In the life cycle of any business, there comes a point where looking at strategic growth strategies is important. Likely this comes when a store is reaching the top end of sales per square foot and needs more space. The range of options is typically a remodel, expansion, or even building an additional location. While these opportunities can be exciting, they also depend on adequate capital for their success.

Raising capital is especially important for cooperatives, which don’t have a typical ownership structure that banks or lenders are used to. Mobilizing the co-op’s membership to raise funds through an owner capital campaign can be an excellent strategy. There are other benefits, including engagement with members and helping the community learn more about your business operations.

Columinate consultants Adam Schwartz and Ben Sandel recently helped NineStar Connect, a utility cooperative in Indiana, run a successful owner capital campaign to raise funds for new equipment.

Ben answered some questions about capital campaigns to help guide any co-ops interested in strategic growth and running a successful owner capital campaign.

What is a member loan campaign or an owner capital campaign?

At its simplest, a member loan campaign is a way to raise funds quickly from owners. A more accurate term is an owner capital campaign because the vehicle to raise capital can be loans, preferred shares, investment certificates, bonds, or donations.

Owner capital campaigns have become a great way to give co-op owners an additional benefit to being part of a cooperative, can bring positive attention to a co-op and a project it is undertaking, and are often an essential element in securing additional funding like bank or credit union loans or grants.

What types of expenses is this owner capital used to fund?

I’ve worked with co-ops that raised funds to open an additional location, relocate their store, start a brand-new co-op, renovate and modernize an existing store, purchase the local conventional grocery store, purchase a building, and even purchase a new heavy-duty bucket truck for an electric utility.

Why would a co-op pursue an owner capital campaign as opposed to other financing methods?

Most co-ops use owner capital campaigns in addition to other financing methods, often to lower the amount needed to be borrowed from banks, credit unions, and other sources.

Are there ancillary benefits of this model?  

These campaigns can draw lots of positive attention to the co-op, tend to be at lower interest or dividend rates than money borrowed from banks or credit unions, and can be structured more flexibly and favorably for the co-op.

They can also give co-op owners an amazing benefit — they can put their money to work in their own community, supporting an institution that serves them on a daily basis instead of putting the money in the hands of a bank or investment firm that has no particular connection or concern about the local community. Plus, the results often show up as equity on the co-op’s balance sheet, so they can strengthen the co-op’s ability to garner additional financing.

Tell me about the owner capital campaign you were involved with in Indiana.

Adam Schwartz and I helped a utility cooperative — providing electric service, water and sewer, internet, and other services, raise $350K to purchase a new bucket truck for its maintenance uses.

How did that come about?

Adam had worked with this co-op before, and he knew they were interested in finding more and better ways to connect with their owners and to bring them more value. He mentioned the idea of an owner capital campaign, and after some legal investigation, they decided to try it. It was a huge success!

Any other successful owner capital campaigns you’ve seen recently that are examples of how to do it right?  

So many! Assabet Co-op in Maynard, Mass., has done a great job raising over $1.5M so they can start building their store. Fredericksburg Food Co-op in Fredericksburg, Va., raised almost $2M for their first store. Co-ops in Springfield, Vermont; Astoria, Ore.; Hardwick, Vt.; and Mt. Pleasant, Mich., used capital campaigns to relocate from smaller and outdated facilities to new, larger, state-of-the-art locations. Co-ops in Hancock, Mich., and Lincoln, Neb., are in the planning stages for their relocations and capital campaigns now. 

Any pitfalls to be aware of?

There are federal and state laws to be aware of. Also, good financial planning and legal advice are essential.

Where should co-ops go to learn more about capital campaigns?

Food Co-op Initiative’s Capital Campaign Workbook is a great place to start. Co-ops can contact me, and I’ll be happy to talk to them about their campaign.

What tips do you have for co-ops considering looking into or beginning an owner capital campaign?

Go for it! Though they can be a lot of work, the rewards go well beyond financial.

---

Contact Ben Sandel or Adam Schwartz for more information about owner capital campaigns.