Tips for getting the best out of social investment
Howard Lake | 11 April 2018 | Blogs
How can charities make the most of social investment? What kind of organisations can it benefit and at what stage in their development? Ben Rick explains.
The social investment market is gaining momentum steadily. Big Society Capital (BSC) estimates that around 3,500 charities and social enterprises in the UK have now benefitted from social investment. The market is growing by around 30 per cent a year and the capital applied in social investments has grown to £1.5bn.
However, taking on social investment isn’t always right for every charity or social enterprise and those considering social investment for the first time need to understand the risks and the benefits clearly before taking the plunge.
One positive benefit is that social investment can make organisations less reliant on grants and donations. It can foster a more stable and sustainable funding model at a time when grants and donations are harder to predict.
But equally, taking on social investment can be or feel risky. Many organisations worry about the pitfalls of taking on repayable finance, as well as the pressures of being highly accountable to an external stakeholder or investor.
As social investors we work in the real world and understand the pressure of government cuts and shrinking expenditure on vital services. As such, we’re increasingly finding ways to share risks with investees to unlock opportunities for them.
Sometimes we can provide blended funding, offering a mix of grants and loans. One example of this is our £1m investment in Giroscope, an award-winning housing charity, that buys and renovates empty property in west Hull to provide affordable homes to rent.
Giroscope was set up in 1985 by a group of volunteers in response to the housing crisis in deprived neighbourhoods in Hull. The charity buys and renovates empty properties for those in need and engages and trains volunteers, many of whom are at risk of social exclusion.
In 2015, the charity approached SASC for investment when its grant application to purchase a commercial property was turned down. We provided bridging finance at short notice allowing the property purchase to go ahead. Since then, it has been renovated into a community hub, providing support services, training and enterprise services and rental space for community businesses.
The second investment in December 2017 was made alongside grant from Power to Change which comprised 25% of the loan, making it more affordable for the charity. Giroscope can now purchase and renovate three further properties and develop an exciting self-build project comprising of four to six houses on land to the rear of the community hub.
Giroscope will increase its social impact by providing homes for 18-20 additional people. The charity currently provides housing for 264 people which is a 20% increase since receiving the first investment from SASC.
Just like Giroscope, many organisations have great ideas that would be ideal for social investment. Here are tips for organisations
considering their first steps.
1. It’s all about the people
The ability of the team to demonstrate their skills and successes is as important as a good corporate track record. It’s not just the management team – quality governance is a key consideration in our investment decisions.
2. The importance of income generation
Our investment is often used to unlock new revenue streams. An organisation requiring capital to purchase a property or develop a new service that once established will unlock rental income or access to a contract is appealing.
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3. Financial returns
Investees need to demonstrate they can repay the finance. We’re increasingly working with investees to share risk as a way of unlocking opportunities for them. An example of this is our new housing structure which allows organisations to get exposure to the benefits of owning residential property to provide housing for their beneficiaries, but we absorb the downside risks. Another approach is providing the working capital for organisations taking on payment by results contracts where SASC shares the risk of contract delivery.
4. Preparing the business case
We recommend investees submit 3-5 years’ worth of historic financial information (where possible) and a good business plan and projections. A clear link between how the investment will be used and how it will be repaid is also key.
5. Projecting the costs
We recommend investees are careful when projecting costs. Being overly conservative can undermine interest in the project – but it is important to be able to justify and explain the numbers. Comparing projections against other organisations doing something similar is a good place to start.
Ben Rick is Managing Director of social enterprise Social and Sustainable Capital. SASC provides simple finance for extraordinary charities and social enterprises. It believes greater access to the right kind of investment makes charities and social enterprises better able to tackle society’s most pressing challenges. Its funds provide flexible capital to enable social sector organisations to grow their social impact, improving the lives of disadvantaged people across the UK.
Main image: Green pound – social finance by Zuzana Uhlíková on Shutterstock.com
About Howard Lake
Howard Lake is consultant editor of UK Fundraising. He founded the site in 1994 and successfully sold it in 2022. As director of Giving X Ltd he is exploring growing giving on a massive scale.
He is the founder of Fundraising Camp and co-founder of GoodJobs.