Tag Archives: Social Enterprise

Social Enterprise: What’s love got to do with it?

Is love an essential requirement for a successful social enterprise? Or is it actually a by-product, the mechanism or even the result of one?

In recent months, my social enterprise, Social Spider CIC, has been working with Intentionality CIC on Social Enterprise: What’s love got to do with it? – a report on the role of love in social enterprise. The report is available to download here. It would be great to hear what you think.


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Sustainable business models: Avoiding an ‘annual cycle of finger-crossing’

Popular grant funding body, Big Lottery Fund, have set up a website, Your Voice Our Vision, to stimulate discussion about how they’re going to spend £4billion between 2015 and 2021. They’ve been asking various people to chip in with blog posts on how they view the current and future funding situation for civil society/the voluntary sector/VCSEs (delete or replace entirely according to preference). Here’s my contribution:

… As Managing Director of a small social enterprise and, until recently, vice chair of my local CVS, I’ve observed many different attempts to answer the question of what to do when the money runs out. Understandably given the pressure of the situation, many of them aren’t very well thought through...” – full blog here.

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Time to get the builders in?

There’s no shortage of challenges for leading figures in UK social investment and even the good news isn’t always quite as good as seems. For example, those investors and intermediaries who hope the social investment market will (at some point) be catapulted to relevance by a massive increase in the numbers of social ventures delivering public services will have been delighted by last week’s credulity-busting claims*, in research from Northampton University, that social ventures have been less likely to ‘cease operating’ over the past 30 years than PLCs listed in the FTSE100.

Unfortunately, even if you’re prepared to swallow the ideas that: (a) this is true and (b) this revelation will somehow make public sector commissioners more keen to give contracts to charities and social enterprises, the researchers also expect you to stomach the idea (see page 24) that the 100th biggest ‘Third Sector Organisation’ in the UK in terms of trading income is an organisation, Oasis Charitable Trust, that’s currently doing just £234,000 worth of business.

Given that, as we’ve been told, the model of social investment supported by wholesale finance institution, Big Society Capital, only works without subsidy for deals worth £250,000 or more, and (unless you’re a dot com start-up) you generally need to be doing a lot more than £234,000 worth of trading to take on a £250,000 investment, this would suggest there’s far fewer than 100 organisations in the UK currently in a position to take on unsubsidised social investment.

That’s fewer than 100 organisations that are literally big enough to take on these investments. That’s before you even begin to consider whether they’re actually profitable businesses that would be able to repay an investment. By the end of 2013, Big Society Capital’s cash had been drawn down by 57 frontline organisations with only £13.1million of a projected £600million pot spent in the process.

The situation can’t really be quite that bad (can it???). I’m pretty sure there are more than 100 charities and social enterprises in the UK with a trading income of more than £234,000 – I’d be amazed if there weren’t at least 500 – but there clearly aren’t so many more that University of Northampton’s finest were able to identify them. Even if my anecdote and gut feeling based optimism is correct, that’s still nowhere near 1% of all UK social ventures/third sector organisations/VCSEs/social sector organisations (delete according to taste).

Against this backdrop of staggering mismatches between what 99%+ of charities and social enterprises need, and what (the most prominent element of) the UK social investment is able to offer, Robbie Davison and Helen Heap’s work on developing the idea of ‘Builder Capital’ is particularly timely.

Davison, of Liverpool-based social enterprise, Can Cook, has been a long-term critic of ‘Social Finance’ in the UK and published ‘Does Social Finance Understand Social Need?‘ (the answer was ‘no’) in January 2013 before teaming up with Heap, then working for charity, Tomorrow’s People, to publish ‘Can Social Finance Meet Social Need?‘ in June 2013.

Once again, the answer was ‘no’ and in their new book, The Investable Social Entrepreneur, Davison and Heap, reiterate their critique of the current ‘social finance’ market: “Social Finance, as it is currently arranged, is mostly about not losing money – avoidance of risk in order to protect existing assets. It is nothing more than debt finance and debt finance alone will not address social need anytime soon; it’s the wrong type of short-term money trying to attach itself to problems that take a long time to solve.

They then outline their solution, a new form of social investment known as ‘Builder Capital’. Builder Capital basically involves a social investor putting between £250,000 and £2million into a social enterprise on the basis that they’ll receive no financial return at all for the first seven years. From then on, assuming the business succeeds, they receive a set percentage of the enterprise’s revenues every year until year 20 – resulting in anything from simple repayment of capital to a 5% annual return (depending on the percentage agreed).

The plus side of this approach is that it’s a model for social investment that genuinely offers social enterprises something that isn’t on offer from either grant funders or mainstream finance providers. Grant funders might offer social enterprises money that doesn’t need to be paid back but they’re unlikely to give them 7-years’ worth to spend on developing a business – rather than delivering a monitored set of outcomes. Mainstream finance providers (and most providers in the current social investment market) might offer a social enterprise a mortgage or other forms of loan finance but only if the enterprise can begin to repay the money immediately at commercial rates, which makes it very difficult to both build a sustainable enterprise and meet social needs not already met by mainstream business or the public sector in the process.

The obvious downside to Builder Capital is that it doesn’t currently exist, with an apparent lack of investors keen to put large amounts of money into social enterprises on the basis that they may get it back, eventually, over a 20-year period, being the biggest problem. Davison and Heap are clearly aware of this problem and are planning to do something about it. They’re running a series of events to discuss how to make Builder Capital a reality, starting with this one in London on July 10th. After these discussions, the plan is to establish a ‘Builder Capital Hub’ that will bring together investors, entrepreneurs, customers and beneficiaries with the ultimate aim of ‘developing and growing a market for Builder Capital that we estimate could soon reach a size of around £50million per year‘.

Given that the latest available figures (albeit, figures from a couple of years ago) tell us that the entire market for all social investments other than secured loans was worth £19.8million per year, this seems relatively ambitious but whether or not they achieve that target, Davison and Heap’s work on Builder Capital is an important step towards to making social investment more relevant to ambitious charities and social enterprises with the potential to grow into sustainable businesses meeting social needs.


*The claims are true, as long as you’re prepared to accept that a PLCs merging with another company is the same as ceasing to exist. 50 companies from the 1984 FTSE are not in the 2014 because they’ve been acquired. Examples include popular pharmacy group, Boots, which is now part of Alliance Boots. Alliance Boots had a total turnover of £25.7Billion in 2013/14. Only 3 companies that were in the 1984 FTSE100 have gone bankrupt.


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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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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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