“I talked about the need for a relatively small amount of start-up funding which would be quickly recouped – and about the numerous social investors who shout loudly about their interest in working with social entrepreneurs but in fact don’t support start-ups – even if you have an excellent track record and high profile supporters. I told you that countless letters to all the big wigs came to nothing.“
Perhaps Sally Higham needs to move to the London Borough of Barnet but, failing that, as you’ll see from my comment at the bottom of the original article on May 25th, I broadly agree with what she’s saying. For me, current provision of social finance is not fit for purpose – or, at least, not for purpose that many politicians and commentators believe it can fulfill. In the recent past, government-backed social investors such as Futurebuilders put up significant sums to organisations needing money to develop services to sell to the public sector if it was pretty clear that public sector clients would want to buy those services, while another government scheme, Adventure Capital Fund, provided cash primarily for organisations to buy (or secure long leases on) premises. These are largescale examples of what the UK social investment business (mostly) does – its funds safe projects that might not attract conventional investment because of the small profit margins on offer but which aren’t very likely to fail completely.
In conventional business, you might get investment for a risky business idea on the basis that an investor has a big chance of losing their money but also some chance of making a massive profit if things go well. When it comes to ideas for social enterprises that might be great but which might not work, an investor usually has a big chance of losing their money and some chance of getting their money at a rate that’s marginally better than putting it in a bog-standard savings account. The massive profit is not a realistic possibility even if the enterprise succeeds.
Existing specialist social finance providers are clearly not to blame for avoiding an approach to investment that would inevitably lead to their own financial destruction – even assuming you invest reasonably sensibly, for every one risky social enterprise that earns you your money back with a tiny bit of interest, there’s likely to be another three? seven? ten? that will lose you some or all of your money – but there’s a massive gap (in the non-market) for investment in socially enterprising ideas that might not work.
Sally Higham is right to ask the funding question of David Cameron but her article should also make us, as social entrepreneurs, question ourselves. On what basis can we describe ourselves as businesses if we’re not in a position to offer people the chance to invest their money with us to their own financial advantage?
I don’t think the answer to that is ‘social enterprises are not businesses at all’ but that we need to be clear about what our business is. And hopefully it’s delivering positive social change, which can be delivered sustainably after some upfront investment. The point is that what’s being invested in – in most cases – is the potential social change not the potential profit. This is not a moral statement against profit in a general sense but a reflection of the fact that most social entrepreneurs are operating in areas or sectors where’s there’s not much profit to be made
The reality is that social entrepreneurs need to find ways of attracting investors who are prepared to – at best – make little or no return but with an above average chance that they’ll lose some or all of their money. Given that people do give lots of money to charity, the idea of an investment that’s a bit like giving to charity but with the bonus that you might get that money back is by no means an impossible sell.
Aside from the positive but structurally complicated community shares, I’m not sure what the mechanisms are currently available for people to put money into social enterprises. Crowd-sourcing platforms such as Buzzbnk may be part of the solution to this problem but probably not all of it. Mr Cameron does need to think about where social enterprises will find the money to deliver a big(ger) society but we as social entrepreneurs need to think carefully both about why people should give us their money and how they could do it.
Next question: where’s the (revenue) money?