Social investment can play an important role in the growth and sustainability of social enterprises and charities, but it’s not always plain sailing to secure a deal.
Matt Black from social investment organisation Numbers for Good sets out some of the challenges and explains how advisers can help social organisations to secure investment on their terms.
While the idea of social entrepreneurship and ‘the triple bottom line’ captures imaginations, running a social enterprise or charity is, let’s face it, really tough. Behind the bold mission statements, many organisations face a financial reality of wafer-thin margins and unpredictable revenue streams to try to fund work to support some of the most vulnerable people in society. It’s a precarious balancing act that takes unwavering commitment, sacrifice and deep reserves of resilience – and leaves little time for anything else.
One major challenge for those running social enterprises and charities is access to finance and in social investors they will find an empathetic partner keen to make their lives easier. The raison d'être of social investors is to channel investment to organisations making a difference in society and there are many benefits to raising investment. As well as providing much needed finance (albeit repayable), organisations who raise investment will find they have an influential partner who will do everything they can to ensure their investee succeeds. The path to raising social investment takes time to travel however, and for some it is a frustrating journey.
Why can it be difficult?
Initially, language can be a barrier. Stepping from the safety of your own sector into a new one often requires a pocket dictionary of industry lingo. All sectors, from health to housing, have their own set of jargon, acronyms and terminology, and social investment is no different. For instance, to a social investor a ‘special purpose vehicle’ is a contractual mechanism to provide working capital for organisations delivering a payment-by-results contract. To the average person on the street their best guess would probably describe the Bat Mobile.
Learning to speak the language takes time and you will likely have key questions that also shouldn’t be rushed. What size investment is appropriate for my organisation? If my social impact is larger, will I get a cheaper deal? Who has this investor worked with before and how have their investments performed?
Once you know what you need, there’s still no sprint to the finish line. The fundamental fact that a social investment must be paid back means the bar to raise investment is higher than to secure a grant. While charities and social enterprises are generally used to talking about their social impact for funders, social investors will go further, carrying out a stringent set of tests to ensure you meet the grade. This involves extensive reviews of your business plan, governance, and social impact measurement approach, as well as thorough financial stress-testing. This process has substantial benefits: rigorously challenging your business model, examining your costs and revenue, and developing your impact measurement can only be a good thing for both your beneficiaries and your organisation. But - we won’t lie here – all this takes effort, hard-work and time (something in short-supply for CEOs!)
So how can social entrepreneurs get savvy about social investment?
While there are no short cuts, there are a range of social investment experts ready to support you so you don’t have to go through this process alone. Better still, via the Big Potential fund, social enterprises and charities can access grants to help them access the right kind of support for them. Social investment support organisations – of which Numbers for Good is one – provide impartial, knowledgeable and technical guidance to help social enterprises and charities raise investment. Services can include anything from help with business planning and financial modelling through to identifying the right investors and investment structures – in short, generally ensuring that you have everything you need to raise social investment, but more importantly to raise investment that is right for your organisation.
All advice isn’t equal, but there is now a range of well-respected advisers providing excellent guidance. These include, amongst others:
- Numbers for Good – our team’s experience spans the social sector, finance and business meaning we’re very well placed to get deals done. We’re working with a range of social enterprises on raises from £100,000 through to multi-million pound deals
- ClearlySo – one of oldest social investment advisers on the block, ClearlySo also manage an angel investor network who provide capital ideal for early-stage social businesses
- Social Finance – another pioneer and old hand at social investment, the team at Social Finance were the first organisation to create a social impact bond
- Eastside Primetimers – a management consultancy providing advice on a range of issues from mergers & acquisitions to social investment
- Baxendale - known as employee ownership experts, Baxendale provide support across a range of topics including growth, investment and impact measurement
- Flip Finance – providing free workshops to help small social enterprises do ‘DIY’ social investment.
All of the above (Flip Finance aside) and a host of other organisations are ready to provide their services through Big Potential. A full list of Big Potential providers can be found here. Working with an adviser will not remove all of the challenges to raising investment, but it will help you along the way by providing you with a critical friend whose skills and experiences can make the journey as smooth and efficient as possible.
By Matt Black, Head of Community, Numbers for Good