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Five things every social entrepreneur needs to know about social investment

4 February 2015

The article at a glance

You set out to change the world, and now you are, one step at a time. So could social – as opposed …

You set out to change the world, and now you are, one step at a time. So could social – as opposed to mainstream – investment turbocharge your organisation?

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1. Social investment works

Social investment may be a much better way to get capital into the organisation than use of grant finance, or other more conventional funding methods, says Belinda Bell, a Fellow of Social Innovation at Cambridge Judge and programme director at Cambridge Social Ventures, an incubator programme that offers business support, training, workspace and assistance on accessing social investment to businesses of all kinds which deliver positive social impacts. “If we can get our hands on the money we can use it to drive social change.”

Bell cites organisations like FareShare, originally an offshoot of the charity Crisis, that used social investment finance to increase the scale of its work redistributing unwanted food from supermarkets to charities across the UK. It now helps more than 1,000 charities to deliver 50,000 meals every day. Or Oomph!, which has used social investment to expand its services, helping elderly people in care homes to enjoy better lives through specially designed exercise programmes, from a single care home in Yorkshire to more than 600 and counting across the country.

2. It’s a growth area

The number of social investment funds and intermediaries has increased significantly during the past decade, including the launch of the wholesale social investor Big Society Capital. That means there is now more capital available to social ventures in the UK than ever before – in theory. By the middle of 2014 Big Society Capital had already committed to £150m worth of funding, attracting matching funding from third party investors.

The fact there are still so many social entrepreneurs who are only now learning about the role social investment finance could play in their work suggests this is still a major growth area. But much more work is needed: for example, to tackle the issue of female social entrepreneurs, of whom there are a significant number in the social sector, being disproportionately unlikely to seek or secure social investment.

3. It’s the right place and the right time

Today, arguably, the UK leads the world in social investment. Recent years have seen the development of the Community Development Financial Institutions (CDFI) sector and of Social Impact Bonds; as well as the launch of the Social Impact Investment Taskforce in 2013, which is designed to stimulate further development of the social impact investment market.

Organisations in the social investment and CDF sector are working with social entrepreneurs to create completely new ways of accessing and using capital. For example, they are developing vehicles that help provide the benefits of equity investment to organisations that can’t actually issue equity. There may well be a funding mechanism that is being launched now or is currently under development that turns out to be far better suited to the needs of your organisation than grant or conventional loan finance.

4. A problem with demand could create opportunities

The perception among some funders is that there are still insufficient investable ventures, few scaleable propositions, a lack of skilled leadership and risk appetite and an unwillingness to pay the true cost of capital. So despite the acknowledged gap, and the availability of capital, the number of social investments remains low, and some social entrepreneurs are still reluctant to consider this form of finance.

A decade ago the emerging world of social investment was conceived as radical and alternative. Increasingly the sector has become populated with people whose background is in investment banking and some of the culture, language and methodology is mimicked. This has led to an increased focus on big ticket deals and innovative financial instruments, which is helping some organisations to grow much faster than could ever have been possible before.

5. It’s a good time to join the “revolution”

Social entrepreneurs need to take advice from organisations already working in this space, to find out how best to take advantage of those opportunities that do exist in what is still a new field. There is a danger of a clash of cultures – some people now working in social investment finance who have a financial services background are guided by a very different set of aims and assumptions to those prevalent among social entrepreneurs – but social investment really could help your organisation to work towards its goals by helping to create long-term financial sustainability. It isn’t always the right option – there is always a right time and place for grant finance – but you need to keep an open mind, says Bell. Ignoring this emerging field could mean your organisation misses out.