Government thinks we need another investment fund

As Gordon Brown relaunches the Labour Party, it’s an exciting opportunity to trot out an old social enterprise sector truism. Labour’s mini-manfesto tells us that:

“Over the last decade we have seen providers of development capital moving further away from smaller investments and focusing on larger, leveraged transactions. For example, in 1998 one leading provider invested £908m in 600 companies at an average investment size of £1.5m. By 2007, it was investing £1.5bn in 62 companies with an average investment of £25m. This creates an issue for smaller firms or social enterprises with growth aspirations, especially as conventional bank finance may not match their risk profile and growth aspirations.”

The apparent solution to this problem is a new public-private equity fund. What I’m not clear about – and what is never communicated effectively in sector umbrella group pleas for more social enterprise investment finance – is who these social enterprise are who: (a) are unable to raise either bank loans or conventional investment or loans/investment from one of the many existing social enterprise finance schemes or grants and (b) actually have a business model that’s likely to generate a profit for investors.

What sort of things might these social enterprises be doing? Any suggestions?

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2 Comments

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2 responses to “Government thinks we need another investment fund

  1. To be honest I think that social enterprises will always be compromised by taking investment from financial institutions of any sort. To be a truly social enterprise needs both investment AND input from named known individuals who totally share the risk of the enterprise, meaning the ONLY way they make money is if the enterprise makes money and if it doesn’t they lose accordingly.
    In fact if one could eliminate banks from the process altogether then most SMEs, by the very nature of being funded by individuals directly who participate in the business, would effectively in most cases qualify as what we now call social enterprise.

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  2. beanbagsandbullsh1t

    Well, anyone who takes any money from anyone is compromised in some way. It’s always a question of the extent of the compromise and the consequences of not making it.

    If you don’t take money from financial institutions you need to be able to investment from a small number of rich people or a large number of not so rich people.

    Whether that’s possible or even a good idea in principle – compared to get cash from a financial institution – depends very much on what the business is actually going to do.

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