Where’s the (start-up) money? It’s not just a question for David Cameron

Over at the Guardian Social Enterprise Network, social entrepreneur, Sally Higham, has been writing to David Cameron. She wrote to him over a month ago after posting an article in which:

“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?

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11 Comments

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11 responses to “Where’s the (start-up) money? It’s not just a question for David Cameron

  1. David, I’ve been in conversation of late with Sally because what she describes is essentially the same problem we encountered 7 years ago when seeking a small amount of loan funding to seed a new project. A project which in fact was aimed at creating seed funding for social enterprise generally.

    We’d approached this from a business perspective, with a self-sustaining model already proven in the field and developing a detailed business plan was our first action.

    I was sent from pillar to post to find support for this work, starting with ICOF, then charity bank and traditional loan sources. In every instance our incorporation as a guarantee company was given as the obstacle. In essence,”you’re not one of our church’. I followed up approaching a number of APPGs, social enterprise support agencies, Described our problems on Skoll Social Edge and Unltd World. I later joined the Social Enterprise Coalition. What impressed me least was the number of support agencies who found reason not to be able to help, or simply disregarded my communications. In the end Jerr Boschee from Social Edge suggested contacting Baroness Thornton of the SEC . I wrote to her at the House of Lords relating these problems and was disregarded there too.

    http://www.box.net/shared/9c3x229hll

    All I could do in the end was to use the revenue from an existing business to fund ongoing advocacy. The death of a business colleague presented this opportunity when I was left with a software business whose revenue derives from the supply chain of major corporations and public services. By chance rather than design we found ourselves taking this lead.

    In hindsight it now seems that what we experienced then was a confrontation between a business mindset and that of charitable foundations. Our expectation that a business plan would justify a seed loan versus the drip feed mentality of foundation hand outs. They simply didn’t understand the ‘profit for purpose’ approach.

    If one looks around now at Greece and Spain and even closer to home in Stokes Croft, one will see people unwilling to tolerate being economically disenfranchised any more. Recently reflecting on our efforts to do something to lessen the impact we’d seen coming since 1996, I selected a relevant extract about dealing with poverty with a rethink of traditional capitalism which is today very much the flavour of progressive business thought. The ‘experts’ are still not listening.

    http://socialbusiness.socialgo.com/magazine/read/poverty-the-case-for-responsible-business_74.html

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  2. admin

    Interesting. How much was ‘a small amount of loan funding’?

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  3. Hello David!

    This is by far the more honest, realistic and intelligent account of the social finance market/sector/pseudo-field. I wonder what other sustainably managed and strategically placed stakeholders have to say. The way in which you describe us is a bit like ‘this ice cream is disgusting, do you want some?’.
    What would be a good analogy for the current provision of social finance? Perhaps: ‘All you need to do to get his money -in this terms- is demonstrate that you don’t need the money at all’ ?.

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  4. Maybe because it is Friday and I am winding down, I can be bothered to comment – no offence. It is simply that when money you have signed for disappears and every lender wants you to borrow £50k before they’ll even consider an application, we have taken the view that to apply for funding or finance is close to farce. Get out there are sell is now our motto and thank God, we are well versed in getting by #creditfree.

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  5. David, The “small amount of loan funding” was £30,000, the capital needed to create the first of the ‘community interest’ broadband franchises you may find described in the proposal you will see by following through my link above. The commercial target was 5% of the UK broadband market and a\ yield of £100m/ year for investment in social enterprise.

    What I described to you there was the origins of a re-think of capitalism which would be made far more prominent in follow on work in Ukraine, to appear on the lips of Philip Blond and David Cameron 5 years later. In this follow up work, we described a social investment fund localised deployment of social enterprise on a national scale. Interesting to see this resurface too as the Big Society Bank and the Localism Bill. Something of an afterthought by government, yet foreseen long before,.by the original architects.

    The intended beneficiaries of this subsequent work had been some of the most vulnerable and disenfranchised children in the world. It wasn’t intended to boost either the reputation or career of any politician and as soon as David Cameron had been re-elected, I took the opportunity to point that out to him, in so many words, with a petition.

    http://www.change.org/petitions/the-abandoned-children-of-ukraine

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  6. At this point, perhaps it’s also worth pointing out that what we were describing was based on a sustainable business approach and a market which could expect a reasonable return on investment. In our founding paper, in fact, we describe how if a percentage of what is given in charity was to be invested in a fund for this kind of social purpose business, instead of being spent once and gone, it would circulate as it should in business. At the end it’s pointed out that:

    “Clearly, profits can be used very effectively in ways other than traditional investment and profit outcomes. Moreover, this is not charity, it is business–good business. One P-CED firm could be expected to spin off dozens of new firms and businesses, all of which create new jobs and all of which operate under traditional free-enterprise practices”

    http://web.archive.org/web/20020805061509/http://www.p-ced.com/page2.html

    It should be understood that what I’m describing here in profit being re-directed to social needs, might well be seen as a get-rich initiative taking advantage of human compassion. This above all illustrates the need to be seen to be doing things with integrity and hence the stance we make on not distributing dividends.

    In recent Guardian discussion on this issue and the subsequent poll about dividends, in spite of being the only party in the discussion who’d applied the no dividend approach and followed through to leverage impact, ours was the opinion not given an opportunity to express itself in this medium,.

    We are drawing conclusions, it seems, on opinions and pushing practical experience away from the table.I have to ask why?

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  7. admin

    Maria,

    I think your assessment is right but I’m not intending this as a criticism of the (logical and sensible) operations of existing specialist social lenders/investors – I’m more critical of the repeated suggestion by politicians and others that these organisations solve a problem that they clearly don’t solve.

    Emma,

    I think you’re absolutely right. The problem is that social investment so far is a service looking for a market rather than a service responding to a demand. There is a potential demand but not for the service that social investors are providing.

    The number of socially enterprising ventures who can take a £50,000 plus investment with a realistic chance of paying it back but can’t get that money from conventional sources is a tiny niche market.

    I agree that as many social entrepreneurs as possible should follow your example and just get on with selling stuff but we also need to think seriously about that the types of investment that could help to make new good stuff happen.

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  8. I have to admit that through my experience with Network 2012 I came to the same conclusion as Emma when considering finance. I think many people would be far better off getting out there and making money rather than waiting for someone to give it to them because they have a good cause.

    This is not to say social entrepreneurs do not desrve start up grants they so obviously do but in all honesty it’s like looking for a needle in a haystack at the moment! UnLtd will fund the single entrepreneur and thank God for them. It’s about where you put your time and energy!

    Lets look at another scenario though. Lets say you finance your own social enterprise, it works and 40% of profits are running your social or environmental programmes. You wont be recognised as a social enterprise by the CIC people and you wont get the Social Enterprise Mark in this scenario!

    My honest advice to most people at this moment in time as harsh as it may seem is do it for yourself or don’t do it!

    Running a social enterprise is not for everyone it’s bloody hard work, no family time, pressures on health and little reward!

    Oh and you also have the fact that the whole idea of social enterprise in the UK has been morphed into a sub section of the Big Society to contend with.

    Oh and the Big Society idea thanks to it’s “invention” by Cameron has about as much credence as a News of the World investigative journalist!!!

    I’d run a social enterprise because I love it, I love the challenge, I want to make a difference, sustainability is the way to go as it gives you a degree of independence and you’re not cap in hand to anyone but would I recommend it to my children? Mmmm I dunno!!

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  9. admin

    Martin,

    I think there’s lots of questions there.

    Whether or not he invented it, I’m working on the basis that David Cameron supports Big Society ideas. Maybe I’m missing something but, for me, the best way to give the ideas more credibility is not to keep relaunching the concept but to actually take some practical steps towards helping people do stuff that embodies it.

    You and others who say social enterprises who can develop sustainable models by selling goods and services without start-up cash are definitely right to extent.

    The question is ‘could more of the right sort of funding enable to more socially enterprising activity to get going?’ and, assuming the answer’s ‘yes’, what are the government and some of us in the social enterprise movement going to do to make that happen.

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  10. David, For us part of the task will always be activism. As you’ll see from what I wrote about care homes yesterday on the Guardian’s Linkedin group, a suggestion made 5 years ago in the context of international development. was for an investment fund for social benefit “under control and management independent of government and the very obvious vicissitudes and conflicts inherent therein” and that this should be
    “under oversight of an independent board of directors, particularly including representatives from grassroots level citizens action groups, networks, and human rights leaders”

    http://en.for-ua.com/analytics/2007/08/09/110003.html

    For us who’ve taken the self sustaining path, it’s a business approach demanding a business response and part of that is respect for intellectual property. When social enterprise becomes a matter of hijacking projects while keeping their instigators away from the funding table, it fails all of us.

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  11. Jeff that article by Terry has to be THE most comprehensive breakdown of the different models of social enterprise I’ve ever seen! Reading it is almost like finally answering the question on what a social enterprise actually is! The question that has always nagged me is how can we explain the concept in a way that the “masses” can fully understand?

    Maybe if we can do this it would encourage our politicians to make more of an effort to support social enterprise.

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