There’s been plenty going on in social investment and the wider social economy in recent months that’s been worthy of a blog (or several), with big charities in crisis and the concept of ‘investment readiness’ consigned to the pipeline of oblivion.

As it is, due to a mixture of (mostly) exciting social investment work and (some) equally exciting community media work, I haven’t been doing much blogging – but I have written some posts for our clients which I thought you might be interested in:

Risk Finance: past, present and future – the first in a series of blogs for Access: The Foundation for Social Investment as part of a project alternative models of unsecured finance for charities and social enterprises.

Risk Finance: what’s happening beyond the UK – the second post in the Access series: the UK may be leading the world in social investment but there’s lots of going on elsewhere, too – with plenty of ideas we can learn from.

And finally…

Prominent social/impact investment leader, Sir Ronald Cohen, was recently in South Korea to launch a new National Advisory Board on Impact Investing. I interviewed him for Pioneers Post to find out more.

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Getting it together

Monday saw the launch of this year’s Eastside Primetimers Good Merger Index. The headline figure is that there were 70 charity mergers in 2016/17, up from 54 in 2015/16. This is a significant increase given the small number involved but, given that there were 61 in 2014/15, it doesn’t necessarily represent a major upward trend.

The debate around mergers is a strange one. I’m a big fan of the work that Eastside do on the issue and enjoyed working with them last year on some research for Social Investment Business looking at how social investors could better support mergers (report to be published this year).

But (to a lesser extent) Eastside’s output and (to a more significant extent) the recent output from Civil Society on this issue seems partly based on some curious, under-developed assumptions. This curious outlook is particularly reflected in the recent post: ‘Charity mergers scuppered by the self-interest of staff and trustees’ which is part of a wider focus on the issue in Civil Society’s print magazine, Governance & Leadership.

The article includes a couple of anecdotal examples of staff and trustee action that has prevented mergers that would otherwise have gone ahead.

I’m aware of other similar anecdotes from research I’ve worked on but I’m yet to encounter evidence (or indeed clear arguments) that these personal objections and obstructions are a key reason why there’s 50-70 mergers a year rather than 500, 1000 or however many merger advocates believe would be appropriate.

There’s (at least) two assumptions underlying the blame the staff/trustee rhetoric that I think are under-explored and at least partially wrong:

There are 167,000 charities who should be actively thinking about merger: the figure from Eastside’s research as reported by Civil Society is “only 70 mergers involving 142 charities took place in the year to March 2017, out of 167,000 registered charities.

It’s a phenomenally small proportion but it doesn’t involve any estimate of the number of charities who are potentially in the ‘market’ for mergers. Even without (at this point) getting into the more complex issues about the wide range of different activities that a registered charity might be undertaking – just based on size the actual pool is far, far smaller than the headline figure suggests.

The latest Charity Commission figures report that out of 168,237 charities in the UK, 65,656 (39%) have an income of £0-£10,000, while another 57,570 (34%) have a turnover of £10,001-£100,000.  Another 11,247 (7%) have income which is ‘not yet known’ so likely (in most cases) to be fairly low.

That’s 80% of registered charities accounted for. While there may be a few exceptions where organisations have a low turnover but own assets, there are not going to be many instances where a formal merger process involving an organisation with a turnover of under £100,000 is economically justifiable or socially useful.

In the event that an organisation is unable to continue but there is a need and funding for some of its work to continue, another organisation might take on a particular project and run it. This happens. Consultants, lawyers and formal processes may not be necessary or helpful.

Multiple charities means duplication of services: after that, we have 33,764 charities left with a turnover of £100,001+. That’s an average of around 52 charities for each of the UK’s 650 parliamentary constituencies.

The 13 descriptions of charitable purposes in the 2011 Charities Act cover quite a range of stuff – from the more obvious tackling of social need via ‘the prevention and relief of poverty’ to ‘the advancement of the arts, culture, heritage and science’.

Those 52 organisations in your area could include include charities helping older people, young people, people with disabilities, learning difficulties, physical and mental health conditions. It can include community centres and open spaces, museums and arts centres. On what basis, do merger advocates believe that 52 charities is too many the social, cultural and spiritual needs of (in English constituencies) over 70,000 people?

Even in the event that there are – for example – 10 different charities in the constituency of Leyton & Wanstead both turning over £100,001+ and offering activities for older people*, they may be offering different services to older people in different ways.

If 10 groups of trustees in Leyton & Wanstead (many of whom may be local older people themselves) have decided at some point they want to do something for older people, the Charity Commission has confirmed their purposes are charitable and they’re somehow finding the resources to make the activity happen, on what basis are outside experts getting upset that they don’t merge into 3 organisations?

Is there any evidence that there are significant numbers of £100,001+ organisations offering the same help to the same people in the same places in – competing with each other in ways which diminish the overall social offer to the people they aim to serve?

Is there any evidence in the current funding climate that there are any local charities *at all* currently offering the same help to the same people in the same places in competition with each other using public money?

I’m not assuming that the answers to these questions are necessarily ‘no’ but those who are angry about the idea of duplication and see the need for mergers in response really need to have – if not actual data – a more developed hypothesis to back up their rhetorical position.

Is it in inherently socially beneficial for charitable activities to be carried out by the smallest possible number of charities? If so, why?

I’m not posing these queries based on belief that merger is a bad idea. Merger has always been a good option for some organisations and the current economic climate for charities means that it is now likely to be a good option for a (relatively) increased number over the coming years.

My (qualitative) impression is that there are (at least) 10s of organisations in the UK where some combination of staff and trustees have decided that merger if the best way to achieve their charitable purposes: because it’s the only way to keep going or because it’s a better way to move forward as part of a stronger, larger entity. There are practical and financial barriers to those organisations taking the merger route and I want to see social investors and other funders help tackle them.

What I’m not seeing is evidence (or a even a meaningful hypothesis) that significant social harm is occurring because senior managers and trustees of 1000s (or even 100s) of organisations are ignoring a clear, economic and social case to merge based on self interest.

If that case exists, merger advocates need to make it.

*This is hypothetical. It is highly unlikely that there are 10 or more £100,001+ turnover charities providing services specifically for older people in Leyton & Wanstead.



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Life on MaRS

Last week, I was in Canada speaking at Social Finance Forum 2017. Here’s my write-up of the event for Pioneers Post.

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The First Billion (of Subsidy) – What Next?

As my report about subsidy in the social investment market over the last 15 years shows, at least £1bn has been spent on efforts to grow the market, most of that over the last 10 years…” my latest blog post for Access on the use of subsidy in UK Social Investment.

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What’s going on in UK social investment? – part two

In my previous post last month, I suggested that at least two blogs posts that would be needed to (even usefully begin to) answer the question post by the headline.

The first of these was a post: “Looking at developments in the market for small, unsecured loans for charities and social enterprises since 2012 to see whether there’s more of these deals happening and what basis they’re happening on (size of loan, interest rates etc.)

The context for this is the potential disconnect between (a) the significant growth of the social investment market overall (both in terms of the value of total outstanding investments and in the value of investments per year) and (b) the offer to most charities and social enterprise from the social investment market.

Turning up the volume

The first half of my previous blog looked at possible growth in the specific part(s) of the market described as ‘risk’ investment and the different perspectives on what that means.

In this case, it’s useful to begin by zooming out and looking at the shift in the market as a whole over the past four years.

Big Society Capital (BSC)’s recently published impact report claims that the total value of deals in the social investment market in 2016 was £595 million*, up from £213 million in 2011/12. The 2011/12 figures are primarily based on the City of London-backed report, Growing the Social Investment Market, however BSC’s data team have made some adjustments to the figures to reflect some changes in how we understand the market since then.

Supporting a 179% increase in deal flow in less than five years doesn’t seem like bad going. On the other hand, social investment leaders expected far more. As the title suggests, the BSC-commissioned report The First Billion, published by Boston Consulting Group in 2012, predicted that deal flow would reach £1billion by 2016.

The figures for deal flow – the amount of money invested in a particular year – should not be confused with the figure for the overall value of investments in the market (which includes the value of outstanding loans and equity investments made in previous years). The total outstanding investment figure for 2016 on BSC’s market size dashboard is £1.64 billion (of an overall total of £1.98 billion) excluding ‘Profit with Purpose’ investments**.

Half measures

So, the less charitable assessment of BSC’s achievement in terms of deal flow is that they had a target to increase the size of the market by £787 million between 2012 and 2016,  and have only managed to increase it by £382 million.

The assessment, while legitimate, may reflect more on the over-optimism of 2012’s predictions than on BSC’s performance. This blog post, written by NPC’s Dan Corry at the time, makes clear that these the predictions were based on several questionable assumptions – particularly around growth in charity and social enterprise income from public service markets – and these subsequently proved to be incorrect.

The reality, as shown by NCVO’s Civil Society Almanac, is that (with minor fluctuations) charity and social income from government has remained essentially the same over the past five years. It peaked at £15.7 billion in 2009/10 and the latest available figures (2014/15) have it slightly lower at £15.3 billion.

Growing the volume of investment in the social investment market by 179% in this context represents a significant achievement (of something).

Deal or no deal

What’s less clear is the extent to which the increase in the volume of social investment has made it easier for most charities and social enterprises seeking investment to get the investment they need.

One way to look at this is to look at the number of deals taking place in the market. When we look at the number of (meaningfully comparable***) investment deals, this figure has grown from 765 in 2011/12 to 923 in 2016.

So, while the amount of money being invested into charities and social enterprises has increased by 189% since 2012, the number of charities and social enterprises taking on social investment has increased by just over 20%.

This doesn’t invalidate the big increase in investment but it hints at why (as discussed in the previous blog) some sector leaders are concerned that most charities and social enterprises have not benefitted.

Small comfort 

There’s no way of getting a clear picture of how the average charity or social enterprise’s experiences of the social investment market have changed in recent years but one way to get a broad indication is by looking at Social Enterprise UK‘s bi-annual state of social enterprise surveys.

Unfortunately, the 2017 survey is not yet available but the figures below give a snapshot of what was happening in 2011, 2013 and 2015.

In the 2011 survey, Fightback Britain: 

  • 45% of social enterprises said ‘Lack of, poor access to, finance or funding’ was the major barrier to Starting Up
  • 44% said said ‘Lack of, poor access to, finance or funding’ was the major barrier to Sustainability and Growth
  • 25% of social enterprises sought loans
  • 56% got some of all of the loan finance they applied for
  • the median loan applied for was £250,000
  • the median amount received was £200,000.

By 2013’s report The People’s Business:

  • 40% of social enterprises said ‘Lack of, poor access to, finance or funding’ was the major barrier to Starting Up
  • 39% said said ‘Lack of, poor access to, finance or funding’ was the major barrier to Sustainability and Growth
  • 20% of social enterprises sought loans
  • 60% got some of all of the loan finance they applied for
  • the median loan applied for was £150,000
  • the median amount received was £70,000.

In the 2015 survey, Leading the World in Social Enterprise:

  • 58%**** of social enterprises said ‘Lack of, poor access to, finance or funding’ was the major barrier to Starting Up
  • 39%**** said said ‘Lack of, poor access to, finance or funding’ was the major barrier to Sustainability and Growth
  • 23% of social enterprises sought loans
  • 74% got some of all of the loan finance they applied for
  • the median loan applied for was £87,500
  • the median amount received was £80,000.

The messages from this data are unclear. Some themes that seem to emerging are:

  • (With the exception of a big increase amongst ‘Start-ups’ in 2015 that may be explained by changed methodology), the % of social enterprises citing poor access to finance as a major barrier did not change significantly between 2011 and 2015
  • the % of social enterprises applying for loan finance did not change significantly between 2011 and 2015
  • the % of social enterprises successfully applying for loan finance increased steadily and notably between 2011 and 2015
  • the average size of loans applied for (and received) dropped significantly between 2011 and 2013 before increasing slightly in 2015

There’s lots we don’t know. In particular, we don’t know how significant the social investment market was in these changes and non-changes. As discussed here, most investment taken on by charities and social enterprise is not social investment.

In terms of a tentative hypothesis, though, it seems plausible that the fact that the social investment market is growing may have contributed to the growing % of those social enterprises that are seeking finance actually managing to get it.

More or fewer 

It’s much trickier to work out what has happened in terms of ‘risk capital’. As discussed in the previous blog, the ‘risk capital’ bucket includes any social motivated investment not made a bank.

My third blog will look at what some of the specific categories in this bucket – charity bonds, community shares, profit-with-purpose, SITR, social impact bonds and social property – do refer to but for now the point is that they are (with possibly a handful of exceptions) not small amounts of unsecured finance for charities and social enterprises  provided by intermediary social investors (such as CAF Venturesome, Big Issue Invest or SASC).

In 2011/12, when ‘social investors’ where known as SIFIs, the combination of ‘Large SIFIs’ and ‘Small SIFIs’ made 536 investments with a total value of £35 million – an average investment size of £65,000. Not all deals included this figures were either small or unsecured but it’s the area of the market where that finance was primarily located.

The most directly comparable activities on BSC’s 2016 ‘Market Sizing Dashboard’ are ‘Non-bank Lending’ and ‘Equity-Like Products’*****. These categories combined in account for a significant increase in investment value (to £71.4 million) but a decrease in number of deals to 477, with the average investment size up to £150,000.

Without looking at the data in greater depth, it’s not possible to know exactly what this tells us. The wider re-categorisation of different parts of the social investment market mean that it’s not possible to be sure that the number of small, unsecured investments into charities and social enterprises has decreased since 2012 but it seems highly unlikely that it has increased.

But what does this all mean? 

My working hypothesis is that:

  • the current social investment market may be meeting the needs of ‘investment ready’ charities and social enterprises – those already inclined and in a position to take on investment – better now than it was in 2012
  • that (while there some investors + Access attempting to tackle this) those who hoped that the launch of Big Society Capital in 2012 would prompt a significant increase in availability of small, unsecured investments from SIFIs/social investors are understandably disappointed
  • that our understandings both of what’s happening in the newer sub-sections of the social investment market and of the interaction between social investment with the wider markets for finance remains significantly under-developed

I’ll aim to look at the pros and cons some of those new areas in the next post.

In terms of overall conclusions, the analysis in this blog doesn’t answer the big questions about the market for small amounts of unsecured finance for charities and social enterprises but it (hopefully) helps us to understand some of those questions better – while showing that an increase the volume of social investment does not necessarily mean that the social investment market is helping significantly more organisations.

Many charity and social enterprise leaders may be unhappy with this situation but they are not axiomatically correct – the goal of Big Society Capital and the social investment market should not necessarily be to increase the numbers of organisations taking on social investment.

It may be that significantly increasing the volume of investment into those organisations best placed to take it on is a better way of increasing social impact. That’s a debate worth having but not a decision that should be taken by default.



*The overall market size figure is bigger than this at £630 million but the £595 million figure is based on the sections of the market that are directly comparable with those captured in the 2011/12 data.

**This is not a reference to the validity (or otherwise) of investments into Profit with Purpose organisations as ‘social investment’ but a reflection of the fact that these investments are likely to have been taking place in 2011/12 but there is no way of capturing information about them.

***Of the total 1147 deals, 230 are investments into profit-with-purpose organisations which were not captured by the 2011/12 research. It is also likely as that the 765 deals in 2011/12 is an under-estimate as it does not include Community Shares and additional Equity-Like investment that is included in BSC’s revised volume calculation for 2011/12.

****Survey  questions were amended in 2015 to make poor access grant funding and loan/equity finance separate barriers. My figures here include the combined totals which may be overstated compared to previous years if some organisations chose both options.

*****Social impact bonds may have been included in the ‘Large SIFI’/’Small SIFI’ figures but both volume and deal number were insignificant in both 2011/12 and 2016.





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What’s going on in UK social investment? – part one

Social investment isn’t working. There was only £4.5m of unsecured lending to social enterprises in 2016. So said Steve Wyler, trustee of Access: the foundation for Social Investment at the launch of the Connect Fund in mid-June.

Social investment is working very well. Big Society Capital’s impact report tells us there was £306m of ‘risk’ investment in 2016: “versus £20m in 2012, an increase of 15x“.

Social entrepreneurs in Scotland aren’t interested in social investment. Laurence DeMarco from Senscot explains: “What we call social investment is based on an intentional misrepresentation – to which the English govt, is party; namely that the third sector can be sustained through loan finance – when everyone knows it can’t… Substantial social lenders are increasingly rejigging funds to get money out the door – but they’re still speaking to a market that doesn’t exist.

Social entrepreneurs in Scotland are very interested in social investment. This Twitter thread from Alistair Davis of Social Investment Scotland includes the point that: “The Social Investment Scotland team have approved 10 loans in the last 6 wks worth £2.2m- doesn’t suggest a non-existent market.

As a social entrepreneur considering whether social investment is for you or a government minister, Quango boss or grantmaking trust CEO considering whether (or in in what form) to provide more subsidy for the market, you might find all of this slightly confusing.

Is social investment failing dismally to provide charities and social enterprises with risk finance or is there 15 times as much risk finance available now as there was five years ago?

Is Scottish social investment a non-existent market based on a false premise or a distinctive, unusually successful part of the growing UK market?

As an interested, intelligent person not directly involved in these arguments, you’d be unlikely to imagine that answer to these questions might actually be ‘both’.

The truth is out there 

It may seem slightly bizarre that representatives of two organisations with a shared governance structure can have such different perspectives on the facts (as opposed to any analysis of those facts) about what’s happening in the social investment market.

They share an office and coffee-making facilities. If the Big Society Capital team think  there’s 68 times as much risk finance available as the Access team think there is, how come it’s never come up before?

The answer is that they’re talking about significantly different things. Access trustee, Steve Wyler’s £4.5m of unsecured lending in 2016 refers to unsecured loans made by (non-bank) social investor members of umbrella-organisation, Responsible Finance, to social enterprises.

Big Society Capital’s £306m refers to any social investment in 2016 that was not secured lending by banks. That (probably) includes Steve Wyler’s £4.5m but it also includes (amongst others): Community Shares, equity investments, quasi-equity investments, social impact bonds and investments made by banks, funds and individuals into ‘profit-with-purpose’ organisations^.

Which of these figures is ‘correct’ depends very much on what your priorities are. For Steve Wyler, the priority is relatively small (under £250k), unsecured loans for charities and social enterprises.

From his perspective: “If you are working in a poor community and you require a small scale loan and you can’t provide security, the social investment market just isn’t there for you.

Even on that basis the £4.5m figure seems very low – there are several social investors that make small loans to charities and social enterprises but aren’t members of Responsible Finance – but Big Society Capital’s closest comparable figure to this (‘non-bank lending’) was £38m in 2015 and seems likely to be around £50m in 2016*.

Big Society Capital, on the other hand, have a wider perspective on what social investment is for. Explaining their approach, they note that: “Social investment is not a single market or product so we work closely with partners to develop solutions that provide different types of finance to meet the different investment needs of charities and social enterprises and investors. We have aimed to find the appropriate balance of supply and demand in each of the many sub-segments we target, to grow the market and not be the market.

The additional £250m+ ‘risk’ finance beyond ‘non-bank lending’ is (mostly) not meeting the specific needs that Steve Wyler (and many others) believe should be a priority but that doesn’t mean it’s not supporting significant social impact in other ways.

Unfortunately, to give you a coherent broad snapshot** of what’s going on here, it would take at least two more blog posts:

(i) Looking at developments in the market for small, unsecured loans for charities and social enterprises since 2012 to see whether there’s more of these deals happening and what basis they’re happening on (size of loan, interest rates etc.).

(ii) Looking at developments in the market(s) for other kinds of risk finance which aren’t aimed at relatively small charities and social enterprises seeking relatively small amounts of money but are ‘social investment’ aimed at providing finance to support social impact

Given that I haven’t even got time to write that stuff (let alone expect you to read it) my short answer to the question of ‘who’s right?’ is ‘that depends on what you want to happen’.

And my answer to the question ‘what’s going on?’ is: ‘lots of new stuff has been going on in UK social investment since 2012 but, until now, most of it won’t have made it easier for your relatively small charity or social enterprise to get a relatively small unsecured loan.’

The potentially positive news is: ‘as a result of Access investments, many organisations will now have more chance of getting a a relatively small unsecured loan if they want one.’

Disagreeing to disagree 

Viewed from a distance but based on knowing several protagonists on either side, the disagreement between Senscot (and others) and Social Investment Scotland (and others) is not a primarily a disagreement about facts.

It’s an ideological dispute. On one side there is the view that attempting to create a market in ‘commercial’ social investment – where social investors aim to develop a viable business model for investing into charities and social enterprises – is not only practically flawed but morally wrong.

It won’t work (because charities and social enterprises won’t take the money) but also it shouldn’t work (because any charities or social enterprises that did take the money would not be able to pay it back without becoming profitable businesses and diluting their social aims in the process).

On the other side is the belief that, for at least some charities and social enterprises, the money is right and the change in business approach necessitated by taking on the money is also right. That, in some sectors at least, it makes sense for charities and social enterprises who’ve got a proven business model to take on investment so they can become bigger businesses, doing more of what they do in other areas.

Ironically, the Tweeted figures from Social Investment Scotland, when considered alongside the work of others such as Resilient Scotland, suggest that the Scottish social investment market is doing a pretty good job of providing the kind of finance (relatively small loans, often alongside grant funding) that Steve Wyler of Access would like to see more of compared to the the UK market as whole.

But that doesn’t mean the views expressed by Senscot are necessarily wrong. If your focus is supporting (social entrepreneurs running) small organisations with a turnover of under £250k per year (rather than seeking investment of £250k or less), operating in a single local community and just about breaking even with lots of volunteer activity and a few small grants every year, even Scottish-style social investment isn’t much use to you.

I think I’ll go and sit down over there – let me know when you’ve sorted it out between yourselves 

There’s nothing wrong (in the moral sense) with the fact that different organisations and groups of organisations have different perspectives on and priorities for the social investment market***.

One negative alternative, the position of many leading figures in English (some would say ‘London-based’) social investment market between 2010 and 2014, is to avoid discussing differing priorities and promote the idea that ‘social investment’ in whatever form is an inherently good thing that should be supported without question.

But, if we’re trying to make the market easier for charities and social enterprises to navigate, we do have some (collective) responsibility to provide a clear picture of what’s going on so that organisations and social entrepreneurs can understand the options available – and make their own, properly informed judgements about what’s right for them.

While there’s no suggestion that anyone is deliberately not doing that on an individual basis, when current contributions are taken together, the combined picture is a painting of a surrealist’s dog’s dinner.

Part of the solution is more independent data, with clear analysis to explain what that data refers to and clear independent information about products and support on offer. But alongside that, we all have an individual responsibility to be as clear as possible about what we mean.


^For the purposes of this blog, there is no need to know what all (or, in fact, any) of these financial instruments are – beyond the fact that they’re different kinds of investment to the ones Steve Wyler is talking about

*Big Society Capital have not yet published a breakdown of their 2016 market figures. The 2015 figure that is directly comparable to the £306m ‘risk’ finance figure for 2016 is £283m.

**Exploring the detail would need a research project.

***That’s before we even get on to the relationship with wider world of ‘impact investment’






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Leading the world in reports about Social Impact Bonds

Apologies for the lack of posts on Beanbags in recent months. I’m hoping to post some original material later in the week but, in the meantime, here’s some of my recent publications and blogs for other people:

Social Impact Bonds – An Overview of the Global Market for Commissioners and Policymakers: 

The report, supported by Centre for Public Impact, is here.

A related blog for Pioneers Post is here.

Subsidy blogs:  I’m writing a series of blogs for Access: The Foundation for Social Investment on subsidy in the UK social investment market. To be followed by a short report.

Blog one is here.

Blog two is here.

It would be great to hear what you make of the report or the blogs.


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