Connecting to the social sector: Turbo-charging social enterprise
What can social investors do to help develop a pipeline of social investment-ready social enterprises and community businesses?
Social investors must move away from the concept of investment readiness and instead focus on enterprise development, according to Seb Elsworth, Chief Executive of Access, the Foundation for Social Investment.
Elsworth was speaking alongside Alastair Wilson, Chief Executive of the School for Social Entrepreneurs, which provides support and finance, and investee Fiona Frank, Operations Manager at Halton Mill, a housing a co-working space in Lancashire.
“We are looking at the world backwards when we talk about investment readiness and investment pipelines,” said Elsworth.
He added that investors needed to “look through the other end of the telescope” and recognise that “investment readiness isn’t the goal for social enterprises and charities, it’s building sustainable and resilient organisations”.
“Social investors need to look at what they need to get there,” Elsworth said, explaining that social investors should help social enterprises and charities to generate more revenue and better understand their business model through enterprise development work.
Alastair Wilson presented the School for Social Entrepreneurs’ Match Trading programme as an example of a different way of helping grassroots organisations to develop. The programme, which piloted in 2015-16 and has continued to grow, offers grants that pound-for-pound match the increase in trading income that an organisation has achieved, incentivising growth through enterprise rather than reliance on short-term grants.
“This work was born out of frustration,” said Wilson. “Social investment has built momentum and done great things, but I felt that it was missing a lot of our great people solving problems in communities.”
They needed to grow their businesses, he explained, but “the idea of offering debt or pseudo-equity was weird and irrelevant to them”. He emphasised that many organisations running businesses in low-income communities needed grant support, but “maybe the way we give that grant wasn’t that helpful”.
The match trading idea, Wilson said, was congruent with their trading ambitions, helped them build a resilient trading base and got them to a “more investable position”. “Previously they were cut out of the social investment world,” he said.
Halton Mill offers office space as well as classes, performances and events and is run by Green Elephant Cooperative in Lancaster. It joined the Match Trading programme during 2017-18. Director Fiona Frank said the grant support and the accompanying learning programme allowed the company to take “lots of exciting risks”. Its trading income grew from £69,000 in 2016/17 to £95,000 in 2017/18, with a four-fold increase in income from its room hire and events.
“You have changed us from being an old engineering factory with people in offices,” Frank said to Wilson, “to becoming a key Lancaster events space.”
Wilson pointed out that by offering match-trading grants and enterprise support rather than traditional grants during the development phases of a social enterprise, they became stronger candidates for social investment. “We used to throw them over the wall to you in social investment,” he said. But now, he added, the standards of financial literacy and understanding of enterprise were much improved.
• Social investors should shift their focus from investment readiness to enterprise development.
• Grants (especially those linked to performance) and enterprise support are important tools that make social enterprises stronger candidates for investment and should be developed further.