Social Investment-a new route to funding?

Full report available now

Social investment: a new route to funding?
Full report available here.

 

In mid-December we collaborated with London Voluntary Service Council in offering an introduction to social investment, expecting that the main takers for it would be voluntary organisations wondering if this is new route to funding for them. Fascinating that many funders came too, all eager to find out more about how lending or other more market-based forms of investment work alongside grantmaking. Iona Joy of NPC provided a clear and comprehensive overview and Jeff Scales from Locality talked about the services that can support the VCS in taking the plunge. Two social investors, Charity Bank and Social Investment Business provided a practical introduction to borrowing.

Presentations from the event can be found at the Your Voice, Your City website here.
 

Useful resources

Jeff Scales is Development Manager for Locality. Read his blog Social Investment-it's not for wimps! 

Attracting early-stage social investment
UnLtd, 2012
Launched in September 2011, UnLtd’s Big venture challenge (BVC), supported by the Big Lottery Fund, is an experimental programme designed to help 25 high-potential social entrepreneurs to scale up their social ventures rapidly. The programme offers grants and three years of non-financial support as well as match-funding to draw in external investment. Formative findings indicate that investors see equity investment as particularly appropriate for this stage in a venture’s journey and that angel investors are attracted to the BVC programme’s offer. 

BIG Lottery Fund
BIG is delivering the Social Incubator Fund for the Cabinet Office. More detail here. BIG has also published research by New Philanthropy Capital into investment readiness, which further demonstrates the need for support in this area – see here.

Big Society Capital and the City of London
In September, the City of London and Big Society Capital partnered at an event at the Guildhall on progress in the social investment field. Big Society Capital used the occasion to launch a new publication, The first billion: a forecast of social investment demand, commissioned from the Boston Consulting Group. The report argues that the social investment market is ready for growth but will need a greater appetite for risk and a stronger platform of social investment intermediaries.

At the same time, the City of London Corporation launched a £20 million Social Investment Fund, aimed at benefitting London but open to broader investment opportunities. This is seen as stretching the resources available to City Bridge Trust through its grantmaking, since the intention is for the loans plus interest to be continually recycled into new social investments. The assumption is that the first investments will probably take the form of relatively low risk secured loans and short-term bonds, while the market develops.

Big Society Capital also announced some £37 million in social investments, all aimed at its fundamental role of market-making in this emerging field, e.g.

  • Results Fund: £10 million to provide finance for social sector organisations competing for government payment by results contracts (including through social impact bond structures)
  • Nesta Impact Investment Fund: £8 million for a UK fund providing early stage capital targeted on three themes, ageing well, learning and employability of children and young people, and sustainable communities PURE: £1 million loan fund to finance small, community owned renewable energy projects in disadvantaged communities and use excess revenues generated to deliver social impact locally
  • ClearlySo: £1 million staged investment in key social investment market infrastructure (raising capital for social enterprises and social impact investment)
  • Social Investment Market CIC: a secured loan to enable the CIC to underwrite the issuing of a fixed income bond to build the market for further such bonds from charities and social enterprises
  • Social Stock Exchange: to support what is expected to be the world's first dedicated, regulated investment platform and exchange for social businesses
  • ThinkForward Social Impact/Private Equity Foundation: a social impact bond to finance intensive school-based support programmes to prevent young people in Tower Hamlets from becoming NEETs.
Produced by the Young Foundation for the Catalyst consortium, 2012
The report argues for the creation of a dedicated social finance retailer for the youth sector to offer a range of financial and non-financial products. It makes three priority recommendations to the sector; that organisations need to be able to evidence their impact, create new ways to collaborate and think through their business models. 
 

Growing the social investment market
A government contribution to the current buzz around social investment is a list of HMG’s initiatives in this field, in the form of a table with brief details and web links for what government is funding or running to:

  • increase the supply of social investment finance ranging from Big Society Capital to the Business Finance Partnership
  • build demand for social investment. This covers the various elements of the Investment Readiness Programme, direct investment through, e.g., the Innovation Fund, and legislative change such as the Rights to Bid and to Challenge
  • create an enabling environment – finance for the Inspiring Impact programme and NCVO’s Funding Central, the Red Tape Challenge, etc.

http://www.cabinetoffice.gov.uk/sites/default/files/resources/HMG_social_investment_initiatives_sep2012.pdf

Investment readiness in the UK
Dan Gregory, Katie Hill, Iona Joy, Sarah Keen (ClearlySo and New Philanthropy Capital), for Big Lottery Fund, 2012
The potential for growth in the VCS to increase social impact, analysed alongside the barriers to investment readiness. This report addresses the concerns of investors, third sector and intermediaries operating in the large gap between the two. Survey results show that 43% of groups interviewed were not looking for and not interested in repayable finance, with some 75% of them feeling that charitable money should be spent on delivery, not on repaying loans. 15% were seeking social investment, generally between £10,000 and £100,000, and 21% had secured repayable finance. A strong preference was expressed from the VCS side for finding mixed finance which combined grants and loans, though this is a scarce option, in fact. Underlying issues include a lack of suitable financial skills in the VCS.
Download the report here.

Social Investment Business
SIB’s Investment and Contract Readiness Fund has made its first grants, giving almost £1 million to eight small social ventures to help them scale up by buying specialist support and consultancy that should result in substantial growth and development. For more information on the recipients, see SIB news.

Image: http://www.goglobalafrica.com/invest-in-africa-partnership-with-sunderland/