“The pressing, practical question is: do intermediaries exist whose investments in social enterprises and charities yield enough profit that might enable £600m of Big Society Capital to be spread in some sort of equitable way?“
So says Daniela Barone Soares, chief executive of venture philanthropy specialists, Impetus Trust, in a thoughtful and sensible piece for The Guardian‘s Social Enterprise Network. Her basic point is that there’s a need for some market research to work out how-on-earth, government-backed wholesale lending institution, Big Society Capital, is going to get rid of £600 million (and have a realistic hope of getting it back). The money has to go through social investment intermediaries and, as Big Society Capital’s own research shows, many of these intermediares have so far found it difficult to invest much money in organisations that don’t have property to borrow against (which would also enable them
to borrow from mainstream banks).
As Barone Soares points out: “Many intermediaries, even the most profitable ones (indeed especially them) attest to the claims of we who work within the sector that ‘investment readiness’ – finding enough organisations to yield social investments – is their number one problem – and Big Society Capital’s biggest potential barrier.“
There’s certainly no shortage of social investment specialists talking about investment readiness. It’s the one phrase you’re guaranteed to tick off in any game of social enterprise bullshit bingo but what does it actually mean? Or, at least, what does it mean beyond the obvious ‘is this an organisation that we can confidently provide with an investment right now?’
I don’t have much common ground with most social investment professionals on social enterprise policy – all the ones I’ve met are both pleasant on a personal level and clearly genuine in their desire to deliver positive social change – but I do agree with them that most social enterprise are not ‘invesment ready’. Where I think we disagree is on the reasons why.
The most under-explored reason is that maybe social entrepreneurs don’t want investment – either at all or on the basis that we’re being offered it. It’s true that Social Enterprise UK‘s latest State of Social Enterprise survey, Fightback Britain, reveals that ‘Access to Accessible and Appropriate Finance’ is the biggest problem facing 44% of UK social enterprises, all that reveals conclusively is that this 44% want some money. It doesn’t tell us whether large numbers of social enterprises want to scale up and significantly expand their businesses even if they could get a grant to do so, let alone a loan that would have to be repaid with interest.
The same survey reveals 47% of organisations not even making a profit. In that instance, the quickest way to achieve investment readiness might well be to start a new business doing something else. This is not purely a flippant point. The really is that a significant proportion of social entrepreneurs run businesses who major commercial aspiration is to keep going while achieving positive social change. Not based on some misguided political notion that profit is evil but because the social activity we’ve chosen to carry out means that we don’t have a significant market to sell to. The sensible, purely commercial decison is to stop and get a job. But our choice is to keep going. We really aren’t a few days pro-bono corporate business planning consultancy away from a £multi-million business.
Unfortunately, the (currently dominant) slightly-less-than-market-loans bit of the social investment sector doesn’t engage with the world of social enterprise that we operate in, it orbits it from a geo-stationary position. As a social entrepreneur, I find it slightly galling listening to the endless parade of ex-financial services people turning up on social enterprise stages to ask me when I’m finally going to serve them up a real business to make use of one of their loans. The reality is that social entrepreneurs didn’t ask finance specialists to come into our sector an offer us their investment products, they chose to come and sell us stuff, and in most cases the government paid for them to do so.
It’s ironic that the clearest current example in UK civil society of an organisation receiving significant investment without having to prove its investment readiness is Big Society Capital itself. It has come into existence on the basis of political demand not customer demand. In fact, the demands for social ventures to achieve greater investment readiness coming from Big Society Capital and other social investment intermediaries are a textbook example of the ‘blame the customer’ approach that social enterprises would need ditch if they were to achieve investment readiness.
None of this means that I think social investment is a bad thing. It’s vitally important that profitable, scalable social ventures – such as LEYF and Cool2Care – do get the help and resources they need to grow but establishing and meeting a significantly growing demand for social investment (if, in fact, it exists), is primarily a job for the people offering social investment, not for the social ventures that can’t or don’t want to take it.
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