The secret to social investment
There is plenty of money in social investment looking for a home. This is “the secret that investors have kept hidden from charities and social enterprises”, said CEO of the Access Foundation Seb Elsworth this week.
“The ball is in your court... Ask the questions. Ask for help. This industry exists to get money to you and it wants to find you. For some reason we’ve tended to start by using language which you don’t understand and pretend we are something we aren’t,” Elsworth continued.
Elsworth was speaking at an event held in partnership between chartered accountancy firm Buzzacott, social investment intermediary Investing For Good and Pioneers Post in London. Geoff Burnand, CEO of Investing For Good, said in support of Elsworth’s comments: “There’s not a shortage of money… and there never was for sound propositions.”
As is often said the social investment market both in the UK and globally is still very early stage and while there seems to be no shortage of enthusiasm from both investors and policymakers for it, there are many other barriers preventing the channeling of investment to frontline social enterprises and charities.
Elsworth explained that one of the key barriers is communication. “This market can seem very confusing, there are lots of terms that aren’t natural to charities and social enterprises. How relevant this all seems when you’re running a charity and trying to work for your beneficiaries is a big part of the barrier. It feels confusing, a bit alien and you don’t quite know how to get involved.”
When we raised our last lot of finance I had meetings with 79 people, of which seven were women
The Access Foundation has been given a £100m endowment from the government, Big Society Capital and the Big Lottery Fund with the mandate to make social investment more relevant to frontline social impact oriented organisations. Its mission is to ‘make it easier for charities and social enterprises in England to access the capital they need to grow and increase their impact’.
Aside from the communication issue, Elsworth highlighted a number of other barriers preventing growth in the social investment market:
How big are these investments and how likely is it that a charity or social enterprise is going to be able to take on that kind of size of investment? At the moment there is a massively growing size of money... but quite often that money comes in relatively large chunks. Deals tend not to be under £250k... whereas for charities and social enterprises considering taking on their first investment the average size is around £60,000.
Type of product: For most people considering taking on repayable finance a simple loan is the first place to start... as opposed to more complex financial mechanisms such as social impact bonds. These types of loans that work like a standard mortgage are increasingly becoming available – even unsecured loans for those organisations without an asset.
Price: How much of a return should we be paying in order to borrow our money? There’s a simple answer to ‘What are the interest rates?’. But there is also a perception issue around this. Many charities get offered a rate and think it’s expensive –‘I can go to Barclays and borrow at 3%’. In reality, you’re not really comparing the same thing. Because if the bank would lend to you I think most social investors would think, great – we’re really targeting the part of the market banks wouldn’t lend to. Look at what you’re paying back each month rather than the headline interest rate.
Dai Powell, CEO of community transport organisation HCT Group, highlighted that another of the issues his organisation faced when initially considering whether to take on social investment was convincing its trustees. “It took them an awful lot of time to understand what it is we were looking to do... The trustee of a charity has a legal duty to minimise risk, as opposed to maximising impact… If we could change one thing it would be the legal definition of a trustee of a charity so that they had a duty to maximise the good that the organisation can do I think we’d change the market very quickly.”
In the concluding panel session at the seminar, whilst sitting alongside Buzzacott’s Matthew Katz, Shaun Beaney from ICAEW, Mark Bickford from FSE Group, as well as Elsworth and Burnand, Powell also revealed: “When we raised our last lot of finance I had meetings with 79 people, of which seven were women. When this panel actually reflects the people we are meant to be giving finance to then I think the dealflow will be much faster. The social investment industry needs to reflect those that it is supporting.”