Awesome, amazing, really cool!

On the 11th floor of an art deco office block in downtown San Francisco, people are starting to gather. The ‘antique’ elevators are causing a few problems getting the 300 or so investors up from the street level to the Greenstart office where Demo Day is about to begin… As the pumping music fades away a video starts playing of a pair of feet walking their way through startup life. Mitch Lowe takes to the stage as the audience applaud and starts to build up the event – he can’t help but enthuse about the ‘awesome’, ‘amazing’, ‘really cool’ startups we’re about to see.

If you’ve ever wondered what happens at an impact accelerator, it’s stuff like that. There’s plenty more similar examples in Good Incubation: The craft of supporting early stage social venturesNesta‘s newly published report on ‘the rise of social venture incubation‘ which focused on ‘what can be learned by this burgeoning sector from programmes around the world‘.

The underlying premise of the report, written by Nesta’s Jessica Stacey and Paul Miller, a partner at social tech accelerator, Bethnal Green Ventures, is that the emergence of ‘impact investment*’ has been a mixture of good news and bad news.

The good news is that growing numbers of specialist funds and wealthy individuals now want to invest in businesses that can provide both a social return (something different and good happens as a result of people using their products or services) and a financial return (they make a profit and deliver a return to investors).

The bad news is there’s nothing for them to invest in. As a result: “‘social venture incubation’ has grown as a set of techniques to help founders develop ventures that are investable propositions.

Good Incubation provides a good overview of the current incubation models: Impact accelerators, Social venture co–working spaces, Social venture academies, Impact angel networks, Social innovation prizes with general explanations of what they do, case studies and figures for numbers of each appearing across the globe.

Assuming, as seems likely, that the report’s authors were given the brief of explaining what ‘social venture incubation‘ is and highlighting some of challenges it faces in establishing itself as sub-sector of the business support industry and the social investment market, they’ve done a decent job.

What Good Incubation doesn’t do is ask (or provide answers to) any of the key questions about whether or not ‘social venture incubation’ is actually a good idea. Some of these questions (there are plenty more) include:

Is creating more social start-ups the best way to create investment ready social ventures? No one is seriously suggesting that the a key reason why there’s not many big social investment deals taking place in the UK is that that there’s a shortage of small, early-stage social ventures that don’t sell anything.

There is a danger that by supporting, funding and (in the case of accelerators particularly) encouraging into existence, lots more of these early stage start-ups, state-funding is artificially stimulating the development of hundreds of zombie businesses which have no prospect of ever becoming sustainable. This may not do much harm but it doesn’t do much good either. Would it make more sense to give more support to a small number of ventures that have a realistic prospect of scaling up?

Is incubating businesses the best way to support social innovation? While it’s clearly in the interests of social investors for more social ventures to reach the point where they can take on investment with a realistic prospect of delivering both social and financial returns, is this the most useful way to deploy state and charitable funds?

We do need to find new and better ways of meeting social need and we do need to create business models for supporting those new and better ways of meeting social need. It doesn’t logically follow that we have to support the same people to discover them both simultaneously. Are there better ways that funders including government, Nesta and grant-makers such as Nominet Trust can support people to develop and test new ways of doing social good without (initially) focusing on whether a business is being created in the process?

Do incubators create businesses that look like incubators? Assuming that we do want to support the development of lots more social ventures, the way incubators operate may be a key factor in determining the kind of social ventures we end up with. For example, the government-backed Social Incubator Fund is supporting a number of time-limited accelerator programmes such as Public Service Launchpad.

It seems likely that some types of businesses are more suited to being driven forward through ‘an intensive 14 week programme’ than others – it doesn’t seem to be a great model for supporting businesses dependent on the gradual development of partnerships with potentially wary and slow moving public sector bodies such as schools or local NHS agencies. To what extent is support being channeled towards the types of businesses that can be most easily accelerated rather than those that are either most socially useful and/or most likely to ultimately become sustainable businesses?

Good Incubation does a good job of helping us to understand emerging approaches to social venture incubation on their own terms. The next step is to look at their wider relevance: to social investment, to social innovation and to society as a whole.

*Some of what we call ‘social investment’ in the UK fits neatly under the global ‘impact investment’ banner, some of it doesn’t.

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Five questions about social investment tax relief

This month’s budget saw the announcement that the UK social investment industry’s favourite policy innovation, Social Investment Tax Relief (SITR), will be set an 30% when it comes into force on April 6th.

SITR is particularly notable because as well as providing relief to investors buying shares in (some) social organisations that are able to offer them,  it also provides relief on (unsecured) loans – meaning that organisations without share capital (including charities and CICs limited-by-guarantee) can benefit.

Welcoming the news, Big Society Capital boss, Nick O’Donohoe told Civil Society: “Now is the time for investors to seize this opportunity to invest for social good and benefit from tax relief that is equivalent to existing schemes.”

Elsewhere, Nesta’s Matt Mead, writing for The Guardian‘s Social Enterprise Network explained that SITR: “might not sound exciting but it has the potential to be a major landmark for investment in social impact organisations.

Are they right? Will SITR precipitate an avalanche of investment in social organisations? Will the government really end up spending its £10 million estimate (on over £33 million worth of investments) on the first year’s worth of SITR.

Frankly, no one’s got the foggiest idea but here’s five questions worth considering:

1. Is SITR a good use of public money? Tax relief involves the government agreeing not take some money from people in tax to encourage them to spend their money in ways that the government thinks are good. In the case of SITR, the government thinks social investment is a good thing and it hopes providing tax relief will lead to more of it.

The National Audit Office reports that the current cost to the state of tax reliefs that have similar goals to government spending programmes (known as ‘tax expenditures) is £101 billion per year. Given that the UK’s entire annual tax revenue is £476 billion, that’s a lot of money.

The cost of SITR is estimated to be £10 million in 2014/15 rising to £35 million in 2018/19 so, based on the overall picture, it won’t make much difference to annual tax revenues. Some in the social enterprise world might argue that it would be more helpful if the government just gave £10million to social enterprises, rather than giving money back to people who invest in social enterprise. There are (at least) two arguments against doing this:

  1. As a result of the government giving back 30% to investors, social enterprises get both that 30% and an additional 70%, so they end up with more than 3 times as money
  2. The introduction of SITR may not cause an overall increase in levels of investment but, in some cases, money that would otherwise have been invested in private businesses may be invested in social enterprises instead

On balance, as the sums involved are relatively small in a general sense but potentially big in terms of the UK social investment market, SITR seems like a good use of public money if: (a) you support social investment and (b) it works.

The added bonus is that if it doesn’t work (and no one makes any eligible social investments) it won’t be spent.

2. Will SITR make High Net Worth Individuals (HNWIs) more likely to invest in companies they can’t own? From the government’s point of view, SITR is primarily focused on generating more investments from rich people. According to the published guidance: “Investors are expected to be similar to those investing in the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT). Compared to the self-assessment population, those investors tend to be male, located in the south of England and have higher overall income levels.

Initiatives like Clearly Social Angels, suggest that there are definitely some well off business people who want to make investments that enable them to make (some) money while also making the world a better place, and there’s evidence from Unltd Big Venture Challenge programme that growing numbers are investing in ‘for-profit’ social businesses which use a convention company limited-by-shares structure. What’s less clear is whether many of these investors will want to invest companies which don’t sell shares and can’t give them a stake in the company in exchange for their money. Is it desirable (or even possible) to be an angel investor without being a shareholder? Assuming the answer’s ‘no’ or ‘not really’, what sort of offers will eligible social enterprises be making to HNWIs?

An additional barrier to investment from HNWIs in the short term is that, prior to a government application to the EU for State Aid approval, only investments up to €200,000 are eligible for relief.

3. Will there be any opportunities for people who aren’t really rich to make eligible investments? Significant numbers of people who are not especially wealthy are already receiving tax relief on investments in co-operatives through existing tax reliefs. Both the EIS and the Seed Enterprise Investment Scheme (SEIS), which offer similar levels of relief to (or in the case of SEIS higher than) SITR have been used by organisations involved in the Community Shares programme.

It’s possible that the potential offer to less wealthy people – invest £500 or so that you can afford to lose in a business that you think’s really good, and if you’re lucky, you might get some or all of it back – could be less confusing than the offer to HNWIs. It’s crowdfunding with additional benefits but (from the social enterprise’s point of view) additional responsibilities to the crowd of funders. What’s not clear is how many social enterprises will be willing and able to make that kind of offer.

4. Do significant numbers of social organisations actually want investment from individuals? SITR has been introduced at the end of a lengthy campaign but that campaign has been led by leading figures in the world of social investment and (some) social enterprise umbrella bosses. I can count on the fingers of one finger, the number of social entrepreneurs (who don’t work in social investment) who’ve ever talked to me about tax relief.

There’s no evidence that large numbers of social organisations (I’m not currently aware of a single anecdote, although I’m sure must one or two) have been deterred from selling shares (if they’re able to) or seeking unsecured loans from individuals because they were unable to offer tax relief on those investments.

In the case of  loans in particular, the fact that organisations haven’t considered this option before doesn’t mean they won’t do so in the future – particularly if crowdfunding websites such as Buzzbnk are able to help them do so – but it’s anyone guess how many will. It could be 5000, it could be 5. The Bonk of Pants offer is an example of the kind of offer that has been made without tax relief that may be easier to do now SITR is in place.

5. Is tax relief on debt on a good idea? The really (potentially) innovative element of SITR is the fact that relief is available on unsecured debt. The thinking is that behind the policy is that unsecured debt is as near as organisations without share capital can get to selling equity. This may be true but that doesn’t mean that it gets very near.

As mentioned above, in a situation where an individual is making a large personal investment, an unsecured loan lacks the key benefit provided by an equity stake of enabling the investor to take part ownership of the organisation. In the case of charities in particular, there’s no obvious way to fudge that issue – investors can’t be made trustees of a charity in return for their investment without creating a (pretty serious) conflict of interest.

At least equally importantly, an unsecured loan also fails to provide investors with an asset that they can sell on to somebody else. Quasi equity loans - where investors are repaid a proportion of an organisation’s revenues (or profits) rather than a set monthly amount – have clear advantages for organisations but they don’t solve the problem that there’s no obvious way an investor can make a big profit on an investment in an organisation without share capital (even if it that organisation is really successful).

In a situation where a commercially-minded investor thinks there’s a good chance that they won’t get their money back, it’s not clear that SITR at 30% does enough to derisk their investment to make a deal significantly more appealing (particularly given that the same level of relief is available on investments in private businesses that do have those additional benefits).

In situations where organisations are looking to take on a loan on the basis that they have clear revenue streams and a track record of profitability, it’s not clear what loans from individuals receiving SITR will add to the existing market for loans from Social Investment Finance Intermediaries (SIFIs)The latest available figures (for 2011-12) show a total value of unsecured loans deals in the social investment market of £10.5 million (plus £0.3 million in quasi-equity deals).

The key reason why unsecured loans with SITR might work is if there’s a significant market of both HNWIs and groups of less-HNWIs who are looking for opportunities that inhabit a grey area between an investment and a donation. This market doesn’t exist yet but the success of SITR (and, to an extent, the whole idea of social investment in charities and other ‘not-for-profit’ organisations) is based on the belief that it can be created. From April 6th onwards, we’ll see if that belief is correct.


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Fail early, fail often

“… far too many public service systems ‘assess rather than understand; transact rather than build relationships; refer on rather than take responsibility; prescribe packages of activity rather than take the time to understand what improves a life’. The result is that the problems people face are not resolved, that public services generate ever more ‘failure demand’, that resources are diverted to unproductive ends, and that costs are driven ever upwards.

This is the claim from Locality chief executive, Steve Wyler, in the forward’s to his organisation’s report ‘Saving money by doing the right thing: why ‘local by default’ must replace diseconomies of scale‘.

The report, published earlier this month, was written by and produced in partnership with Professor John Sneddon of Vanguard Consulting. He argues that the politically popular idea that the best way to cut costs in the public sector is to outsource services in massive blocks to large private sector contractors, who can provide cheaper, more efficient services through economies of scale, is fundamentally wrong. It’s wrong not only because the services provided to vulnerable people are worse but because they also fail to save money.

The most striking sections of the report are the case studies of four people, whose multiple interactions with public sector agencies are used to illustrate the problems generated through failure demand. In the case of public services, failure demand means someone approaches a public sector agency with a problem, the agency either doesn’t do anything or does something(s) that doesn’t help and, as a result, that person has to approach more public sector agencies to solve both the original problem and the additional problems created as a result of the original problem not being solved.

In one case study, Ruth, a victim of domestic violence struggling to look after her six children while also managing health problems, knew exactly what she wanted from public sector agencies. She wanted help with housework and adaptations to enable her to access the first floor of her home (which she wasn’t able to do due to health problems).

Ruth’s local social services department chose to provide her with: “Two anger management courses for [two of her children; Two parenting programmes; Help cleaning one bedroom; Toilet frame, perching stool and bath board for a bath she could not access; Family intervention programme

These services were delivered by the combination of: “Eight social workers; 22 support workers allocated; 30 referrals in core flow; 16 assessments in core flow; 36 teams/services

The help that Ruth actually wanted would’ve cost up to £20,760 over 4 years, the ‘help’ she has received has cost an estimated £106,777 over a similar time period.

In another, Melvyn, a 75-year-old ex-miner living alone in a council bungalow living with epilepsy and a lung condition wanted help to stay in his home and have control over his life.  What actually happened was that: “Over the last 2 years Melvyn had spent 162 days in hospital of which, conservatively, 72 days (44 per cent) were avoidable. He had involvement from seven different agencies and 30 different teams and professionals. He went through 29 separate assessment processes. Given that the assessment process was repeated every time he re-presented or when one professional referred him to another, 66 per cent of these assessments were repeated.

Melvyn’s health conditions have become progressively worse, his independence and quality of life have both been dramatically reduced and entering the residential care system now seems inevitable.

In these cases, public services clearly aren’t succeeding. Rather than meeting the needs and aspirations of vulnerable people, they’re offering one size (doesn’t) fit actions picked from a pre-determined menu of agree interventions.

Unfortunately, experiences of people subjected to multiple failed interventions from public sector agencies that send them hurtling into somebody’s righteously-exasperated case study, are used to justify a wide-range of different and often contradictory positions.

The report is weaker when explaining the arguments behind the ‘local-by-default’ model it proposes as an alternative. ‘Local-by-default’ means services providers having: “A thorough knowledge of the predictability of demand for services”.

This “enables service providers to ensure that people who present as needing help can be met immediately by people with the requisite knowledge and skills to assess need and organise service provision.

The result is that: “Real economies of flow replace imagined ‘economies of scale’. Each locality is different; its needs can only be understood in a local context.

The other principles the report advocates are: ‘Help people to help themselves‘, ‘Focus on purpose not outcomes‘ and ‘Manage value, not cost‘.

The question is what does that actually mean? In someone else’s ‘change the delivery model’ policy report, Melvyn’s story would show why it’s important that older people are given personal budgets to spend on commissioning the support they want and need, from whoever can provide it.

Free market commentators might argue that Ruth would have been better off if state agencies just weren’t there at all and she’d turned to a local church for help.

Sneddon and Locality argue for public service providers (whatever sector they’re employed in) who listening to people, find out what they need and help them get it. It’s ‘Person-centred’ and it’s ‘multi-disciplinary’. They don’t like payment-by-results or other forms of ‘outcome-based management’. Advocates of bigger, more impenetrable silos should look away now.

Some councils are trying the ‘Local-by-default’ model. Stoke City Council took: “the radical decision to launch a comprehensive multi-agency initiative – across local authority, police, fire and rescue, NHS and TSO-provided services – to understand how people interact with the totality of public services…”

Now: “Multi-agency teams work together in individual neighbourhoods, come to understand local issues and get to know local families. These pioneering projects are breaking down barriers, improving outcomes and rebalancing the lives of customers to boost the economic and social wellbeing of whole communities. The results are profound.

There’s nothing particularly new about saying that we need good services rather than cheap ones. There’s also nothing new about multi-agency approaches. Whatever happened to Connexions? While I’m sure Vanguard Consulting does a good job with Councils and others it works with directly, on a wider policy level the report doesn’t have a clear, practical message for public sector decision-makers that extends far beyond ‘do good stuff, do less bad stuff’.

It’s equally unclear how talk of ‘managing value, not cost’ would miraculously make the battle for resources go away. While services that understand people’s needs are better placed to meet them, even the best run services will not be able to meet to all perceived need. ‘Saving money by doing the right thing’ (unsurprisingly) doesn’t have all the answers is a useful contribution to the debate about what public services are for and how they can be made to work better.

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Social enterprise mistakes: if no one else is doing it, it must be a great idea

… A quick check of the biscuit aisle in your local supermarket will reveal that there’s a phenomenal range of biscuits containing or covered in chocolate but no biscuits containing or covered in parsnips. Perhaps the nation’s shoppers are waiting for a visionary entrepreneur to create ‘spicy parsnip crunch… ” – my latest blog for The Young Foundation.

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Report from emerging market

In April 2012, the prime minister launched ‘a £600m fund to support grassroots social projects’. At least, that was how The Guardian described social investment wholesale finance institution, Big Society Capital (BSC), the organisation set up to spend ‘unclaimed assets’ on developing the UK social investment market. Earlier this month, I dropped into BSC’s Fleet Street offices to ask chief executive, Nick O’Donohoe how he thinks it’s going?

There’s been signs of a shift in thinking in recent months, whereas in 2011, as the organisation prepared for launch, O’Donohoe told Third Sector that “We’re not interested in grants or soft loans” and emphasised that: “We are an investment institution“, recent statements have been far more supportive of subsidy. So, what’s changed?

I feel like the first comment is taken a little bit out of context. What I was referring to was the fact that BSC, rightly or wrongly, has been set up under certain principles and one of those principles is that we don’t give grants – that we need to be sustainable and the capital needs to be preserved. We’ve always felt that grants have an important part to play in the development of social investment.

O’Donohoe concedes that: “at the beginning perhaps being focused a bit more on the fact that we can’t do [grants], we’ve changed our emphasis a bit to focus more on ‘there is clearly a need’ and we have a role to play in terms of trying to help.

Sense of commitment

While some in the social sectors may unjustifiable blame BSC for not doing things it is not able, and was never intended to do, the organisation has seemingly also struggled to do what it is intended to do: investing in social investment finance intermediaries (SIFIs) so they can invest in social sector organisations.

O’Donohoe believes his organisation is doing its best to make money available: “If you say, do I feel good about that fact that we’ve managed to commit £150million or so to roughly 30 different organisations, intermediaries of various types? Yes, I think that’s a pretty reasonable achievement, actually – it demonstrates a certain sense of urgency.

He is frustrated, though, at the gap between BSC making commitments to invest and the money actually going out. The problem is that: “Once you make a commitment, then you’ve got to actually close the transactions – sometimes that’s just a legal process and sometimes it’s contingent on [SIFIs] achieving matched finance. I have to say it’s been disappointing how long the closing process has taken.

If you take an LGT for example, they closed a month or so ago, we committed £10million contingent on the fact that they would raise another £10million and it took them a year to do that – they had to meet with 500 different investors.

BSC initially had a policy of only making investments when their money was matched by an equal level of investment from other sources. O’Donohoe felt that approach wasn’t working: “We realised, after about a year, that [closing transactions] was taking longer than we thought. The most important way we tried to change that was to try to persuade our board to make unmatched financing available where appropriate.

Fortunately, the board agreed so: “We have now agreed to fund two organisations on an unmatched basis – that’s just our money. That was quite a big step for us – it’s a way to shorten the period between our commitment and them actually opening their doors to the frontline.

Overall, though, O’Donohoe believes things are going broadly according to plan: “I’m not sure that I’m surprised by what’s happened. A lot of what we do is making commitments to organisations to invest of say a four-year period so, if you take a £150million and divide by four, you would expect £35-£40million a year, based on just that level of investing, to go out. It has been less than that but not to the extent where we think there’s serious issues.

“It’s just not possible”

O’Donohoe is thoughtful and engaging, seeming genuinely interested in the work he’s doing. Maybe partly as a consequence, he doesn’t deliver off-pat answers: responses evolve through a gradual process of mid-sentence modification.

We move from discussing whether BSC is doing as well as could be expected, to considering what other people expect from BSC and whether they’re being realistic.

According to the latest available market data, the average UK social investment is £264,000 and 82% of the current estimated £202million market is made up of investments of averaging £723,000. The latest data from Social Enterprise UK shows the average turnover of a UK social enterprise is £187,000 and the average investment sought by social enterprises looking for finance is £58,000. Can BSC find a way to bridge the gap between where social investment is and where social enterprises are?

O’Donohoe is clear on the answer: “If you’re talking about [investments of] less than £250,000, some part of the investment will always have to be grant.

Without subsidy: “I think it’s just not possible. Small loans are expensive. They’re expensive to originate, they’re expensive to monitor. The default risk is always going to be reasonably high and there’s a point at which the rate of interest is just inconsistent with the social mission of the enterprise.

O’Donohoe understands why this might be unpalatable to many: “I think there’s sort of a mismatch where social organisations will say with total justification that if we have to pay more than, I don’t know, 10% for funds we can’t make that work and it’s inconsistent with our mission. I think they’re right most of the time. Likewise for the SIFIs, they say if we don’t charge more than 10% that cannot possibly – in the absence of any grant support – be sustainable given the size of the loans. I think they’re right too. So the market doesn’t clear effectively. And so how do you square that?

He believes a major answer is more subsidy: “I think you have to accept that and our challenge there is to find out who can bring in that grant layer and that’s what we’ve spent a lot of time talking to people like Big Lottery Fund about.

The point of no return

Some in the social sectors believe that the reason BSC can’t channel investments into smaller organisations is that the returns it needs to generate from its investments in SIFIs are too high. Some critics blame this problem on ‘the Merlin banks’ who invested £200million in BSC to top up the estimated £400million from unclaimed assets and expect a ‘market rate’ return.

O’Donohoe believes the problem is partly overstated and partly unavoidable. He explains: “I know there are people out there who think our cost of capital is too high and if it was cheaper then we’d be able to square the circle. When you look at what we’re really doing – we’re making unsecured lending available on an unmatched basis at projected returns of just over 3%. Now that’s nominal. You take off our own operating costs, which we said we’d try to keep at less than 1%, and you take off 2% inflation that’s zero real rate.

O’Donohoe is not clear what, if any, alternative approaches are available: “I find some people suggesting that our cost of capital should be lower but I don’t really anybody suggesting that we should be running down our capital over time. Forget what the banks may or may not feel like they should be earning, just to preserve the capital, and certainly to preserve it on a real basis, I think we are making money available at the cheapest rate we possibly can.

It takes predictions of billions to hold us back

It may be that BSC is making steady progress based on its terms of reference but given that part of the reasons his organisation came into existence was the massive wave of massive expectation about what social investment could deliver, I wonder if O’Donohoe now regrets some this hype.

For example, the predictions that the social investment market would grow to £1billion or even £3billion by 2015. O’Donohoe is good humoured but unrepentant, paying tribute to the work of BSC’s former chairman, Sir Ronald Cohen, in promoting social investment in the UK: “I can’t remember what the exact figures were either but I think there have been some incredibly visionary people who have been driving the development of the market in this country for over a decade – and obviously Ronnie Cohen the best example. Ronnie sets a big vision and he’s right to set a big vision. It’s worked in the sense that it’s got a whole lot of support that wouldn’t have been there otherwise.

Enthusiastic promotion of social investment is not solely a UK phenomenon. O’Donohoe, who before joining BSC was Head of Global Research at JP Morgan, explains: “We had the same discussion in the US, I was responsible for a piece of research that JP Morgan did where we put a very big number on the growth of the market as well. People get worried that you’re hyping something and it’s not deliberate hype but I do think you have to get people’s attention. If you look at social impact investing here or globally it’s moved forward significantly. So, I don’t know how big it will be but it certainly will be a lot bigger that it would’ve been if we hadn’t talked about it at all.

Our government took our grants away and all they replaced them with was a series of expensively constructed payment-by-results pilots

While many in the social sectors are sceptical about social investment, scepticism about Social Impact Bonds (SIBs) is growing fast even amongst those who like the idea of social investment in a general sense.

SIBs are a way of financing a payment-by-results contract so that charities and social enterprises delivering services are paid upfront by investors for the work they do, with investors getting paid (or not) by the government at the end of the contract based on the outcomes that have (or haven’t) been achieved.

Supporters say (amongst other points) that SIBs are an innovative way of offering opportunities for social sector providers to win new business and offering governments a method of trying new approaches to service delivery at reduced risk.

Opponents arguments’ include the claims they’re too expensive to set up and manage, and are not necessarily a cost effective way of delivering services. Then there’s the hype, which is even more intense than the basic level social investment hype. The Prime Minister loves them so much he wants the rest of the G8 to have them too. New York Mayor, Michael Bloomberg, set one up (and underwrote most of the cost through his charitable foundation).

When I ask whether SIBs really are the answer to everything, O’Donohoe again responds with reference to Sir Ronald Cohen: “Ronnie Cohen has been a big visionary and very visible in terms of this organisation and I think that Ronnie has a real belief that Social Impact Bonds can be transformational, and I respect him for that.

On the other hand: “I don’t think we as an organisation have ever stood up anywhere and said that we believe Social Impact Bonds are the only form of social investment. When you look at we’ve done with our money, in terms of our commitments, less than 5% of our commitments have been Social Impact Bonds.

There’s no suggestion that O’Donohoe is necessarily less enthusiastic about SIBs than Cohen but his support is less visionary, more focused on the nuts and bolts: “I think it’s going to take a long time for that market to develop but I do think its further development would be very valuable.

He’s also noticed social sector scepticism and is wary of it: “I worry sometimes about the fact that the sector seems to be critical of Social Impact Bonds. My experience of talking directly to people who are actually charities who’ve been funded by them – whether it’s St Giles or Action for Children or the other people – is that they actually appreciate the fact that Social Impact Bond gives them a form of funding that’s more flexible than a typical government grant and allows them to take on payments-by-results contracts without taking on the risk of a payments-by-results contract and I think they find that valuable.

So the minister said: ‘we’re giving you £600million’ and everyone clapped

A recurring theme in our discussion is the combination of the practical challenge of creating a new investment market – big enough, in itself – with the challenge of managing the expectations of both social sector organisations and other interested parties.

Most prominent amongst those interested parties are politicians. From the Prime Minister down, many government ministers have been enthusiastic supporters of social investment and BSC is named after what, at time of launch, was the government’s flagship policy idea.

I ask whether this political support been a help or a hindrance. Thinking carefully before offering a response, O’Donohoe concludes that: “It has been a bit of both. There has been a lot of value to the level of support we’ve got from the government, being seen as part of policy – the Cabinet Office have stayed involved, they could’ve walked away after setting us up but they’ve stayed involved providing funding for the Investment and Contract Readiness Fund and the Social Incubator Fund, so in that case it’s been a help.”

“It’s been a hindrance that we’ve been launched at a time when – for better or for worse -there’s been a significant austerity programme been ongoing and it’s sometimes difficult to distinguish between cutting funding on the one hand and trying to do something relatively new, and different on the other hand. This has led to some miscommunication and sometimes some bad feeling.

That sounds great but will it work?

I ask whether some of that bad feeling and miscommunication have been avoided. Could more research have been done before BSC launched to find out what kind of investment, if any, most social sector organisations wanted? “Was there enough work done on demand before we started? Maybe there wasn’t but you learn so much every day here by looking at and trying to evaluate individual and specific transactions. What is possible with forms of funding and what isn’t possible? And what value or social value can you create or can you not create?

So, nearly two years into the job – running BSC and, in doing so, leading the development of the UK social investment market – does O’Donohoe still think social investment’s going to work? “I think the only way you’re going to find out whether an idea like this works is actually trying it in a prudent way.


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Social enterprise mistakes – Trying to do everything

… if you can tackle youth unemployment with a disruptive combination of skateboarding and environmental action, you can do anything, right? The only limit is your comfort zone!” – my latest blog post for The Young Foundation on social entrepreneurs trying to solve all the problems in the world at the same time.

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Pop up cafes and the terminal illness auction

There’s no shortage of ongoing discussion in the social enterprise world, and within wider civil society, about how we generate (or ‘deliver’) a positive social impact and how we demonstrate what we’ve done.

What we’re less likely to talk about – though, in theory, methodologies such as Social Return on Investment (SROI) do allow for it – is the positive social impact that we chose not deliver (the good things we haven’t done) or the negative social impact that occurred as by-product of our positive impact (the bad things that happened because we did the good things we did).

The problem is that while it’s comforting to think that our fellow social entrepreneurs and other people trying to deliver positive social change are all – however different their approaches may be – ultimately working towards the same common goal of making the world a better place, it’s not true.

It’s not entirely untrue: unless you’re really cynical, there’s no reason to believe that other people in the social sectors have negative intentions but it’s important to understand that people can honourably pursue their vision of positive social change while simultaneously making it harder for you to pursue to yours.

There’s been (at least) a couple of quite different examples of this in the news this week. In the London Borough of Hackney, the (really good) community newspaper, Hackney Citizen reported on: “Cries of ‘yuppie scum’ at protest against subsidised Hackney Heart cafe“.

The story is that Hackney Heart, a pop-up cafe and arts space, had been given rent-free premises by the local council. This has provoked criticism from:

  • opposition politicians who claim the council showing ‘favoritism’ to a pet project
  • anger from other local businesses who do have to pay rent
  • even more anger from another local organisation – catering for a different section of the community – who had its rent increased and went out of business as a result

Hackney Citizen reports that cafe manager’s claim that her establishment is ‘not a commercial enterprise’ and that: “People can come in here and not buy anything. People can take books away for free. Many, many people come in here and don’t buy anything. Elderly people come in just for a chat.

Whatever your views (or lack of views) on trendy pop-up cafes or the gentrification of north-east London, there’s several sets of people with conflicting views on the most socially useful way for Hackney Council to manage its rental property based on their own combination of interests and social values.

Beyond Hackney, Civil Society reports on a more pointed disagreement between some national cancer charities as ‘Breast cancer charities slam ‘divisive’ Pancreatic Cancer Action campaign‘. The provocation for this slamming is Pancreatic Cancer Action’s new campaign featuring the blunt headline ‘I WISH I HAD BREAST CANCER’.

Civil Society features the outraged responses of three different breast cancer charity chief executives, including a passionate but slightly disingenuous outburst from Breakthrough Breast Cancer’s Chris Askew, who storms: “We strongly dispute any message which suggests that one type of cancer is preferable to another. We believe Pancreatic Cancer Action’s recent campaign does just this.


As someone who lost both my mum and my granddad to cancer – though neither of them had the particular cancers under discussion – I can perfectly understand objections to Pancreatic Cancer Action’s campaign on the grounds of (lack of) compassion and taste. If this campaign is so successful in provoking debate that other charities decide that playing off one set of people going through a terrible experience against another set of people going through a terrible experience is a model to be widely replicated then we’ll ultimately end up living in a nastier place.

The fact, though, is that however crassly they’re doing so, Pancreatic Cancer Action are correct to point out that a disease that might kill you is preferable to one that probably will. In doing so, they’re also making clear that even something that’s as unequivocally a social good as fewer people dying from cancer is part of a battle for resources.

That doesn’t that there’s necessarily a direct battle for resources between those tackling different cancers (I’m not an expert in funding for cancer treatment and research). It also doesn’t mean that there’s a finite ‘social pot’ of money and other resources available to make the world a better place – part of the point of social enterprise is to do business in a way that increases the size of that social pot – but even so there are still choices and trade-offs to be made between different activities that generate positive social impact. The fact that you’re doing something (you genuinely believe to be) good doesn’t mean that other people wouldn’t prefer it (or be better off) if you were doing something else.


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