioneer investors 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