1. Economics
May 16, 2019

Here’s why city governments should do more to support crowdfunding

By Jonathan Bone

Say “investment crowdfunding” or “buying shares”, and most people will think you are talking about taking a punt on a startup with the aim of making a good financial return if they become a success. However, investment crowdfunding, which involves a large number of individuals each making a relatively small debt or equity investment in a project, can also be about communities coming together to save a much-loved local pub from closure, or creating a new community arts space. In these situations investors are driven by motivations that are more about making their local area a better place to live, work and play, than making a financial return.

Over the last 9 months at Nesta, we have been working to understand how investment-based crowdfunding models – such as community shares and bonds – can be used to create projects which are owned and run by the communities they serve, and the benefits and challenges that come along with this. 

It’s easy to find inspiring examples of community-initiatives all over the country that have crowdfunded investment in this way. These include, but are not limited to, those running pubs, shops football clubs, workspaces, renewable energy projects and even broadband services.

From these examples we have learnt that investment crowdfunding helps to fund socially-beneficial projects that would otherwise struggle to find the money they need through grants or bank loans. Fundraising in this way can also lead to greater use of these assets, alongside increased offers of volunteering and other forms of support by the community they serve. In addition, by bringing communities together to improve their local area, these crowdfunding models can strengthen social cohesion and empower individuals with increased self-determination over the future of their local area.

However, raising money in this way is not all plain sailing, and community organisations often face difficulties in gaining access to assets or transitioning from grassroots fundraising to running a community business with a large number of investors to keep happy. Further to this, there are potential challenges around ensuring the diversity of those investing in and governing these assets are representative of the communities in which they belong.

City authorities have a crucial role to play in creating an environment in which strong community projects are able to thrive, and there are clear social benefits in them doing so. Cities can support local groups in overcoming some of the challenges, for example, by providing small grants to cover legal and advisor fees or by helping them access unused space, whether through the transfer of public sector assets or by acting as a matchmaker between private owners of unused spaces and community groups.

Plymouth City Council is one authority that understands the potential of crowdfunded community investment to improve how community development and regeneration is done. Plymouth residents’ interest in a new type of economy combined with the need for urban regeneration and the council’s desire to do things differently with shrinking local authority budgets provided the drive for Plymouth to brand itself the UK’s first “Social Enterprise City”.

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Contributing to this has been the council’s commitment to provide match funding to over 200 crowdfunded projects up to £20,000 each, from Community Infrastructure Levy funds and the designated £2.5m Social Enterprise Investment Fund, which offers a combination of grant and loan funding to get projects up and running. The Clipper Inn, a project to bring a dilapidated pub back to life as a community market and work space, is one project which has benefited from this fund, which has enabled the purchase of their building.

While cities are starting to see the power of investment crowdfunding to help community-led projects transform local areas socially, economically and environmentally, there remains potential for authorities to make supporting groups to use these tools a larger part of their regeneration and development strategies.

Jonathan Bone is a senior researcher in new technology at innovation charity NESTA.

You can read more about this work in our new report, Taking ownership: Community empowerment through crowdfunded investment. This research was conducted with funding from funded by the Greater London Authority through the London Economic Action Partnership (LEAP).

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