Can’t get there from here

One of the most interesting developments in social sector funding in 2018 was Big Lottery Fund’s launch of its new £15 million Digital Fund. Unsurprisingly, the fund was very popular receiving 1210 applications (potentially requesting over £600 million in funding).

What’s unusual about the fund is that it offers grants that are (in grant fund terms) unusually large. While a decent-sized smattering of organisations do receive grants of £500,000+ over 3 years – for example, through the Arts Council’s National Portfolio or Big Lottery’s Reaching Communities – it’s extremely rare to see an open call for applications of this size for business development activity. In fact, I’m not aware of it ever happening at all.

Pointless farce

There are some fairly obvious reasons why there aren’t large numbers of state and philanthropic funder providing this kind of money but their collective failure to do so renders a significant chunk of social enterprise support activity farcical and essentially pointless (at least, in terms of achieving its stated aim).

There are numerous programmes with the stated aim of supporting social ventures to ‘scale up’, including some run by School for Social Entrepreneurs (SSE) and Unltd which have supported 100s of organisations over the past five years. But it’s hard to see any connection between support to ‘scale up’ and any social ventures* actually scaling up in the sense of becoming household names or significant players in the specific markets that they operate in. That’s not because ‘scale up’ support isn’t any good, it’s because the task is too difficult.

Building the future

There are large (in the sense of exceeding the ‘Small’ business turnover of €10 million per year ) and successful social enterprises in the UK but the vast majority of them are businesses either managing property and/or delivering outsourced public services or regulated former public services**.

They’ve either been literally given a start – housing associations being given property, spin-outs leaving the public sector with at least one large contract – or they’ve received a jumpstart to the business through winning their first large public or regulated contract.

This distinction is not intended to suggest that these social enterprises lack merit or that their success as businesses is not real or hard won. The ones in the latter category have succeeded in a market just as much as any private competitor seeking to operate in their sector. And many in the former category (such as NHS spin outs) have succeeded despite significant inherent disadvantages compared to private rivals.

So scaling up a social enterprise property-based, public or regulated markets is really difficult but, based on the current funding and investment landscape, scaling up a consumer-focused and/or product-based social enterprise is virtually impossible.

The Big Issue issue

The Big Issue is well known as a social enterprise success story. It is less well known as an organisation that, nine months after its launch in 1991, was losing £25,000 a month on the way to spending £500,000 of The Body Shop’s (soft investment) money over 3 years (over £1million today when adjusted for inflation).

The number of consumer-focused social enterprises that have had a similar impact (in the sense of the impression made on the public consciousness) to The Big Issue over past 27 years is eerily similar to the number who’ve received £1 million worth of philanthropic risk finance.

Some might suggest Cafedirect, founded (again in 1991) by four large established organisations including Oxfam and Traidcraft.

Those worrying that these ventures became successful by jumping through a magic window that was only open in 1991 might be slightly reassured by Divine Chocolate, who launched in 1998 but they did (of course) receive investment from The Body Shop.

This is not very complicated stuff. If you’re launching a business in a sector where there are significant upfront costs involved in getting your business to market or where significant short term losses are necessary to work out whether or not the business could be viable in the long term, you need to be able to spend lots of money. And if you’re operating this business in an explicitly social way, you’re unlikely to be able offer investors returns that come anywhere near justifying their risk. You need a grant or an investment that’s soft enough to almost be a grant.

Who wants to be a social entrepreneur (at scale)?

So, based on the UK’s current social venture funding landscape, your ability to have a chance of meaningfully scaling up a (trading) social venture that’s not focused on managing property or contracting with public or publicly regulated sectors can effectively be determined by this short questionnaire:

1. Are you a multi-millionaire? Yes/No

2. Do you know a multi-millionaire (or two) who will give you some money – and not worry about whether they get any of it back? Yes/No

Answering ‘No’ to both of these questions does not mean that your social venture will be a failure but it does mean there’s a low, hard ceiling to what it’s logically possible for you to achieve.

The 120 participants in Unltd’s Big Venture Challenge raised a combined £13 million of investment and grant funding between them, an average of £108,000 each. That’s serious money and may enable some of the ventures involved to scale up to a sustainable level but it’s highly unlikely to be enough to enable any that want to become really big to find out whether they’re able to.

This is terrible, what can we do? 

There’s three things that I’m definitely not saying here:

(i) ‘Scaling up’ should be the aim for all or most social ventures – it obviously shouldn’t: we need a funding landscape that supports social ventures to find the right level to achieve the most socially useful outcomes they can achieve

(ii) We need to give 100s of social ventures £500,000 grants every year – (while respecting everyone’s passion and good intentions) there are always going to be a relatively small number worth giving this kind of funding to

(iii) No one apart from me has spotted this – at different ends of philosophical spectrum, Profit-with-Purpose and Builder Capital, are (while also having wider relevance) responses to the same broad problem.

And three things that I am saying:

(a) It is possible and desirable for more social ventures operating in consumer markets to scale up – if we develop the funding landscape that gives them a genuine chance

(b) There are enough existing social enterprises (and other social ventures) that are good enough to give at least 20 an average of £500,000 in business development funding, every year for five years – and making this kind of funding available may encourage the development of more, better ones

(c) Spending £10 million a year for five years on funding 100 social ventures to have a genuine shot a scaling up would be a really good way for some combination of government and philanthropic funders to use some of their money (even if only one venture per year managed to scale up in sustainable way).

The Big Lottery Digital Fund is good news in the specific area of social tech but the wider social economy needs similar initiatives – whether that’s a general fund or some sector specific ones.

Based on our current set up, whether or not the next Big Issue is out there, we’re never going to find out.

 

*For the purposes of this post I’m using the term ‘social venture’ to refer to social enterprises, trading charities and companies with a ‘for profit’ structure whose social focuses means they are not able to offer early stage investors a risk-adjusted return

**Long established co-ops

8 Comments

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8 responses to “Can’t get there from here

  1. Thank you David, certainly chimes with my thinking over the years. Some flabbier writing of my own on the topic: https://adamoboyle.com/2015/03/14/growing-not-scaling-realising-the-mountain-isnt-a-molehill/

    I hope you’re well.

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  2. Beanbags admin

    Hi Adam,

    I’m good, thanks. Hope you’re good, too.

    Your post (sadly) is as relevant now as it was three years ago. (With the ongoing caveats that not all social initiatives should be aiming for scale and that not all social initiatives that are aiming for scale can best be scaled via trading), the ongoing failure to (even make a serious attempt to) provide the right funding structures for those that should and can really is really ridiculous.

    And an initial attempt – which could then inform future activity – at providing this support for consumer-focused social ventures wouldn’t need funders to go as far as you suggest in terms of cutting back other programmes in general sense (for example, I don’t think it’s desirable or necessary for Big Lottery to be cutting Awards for All to fund this).

    Initially, it’s about the combination of government, quango and philanthropic funders repurposing a suitable portion budgets that are already being spent on investment readiness/business development/resilience type activities.

    I hopeful that there might be some action soon, because I have to be but not sure how logical that hope is.

    Cheers,

    David

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  3. An interesting read David, reflecting a welcome ambition that we at UnLtd, along with others, agree needs tackling. The fact that so few social ventures are yet able to reach this scale was one of the insights that underpinned our organisational strategy, and you have articulated some of the major challenges in getting there.

    While larger chunks of funding undoubtedly have a role to play in helping those that can to reach scale, we have learned, from Big Venture Challenge (BVC) among other things, that in-depth and tailored support alongside investment is just as important in helping fast growth ventures to build a path to long-term success. The support we offer as part of Thrive (https://www.unltd.org.uk/our-support/scaling-up/thrive/) the accelerator we’ve created to build on BVC’s successes, is designed to be extremely flexible for this reason. Six years on from BVC we are starting to see how this mixture of support and investment can pay off. Organisations like Oomph! and Change Please among others are on a powerful impact trajectory having laid strong foundations through initial investment during BVC.

    We do believe that working with a handful of committed ventures, over a much longer period, with opportunities for ongoing funding and investment, is needed beyond the point where UnLtd’s funding has previously finished. We’ve begun to experiment with this through our work with our first four Pioneers (https://www.unltd.org.uk/blog/news/uncompromising-commitment-unltd-names-four-pioneers-leaders-catalysing-soci) and we’re looking to grow this further.

    We’d be really interested to get your thoughts on our plans as they emerge.

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    • Beanbags admin

      Hi David,

      Thanks for this. I very much appreciate you taking the trouble to read it and respond.

      It’s great that Unltd is developing its approach to this issue. I entirely respect the fact that you believe that tailored support is as important as money. And I think that’s something that it would be useful and positive to test alongside other approaches.

      It’s definitely not my view that large amounts of state or philanthropic money should be chucked at social ventures either all-in-one go or without full (relevant) due diligence processes.

      But I think there’s genuine questions over whether extensive ongoing support programmes are necessarily good value for money in most circumstances.

      I’m really interested to find out more about what Unltd’s now doing – but I’d like to see these approaches being tried alongside (hopefully) increasing numbers of social ventures being given significant funding and trusted to get on with it without extensive support.

      Thanks again for responding.

      Hope to catch up soon.

      Cheers,

      David

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  4. Thank you for writing this in a way this first time entrepreneur can get. More funding in the form of ‘critical resource incubation’ rather than cash; acting as a great trust and insight process to grow viability – may produce the future ‘big issue’s’ (psssst it’s us btw)

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  6. Robbie Davison

    David, your blog has real relevance to what is going on in the social investment space. There are simply too many entities making good money rolling out their bad money models in a way that treats social enterprise like children. I read with interest one of the responses from Unltd – who are one of the main protagonists of this childlike approach – all their handholding and competitions and use of terms like Big Venture, when in reality there is nothing BIG about it all. Their claims about success for their programmes flirt with being spurious and the amount of resource they have expended to achieve not very much should be looked into. It’s all talk generated by people who have no experience of what they are actually trying to create. And there is a constant and particular faultline…if people do not understand the subject matter how can they create the change that’s necessary. I’ve met only a handful of people who understand scale and how to scale, but I’ve met hundreds within intermediaries who talk a good game but know nothing.

    There is no money to scale but there is plenty to satisfy cashflow – which means even if an enterprise is not a start-up, it will be held in to feel like it is.
    This has been as it has been for over 10 years and all of the platitudinal nonsense from intermediaries that change is coming is just their way of deflecting and staying in the game. It’s time to dismantle the whole model and start again from a position that reflects accurately on social need and adjusts away from the current position that lots of start-up’s are the best route to changing the social need landscape – it’s not. Oh, by the way, I know the social finance gang will never look to dismantle or offer significant change, they all have too much of the wrong skin in the game. Nevertheless, the mess they have created has reached a critical phase of its delivery, its all well past its sell-by-date, and here comes BREXIT, so something radical is needed.

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