Tag Archives: Social Enterprise

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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It’s not dead, it’s trading?

Earlier this month, The Guardian‘s Voluntary Sector and Social Enterprise networks published ‘The Voluntary Sector is dead. Long live the voluntary sector‘, an article by Tim Smedley looking at some of the different ways that voluntary sector organisations responded to the (growing) financial challenges they faced in 2013.

While the article started with the line: “Throughout 2013, the fate of the voluntary sector hung by a very thin thread” the key argument is not that ‘the voluntary sector’ (define according to taste) is literally facing an existential threat but that, as argued towards the end: “The voluntary sector as we know it may have reached its breaking point in 2013, with a fragmented sector now following different paths.

In order to explore those different paths, the article links to case studies of organisations responding to funding cuts (and related problems) through merger, consortium-building, corporate fundraising and (as you might expect) social enterprise.

Smedley notes that: “Another area of growth is social enterprises – effectively charging for services rather than providing them for free with the aid of grants” before linking to a case study of (award-winning and really good) Darlington-based social enterprise, Patchwork People.

The idea that social enterprise is the answer (or one of the major answers) to problems of  the voluntary sector is not a new one. It’s an idea that was already becoming popular when I got my first job in the voluntary sector in 2000.

In the post-2000 New Labour period, the move towards social enterprise was more about ideas than it was about financial necessity. For politicians and some sector leaders, being a business with customers was newer and better than being a charity meeting need – largely irrespective of what this meant in practice.

There was plenty of money. According to figures from NCVO’s UK Civil Society Almanac, the voluntary sector’s income from the state was increasing from £9.1 billion in 2000/o1 to a high point of £14.3billion in 2009/10 and while (old model) grants from (different bits of) the state totaled £4.6billion in 2000/01, reached a high point of £5.6billion in 2003/4 and by 2009/10 had almost halved to £3billion, this didn’t mean that most voluntary sector organisations were getting less cash. Income from contracts with various bit of the public sector jumped from £4.5billion in 2000/01 to £11.3billion in 2009/10 – an increase of over 150%. 

Some of this money was new income – with larger national charities (in particular) winning contracts to deliver services previously delivered by the pubic sector – but at the local level a lot was the same grant money was being repackaged as trading income.

The move ‘from a grant-based model to a commissioning model’ happened in different ways and at different times in different areas. It had a big impact on processes – reporting requirements were usually more onerous and financial penalties for non-delivery were possible, and local charities were more likely to find themselves competing with each other for a single block of funding to deliver a particular service or function in their local area – but it didn’t lead to large numbers of local charities fundamentally changing their underlying business models. Ultimately, they’d gone from providing services for free with grant-funding from the council to providing services for free based on a contract with the council – and supplementing that contract income with a mixture of donations and grants from elsewhere.

Now though, the money has run out and the question unequivocally is about survival rather than ideas. My entirely anecdotal research suggests there’s at least as many people in the voluntary sector who think the idea of turning your charity into a social enterprise belongs in the New Labour past as there are who now believe it’s ‘the future’.

In a Twitter discussion with me and other earlier this month, Toby Blume – formerly chief executive of Urban Forum and now working on, amongst other things, Lambeth’s co-operative councils programme – suggested than of the voluntary sector organisations claiming to be social enterprises: “Many are really just charities but clearly see that as a less valuable/valued ‘brand’. shame. Has the idea of charity been so devalued that we rather pretend to be social enterprises than be charities?” before questioning whether the demand that charities become more entrepreneurial had gone too far.

Blume is certainly right to point out that many of the organisations that claimed to be social enterprises in the New Labour years only noticeably differed from ‘traditional charities’ in the sense that they said ‘we are a social enterprise’.

On the the hand, plenty of social enterprises like Patchwork People – that focus on generating as much income as possible from a range of sources of trading income – do exist and do work. The problem is their stories don’t necessarily offers any clear pointers to established local charities trying to find a new way to keep going.

For charities that are in the position of losing some or all of their regular funding and considering social enterprise as a possible route out of the mire, there’s lots of points to consider and these are four of them:

Things about social enterprise which are true:

  1. Social enterprise can be a tool for charities to grow their income – this guide that I wrote for Social Enterprise UK give some ideas about how
  2. If the money for doing what you used to do is no longer available, social enterprise might offer a way to help the people you exist to help by doing something different

Things about social enterprise which are not true:

  1. A social enterprise model is inherently more sustainable than a grant/donation based model – it’s not.
  2. The way to save a (financially) failing charity is do anything and everything you can think of that involves selling something and call it a social enterprise

It’s the headless chicken-flavoured: ‘let’s open a community cafe in the training room run by volunteers who can also repair your shoes while painting your portrait and teaching you to do yoga’ approach that’s ultimately the most dangerous in the current climate.

Even its harshest critics, would accept that one good thing about ‘the end of grants’ under New Labour was that, in most cases, it wasn’t real and there was enough money sloshing around for people to waste money enthusiastically attempting to become sustainable by doing a load of unsustainable nonsense.

Now there really is no (easy) money.

It’s very unlikely that a charity that sets up a small business doing something it doesn’t know how to do in addition to (what it perceives to be its core services) will avoid losing significant amounts of money running that small business. Expecting that small business to make enough profit to replace your lost council grant/contract is (in practical if not legal terms) an even worse idea than blowing the remainder of your reserves on lottery scratchcards and hoping for the best.

Now is a good time for charities and other voluntary sector to be considering whether social enterprise is for them, and how the assets of their organisation might be used to create a business. It’s the worst time to ever to panic and hope that setting up or re-branding yourself as a social enterprise will enable you to magic some money out of thin air.

 

 

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Social enterprises too big for social investment

We all like a bit of variation in our lives, so it seems likely that many readers will by now have become bored with the repeated excuses from social investors that they are unable to invest in social enterprises because these organizations are too small and require investments which are not big enough to justify transaction costs.

Fortunately, it’s a brand new year, and some of the major intermediaries are now brightening our lives with a new, improved excuse for their irrelevance: that the amounts of money social enterprises require are TOO BIG for social investors to be able meet their needs.

The latest iteration of intermediaries innovative ‘have your cake and leave it to go mouldy in a cupboard’ approach has recently seen them offer no help whatsoever to existing social enterprises seeking to enter emerging market for outsourced probation services created by the Ministry of Justice (MoJ)’s Transforming Rehabilitation Strategy.

The likely size and suggested structure of contracts for Transforming Rehabilitation (TR) means that, though still controversial, TR offers better potential opportunities for charities and social enterprises to become Tier 1 providers (the equivalent ‘prime contractors’) than the previous big government outsourcing programme, the Department for Work & Pensions, Work Programme.

Primed and ready for action

In autumn last year, partnerships interested in bidding to be Tier 1 providers had to complete a Pre Qualification Questionnaire (PQQ) to get through to the next round of bidding.

In order to get through the PQQ, partnerships needed to be able to demonstrate that they would be able to raise the working capital needed to deliver the contract in the event that they won it: “Potential Bidders must demonstrate access to funding equivalent to 50% of the indicative annual contract value of any one lot they wish to bid for.

Evidence of this access to finance could include: “funding in principle letters, provided by a lender”.

Keen to avoid doubt, the MoJ made clear that: “For the avoidance of doubt, bidders who cannot demonstrate available funding of at least £5.85m (equal to 50% of the indicative annual contract value for the smallest lot within the competition (Norfolk and Suffolk) will be awarded a ‘fail’ and not be invited to proceed to the next stage for any lot or to refresh their lot preferences.

Given that the contracts themselves are still to be determined the question being put to social investors was effectively ‘in the event that this social enterprise consortium was in a position to (a) win a contract and (b) convince you that the as yet undetermined numbers stacked up, would you in theory be in a position to provide them with a significant proportion of the working capital they need to deliver the contract?’

On that basis, Mike Harvey, chief executive of Northern Inclusion Consortium (NIC), a new company formed by 5 social organisations based in the North with strong track record in supporting people with complex needs, decided to ask some of the UK’s leading social investment intermediaries whether they could provide a letter offering ‘funding in principle’.

The answer was “no”. Or, as Harvey explains: “even where the answer was a tentative ‘possibly yes’, that was caveated with ‘but not at this point in time’ – i.e. when it was actually needed for the PQQ, and this was after the market had supposedly been warmed up months in advance by the MoJ, so is perhaps again indicative about the social investment market’s ability (or inability) to respond at the pace required by most procurement exercises.

Harvey is right that the social investment market – and its potential social enterprise customers – had been warmed up in advance. In August 2013, social investment wholesale finance institution, Big Society Capital issued this ‘Justice Market Statement’ in which it outlined the options for potential TR bidders noting: “In most cases, BSC recommends contacting the growing range of social investment companies that may advise on and/or provide suitable financial products for the probation service market.

Bridges to nowhere 

Taking BSC at their word, Harvey went down the list. He was particularly baffled by the response from Bridges Ventures, in theory the biggest player in social investment in probation services through their ‘Social Impact Bond Fund’.

After an initial approach, Bridges sent Harvey a questionnaire primarily aimed at mutual organisations looking to spin out of the probation service. Having requested detailed financial projections – all of which are likely to be highly speculative at this stage of the contracting process – Bridges then explained that due to the limited capital available to them, they did not have the resources to consider NIC’s bid fully and therefore were not in position to even meaningfully consider offering a letter of intent.

The underlying problem was that Bridges – the biggest social investor in the field – had a maximum of £3.6million to invest in organisations delivering TR. Given that the overall annual value of contracts is estimated at £450million and Tier 1 organisations need to be able to access funding equivalent to 50% of that, working capital requirements for organisations seeking to enter this market are £225million. In the event that social sector organisations had been in the running to deliver all the contracts, Bridges would have been able to meet a maximum of 1.6% of their working capital requirement.

Have you tried your bank?

Undeterred, Harvey then approached a range of other social investors from the BSC list and beyond. The responses from included (expressed in Harvey’s words):

reasonably positive but ultimately came back to say they didn’t have a fund available to provide cover, could potentially have a fund in the new year, but it would be capped

no funds until spring 2014

told us to approach our own banks first, and at best could get to £2m in investment but not in the timeframe

understood our issues but were capped at a max investment of £350k

said they could invest up to £1m, then said they couldn’t do a covering letter in the necessary timeframe

At no point was NIC knocked back due to the fact that they lacked ‘investment readiness’, the social investors they approached simply did not have the money (and/or ability to act within the suggested timeframe) to consider their request for investment.

Harvey says that one social investment intermediary, spotting the lack of available capital for organisations entering the TR bidding process, went to BSC with an offer to set up a specific fund but that this offer was turned down.

While not doubting their desire to help, Harvey is bemused at the practical role (or lack of it) of social investors in the TR tendering process. He notes: “Looking at the shortlist of organisations that made it through the PQQ, I would confidently say that the only social primes that have got through using an indication of social investment are the mutuals, and even some of them will have been covered by their partners in the JVs instead – everyone else has used their own balance sheet.”

The irony of this is that while organisations putting up the assets on their own balance sheets as evidence of ‘access to funding’ are being entirely truthful – it is literally possible for them to access the funding should the need and opportunity arise – it seems highly unlikely that anyone at the MoJ seriously believes that charities and social enterprises would ultimately choose to invest the majority of the reserves into setting up a new venture to deliver a Transforming Rehabilitation contract. Maybe the MoJ are confident that the social investment market will wake up a bit this year?

Investing in a ‘social purpose company’

The TR shortlist also reveals that Bridges Ventures have found a way to play significant role in TR after all, as part of Chalk Ventures Ltd – a venture that also includes a proposed staff mutual organisation and controversial outsourcing giants, A4E (formerly a self-styled, ‘social purpose company’).

Harvey wonders what’s going here: “My challenge here is what exactly is Bridges’ role in this partnership, and how is it structured?

He sees this link-up, combined with social investors’ apparent inability to help existing social enterprises, as possibly opening wider questions about the role and value of social investment explaining: “We previously saw A4E try to reposition themselves as a ‘social purpose’ company, and some social investors including BSC if I remember rightly, argued that a company’s legal structure was potentially less important than its impact – paving the way for social investment in privately held companies – so if Bridges’ are now providing finance for a privately owned company (which previously paid its majority shareholder a £8.6m dividend) to me that raises serious questions about social investment.

Asheem Singh, director of policy at the charity leaders network, ACEVO, says many of his members have expressed concerns about the shortcomings of social investment in supporting them to enter public service markets: “We’re all keen to make social investment work and we’re delighted that social investment companies are looking at programmes like TR and identifying opportunities for them to invest. But the question has to be asked: how much of this social investment is actually going to voluntary sector organisations and social enterprises that would otherwise be unable to access high street lending?

He adds:  “This is an existential question to be answered by all those who want social investment to succeed. If social investment ends up going to organisations that could, with their purchasing power, have gotten investment elsewhere, what exactly is the point of it?

You’re all doing great work

Responding to the announcement of the TR shortlist in December, BSC’s chief executive, Nick O’Donohoe, expressed his enthusiasm for the fact so many partnerships including social enterprises and charities got through the PQQ saying: “It is positive to see a high number of socially motivated consortia shortlisted – including well respected charities and probation mutuals, all of whom have a strong track record of working  in Criminal Justice.”

While charities and social enterprises may value his enthusiasm, they’ll be hoping that, in 2014, O’Donohoe and the intermediaries he invests in can go one better and actually provide them with some money.

 

 

 

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Tell it to the trees?

Large established organisations generally struggle to innovate successfully as the bulk of their energy and efforts are spent keeping their large operational processes running efficiently. On the other hand social innovators and start ups while good at invention, are weaker at organisational development and management, and struggle to access the right markets, advice, networks and investment that they need to scale, sometimes creating a vicious cycle of launch and fail.

That’s the premise for ‘When Bees meet Trees – How large social sector organisations can help to scale social innovation‘ – a report published in November last year by social entrepreneur, Owen Jarvis and charity insider, Ruth Marvel as part of the Clore Social Fellows programme.

As well as outlining some of the key reasons (explained in the above quote) why social innovators and large, established social sector organisations should work together to ‘scale up’ innovation, it also explores some of the reasons why they aren’t currently doing so and makes some suggestions about what could be done about it.

The suggestion that a good way to take forward a new idea to tackle a particular social problem or help a group of people might be to form a partnership with an organisation that is already tackling that problem, or working with that group of people, might not seem like an especially controversial one. If that’s how it seems to you, you’re probably not someone who’s involved with the UK’s burgeoning social innovation industry.

While there are occasional honourable exceptions, generally the last thing you should risk admitting to if you’re looking for support from a disruptively innovative accelerator programme is any skill in the professional field you’re seeking to enter, experience of the market you’re seeking to operate in, or prior knowledge of the needs of or situations faced by the people you’re seeking to help.

Old charities that haven’t solved social problems are what social innovators are here to disrupt. All they’re interested in is keeping their jobs and getting government contracts to do the same boring stuff over and over again when that money could be being spent on more accelerators doing more exciting innovations.

The authors of ‘When Bees meet Trees’ carried out ‘interviews with 31 senior staff from social sector organisations, and discussions with 47 individuals in total’ and use the responses to address and make recommendations on three themes: culture, connection and collaboration.

The stereotypical views that large charities and social innovators (and people who ‘support’ social innovators) hold about each other are a problem. The report quotes one social innovation intermediary saying: “Most charities have been run on a shoe-string and are used to outmoded business thinking, to be blunt, I think the world’s moved on and become more networked, more connected and I think charities are on a bit of an out-dated 20th century business model.

while someone from a ‘Large Social Sector Organisation’ says: “We’re about filling the gaps and meeting the need of local communities. It’s about what works. We’re not about these ‘flash-bang-wallop’ new ideas“.

Beyond these stereotypes, though, the report suggests that the biggest cultural problem large social sector organisations have when considering developing innovative ideas and projects is risk. One explains:

We’re not great at change, internally we tend to see change as risky, worry about what the regulator will think, what will tenants think, perception is that most external ideas might fail.

while another says: “… our main donors are Governments who don’t want to take risks with taxpayers’ money, they want safe bets.

According to the authors, large social sector organisations are reactive where social innovators are pro-active and while this may, particularly in the current climate, include being reactive to public sector demands for ‘new solutions’, the danger is that the priority becomes keeping the organisation going rather than responding to need.

For the authors, it’s not that barriers to partnership don’t exist – or that stereotypes are wholly inaccurate – but that currently, there are enough opportunities for open-minded charity people and social innovators who aren’t digitised idiots to get together. They explain: “A major factor in this is that both worlds simply fail to connect and meet. There is a clear need for more physical and virtual meeting places and the encouragement from leaders in these sectors to use them.

Suggestions for tackling this include developing ‘21st century coffee houses‘, events or regular gatherings ‘where ideas can flow freely, and relationships and trust can be built‘ between ‘the two worlds‘.

Another suggestion is to: “Invest in proactive ‘connectors’ and ‘super-connectors’ who can work across organisations and sectors in order to cross-pollinate ideas, spot opportunities for collaboration between social innovators and established organisations and encourage them.

The third thematic section, on collaboration, looks at why social innovators and charities who know each other and, in principle, would like to work together, often don’t do so before looking in more detail at the different possible roles they might play in a partnership – and some examples of existing partnerships.

Recommendations for promoting collaboration include suggestions for ‘Incentivising Collaboration’ based on the notion that: ‘Current funding for innovation rarely sets out to encourage established organisations to work with social innovators to help them scale‘ and that ‘Policy makers and funders can play a role by signalling to established organisations that they have important roles to play in supporting social innovation and giving them permission and encouragement to participate‘.

This ‘signalling’ would be delivered primarily in the Cuba Gooding Jnr sense based on suggestions to: “Develop a new fund where social sector organisations commit funding to develop and scale social innovation on a thematic issue, which is matched by Government and business” and “Develop more focused, thematic funding and support programmes that encourage the development of ‘collective impact networks’ around specific social challenges, e.g. Big Lottery’s Realising Ambition programme.

Another idea is to: “Revise accelerator and incubator programmes and innovation competitions to engage with potential scale partners from the outset.

While stereotypical thinking and organisational culture do matter, and money won’t break down barriers on its own, when well directed, it’s a very effective tool. The current government’s support for social innovation is a good thing and the involvement of people from outside the traditional social sectors with new ideas and different skills is a positive thing as well.

The role of people who actually use services in social innovation is even more important but it would be ridiculous if we saw the development of a social innovation industry where the only people not involved were large social sector organisations delivering existing services. ‘When Bees meet Trees’ suggests something better.

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