Money matters

| 2 responses | Posted by: David Floyd | Theme: Social Innovation & Investment

If you’ve attended a social enterprise event during the last year, you’ll probably be aware that ‘social investment’, which for ages was ‘the next big thing’, has finally become ‘the big thing’.

Now everyone, from the prime minister downwards, is talking about it. Some love social investment, some hate it but many of its strongest supporters and fiercest detractors are united in their confusion about what it is and what it’s for.

Last month, I was in Sheffield for Working Capital, a conference organised by Social Enterprise Yorkshire and the Humber – which was designed to relieve some of this confusion.

The event kicked off with an interview with Caroline Mason, chief operating officer, of social investment wholesale finance institution, Big Society Capital (BSC). BSC is an independent organisation set up by the government in April 2012 (and given £400million from unclaimed assets, plus £200million invested by major banks) to support the development of the UK social investment market, primarily by investing in social investment finance intermediaries (SIFIs) – organisations that get money from government or other investors, and invest it social enterprises and charities.

The version of ‘social investment’ that BSC is attempting to promote can take many forms – including loans, equity, quasi-equity and social impact bonds – but all these financial products involve an investor putting up some money and getting their money back (and more) if the venture they invest in is successful.

Responding to a question about whether BSC could describe itself as being ‘radical’, Mason was quick to explain four major constraints the organisation is operating under are that it:

– Can’t give out grants
– Has to be operationally sustainable – meaning that it can’t lose money
– Can’t invest in the frontline
– Is supposed to be around for the long-term

Mason acknowledged that “all these things are not helpful at the moment”, when the economic climate means many social ventures are dealing with lost contracts and cuts in funding – and really just want someone to give them some money.

Some in the voluntary sector believe repayable social investment is a bad idea in principle because it’s morally wrong for investors to make money by investing in social good. Unsurprisingly, given that they’d chosen to attend the conference, that wasn’t the prevailing view at Working Capital. Most of the contributions from the platform and questions from the floor focused on the practical relevance of different types of investment to social ventures.

Gemma Rocyn Jones talked about the findings of The Young Foundation’s recent report, which showed that many social ventures working with young people are keen to take on investment but aren’t currently able to do so because they’re not in a position to win contracts to generate the income to pay those investments back.

These findings reflect wider practical difficulties in the development of the UK social investment market. Last year’s Big Lottery-backed report, Investment Readiness in the UK, highlighted a series of significant mismatches between what social ventures want from the market and what social investors are currently providing.

These include the fact that most social ventures want relatively small (£10,000 – £100,000) unsecured investments, whereas most existing social investments (84% in 2011) are larger loans secured against buildings. The report also found that 49% social ventures surveyed wanted investments that are part loan, part grant but the ‘mixed-funding products’ represented only 7% of actual investments.

Given the big gaps between supply and demand in the social investment market, it was hardly surprising that many attendees at Working Capital were enthusiastic about the idea of crowdfunding, where social ventures use websites such as Buzzbnk to raise money from individuals who support what they’re doing.

The day ended with Ann Oldroyd, chief executive of Sheffield-based social investment intermediary, Key Fund, announcing that a partnership led by her organisation had received funding from the Cabinet Office’s Social Incubator Fund.

This funding will enable Key Fund and its partners to support the development of relatively small social enterprises with part-grant, part-loan finance. This underlined the message that there is money out there, but that social ventures need to keep the pressure on to ensure the social investment market provides them with the kind of investments they need.

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2 Responses

  1. Robbie Davison

    The last paragraph is a good place to start.. there is money out there but most of it is not for community based social enterprise and it wont be for the foreseeable future. BSC are fully aware of the problems as Caroline Mason highlighted but community social enterprise need not waste time attending conferences to find out that what is available is not for them. One of Caroline’s key points is BSC do not fund front line organisations but neither do the organisations they put there money into – so lets say for now there is nothing radical in their money supply chain.
    Rather than point towards a supply chain, pushing money out that most cant access, BSC have a duty to take all of the evidence that is apparent and use it to renegotiate with the Government about the terms required to get the money out into places that need it. Then and only then should they show up at conferences because until then there is nothing to discuss.
    How sad it is to have reached the point when crowd funding is seen as a real player in the market – good idea it is and some success will come of it – but as a mainstream solution (which is what is needed) – lets be careful out there because once this sort of thinking settles in as the norm there will be no turning back.

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