Connecting to the social sector: Oiling the wheels
What are we doing to ease the investment journey for investees? Though many social enterprises and charities are satisfied with their social investment application process, this session discovered that there are some unhappy customers – and explored where some social investors might be going wrong…
Most social investors are in the job because they want to create social impact – but to those receiving the investment, it doesn’t always feel that way.
Big Society Capital (BSC) recently collected feedback from a number of investees from across the UK. These were shared at this session of The Gathering, where attendees also heard first-hand accounts from a charity that had taken social investment and a support organisation that had advised on several deals.
In general investees were very satisfied with their experience, although some believed social investors did not “display the same level of passion as their investees about creating impact through business”.
Other challenges highlighted could be grouped into three categories…
1. Why so complicated?
Many believed that the application process could be simplified. One investee commented that some questions seemed “random or required a degree of assurance I’m not sure anyone could give”.
The support organisation said that many of the smaller social enterprises who came to them seeking advice did not yet have the capacity or the right level of knowledge to fill out the required forms.
One charity CEO shared the “stressful” experience of applying for social investment from two different providers to help secure a mortgage. “I was scared to get it wrong but was also unsure of why they wanted to know everything, and it was almost impossible to get all of the information they wanted from our Trustees,” she said.
2. A lack of clarity
Investees also called for more openness about the process. One contributor said that they would have liked clearer communication about the risk of taking on a loan from an early stage, saying “an early ‘no’ is much more helpful than a long, drawn-out process which gets your hopes up but leads to a ‘no’”.
Another recounted that in all of their calculations for the investment, they had subtracted 15% to leave some room for error. What they hadn’t been told was that the investors did that anyway. This meant they had to sit down and work out the figures for a second time, making the process even more time consuming.
3. Relationships and joined-up thinking
A number of investees described how processes could have been more joined-up, both in terms of their own internal communications and in liaising with partners.
One commented: “The investment manager we worked with helped us explore the possibilities of social investment, introduced us to other lenders and held our hand through much of the process. But they left our investor not long after the loan was agreed. I would say that our relationship is now as transactional as if we had borrowed from what I imagine it must be to borrow from a high street bank. It is a different contact each time and this feels like a pure admin reporting process. In real terms this might influence how likely we are to go back to this lender for another loan in the future – so much of this is about the person and not the organisation.”
Another investee shared an experience where two social investors were involved and they had to provide “completely different information” for each: “In the end I gave up trying to give different information and gave both of them everything.”
• Put the human relationships first
Melanie Mills, Social Sector Engagement Director at Big Society Capital, explains: “So much of people’s experience of the process is about the personal relationship and does not attach itself wholly to the organisation they work for. Sometimes investees can feel disempowered, so it’s about building an honest relationship where investees feel they are empowered to ask questions.”
• Bring your processes into the 21st century.
If there is technology that can speed up or ease the application process, use it. “There is plenty of technology out there that can help with due diligence,” comments Julie Wake, Investment manager at Northstar Ventures. “We shouldn’t still be asking people to send paperwork for things like ID and verification.”
• Ask… why?
Make sure you are not asking for information for information’s sake. “There is nothing worse than just doing something because that’s the way it’s always been done,” says Julie Wake.
• Be transparent.
“It’s about honest, early conversations about whether doing the investment is going to work, and if the organisation is on the edge of lending – tell them that,” says Melanie Mills.
And finally, some advice for the investees… Take your time choosing your investor! In the words of one investee, “You have got to kiss a few social investment frogs before you find your prince.”