Time-bound offers are offers that seek to raise a target amount of capital for a specific investment-ready project within a specified timescale. If the offer fails to achieve its minimum targets, or any of its contingencies, then the money is returned to investors and the investment project does not proceed. Time-bound offers are open to anyone who qualifies for membership, and because these documents promote an investment opportunity to the general public, it is crucial that they meet high standards of probity. Section 5 of the Handbook provides guidance on how offers should be promoted.
The commitment to refund applicants if the offer fails to meet its minimum targets means that measures should be taken to protect the monies received from applicants until the offer has been successful. There are several ways this can be achieved, for instance through the use of escrow or suspense accounts held by trusted third parties, or by payment procedures that are held in suspense until the closing date of the offer. At the very least, a society should hold applicants’ funds in a separate account established for this purpose.
Because a time-bound offer is connected to a specific investment proposition, it is normal to suspend the withdrawability of share capital until the investment has been made and the society is trading profitably. Typically, this period of suspension may last up to three years.
Time-bound offers are most effective when the purpose of the investment is clear. The community purpose of the investment should be attractive to potential investors, enabling them to engage with this purpose through the simple act of investment. Potential investors will have three immediate concerns: Are they at risk of losing some or all of the money they invest? What are the community benefits of the investment project? How can they exit from their investment?
If the society is intending to raise some of the capital it requires from institutional investors, it needs to explain how this institutional funding will affect the interests of community shareholders. Section 1.5 of the Handbook examines institutional investment in more detail, and provides guidance on how it should relate to community shares.
Investors will also want to know how the money raised will be used. Will be it be spent on tangible assets that could be sold if the society underperforms and gets into financial difficulties? Or will it be used to provide working capital, covering initial losses, with the inherent danger that continued losses will erode the capital of the society?
There will also be longer-term concerns about the financial returns on the investment. However strong the social motivation may be, financial incentives will always assist the overall motivation to invest. But any offer of financial returns has to be plausible, and supported by evidence presented in the business plan.
If you have any questions or suggestions for new information you would like to find in the Handbook, contact the team by email at [email protected]