Social investment: where to now?

“Times have changed since social investment first began to be big news in the UK in the New Labour years…” my new blog post for Pioneers Post. 

This blog is part of the build up to an event I’m helping to organise at this year’s Marmalade festival in Oxford next week: Social Investment Now Everything’s Changed

The event will feature introductory provocations from Big Society Capital chief executive, Cliff Prior and Finance Innovation Lab’s Executive Director, Anna Laycock. Then we’ll work out what social investment should do to respond practically to (some of) the major national and global challenges that have arisen in recent years.

It’s free to attend and it would be great to see you there.


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Rip it up and start again

Happy New Year! At least, let’s hope it is.

2016 probably doesn’t need any further publicity but one recurring theme was that it was a pretty good year for the rip it up and start again brigade: not just in global politics but in the social sectors, too.

One of my particular favourites was the conveyor belt of swashbuckling business leaders explaining that current approaches to doing good were rubbish and that charity, government or both should be replaced by people more like them.

Suck it up

One of those change makers most prominently featured on the social investment circuit was Iqbal Wahhab, founder of restaurant chains Cinnamon Club and Roast.

He published a book, Charity Sucks, as part of Biteback Publications ‘provocations’ series and turned up at the Good Deals social investment conference in Birmingham in November to deliver the message in person as part of a conversation with Big Issue Invest Chairman, Nigel Kershaw.  He also joined Pioneers Post for one of their Black Cab Interviews.

Wahhab’s Good Deals contribution was entertaining but light on detail. The most telling moment came when he was asked a question from the floor about how businesses could solve the problem of meeting social needs in situations where the beneficiary couldn’t pay for the product or service being provided. He ignored it entirely and launched into an unrelated anecdote.

But the discussion was engaging enough to persuade me to buy and read the book, which was equally engaging but equally light on detail. Wahhab’s argument seems to be that some charities – including some that he’s been on the board of – have done some stuff he doesn’t think is very good, while growing numbers of businesses are trying to find ways to do social good as part of their regular business activities. And this shows that charity sucks because business does it better.

While it might be a bit much to expect a full plan to replace the entire charity sector in a short book written as a ‘provocation’, Wahhab fails to offer even a basic outline argument for how we might get from businesses following his example of giving all proceeds from a specified table in his restaurant to good causes and providing job opportunities, to the widespread provision of commercially unviable social goods by organisations aiming to deliver a profit for shareholders. There just some fairly anodyne stuff about shared value vs CSR, triple bottom lines and calls for charity donors and philanthropist to be more diligent.

While I’ve worked with many individual charities and charity leaders who I respect a lot, I’m open to the argument that the UK voluntary sector as a whole is currently in a bit of mess and (parts of it at least) could usefully spend 2017 considering what they’re for and what they’re trying to do. And while charitable registration encompasses a wide range of different organisations with an equally wide range of business models, I agree that many of the business models for service delivery charities (particularly local ones) are fundamentally broken.

If you liked foodbanks, you’ll love supermarkets 

The frustration with Wahhab’s contribution, though, is that he completely ducks the argument that he himself raises. How could business do the actual things that charities do and do them better?

Here’s a couple of possible examples that I’ve made up:

(a) Supermarkets are a far more efficient and sustainable vehicle for providing food for people who can’t afford food than foodbanks. Could large supermarket chains be given a universal service obligation so that anyone who would qualify for a referral to a food bank can get the food they need straight off the supermarket shelves instead? Like the US food stamps system but without the government money, just businesses doing it better.

(b) Property developers are keener on building homes than housing associations are and planning permission often depends on a requirement to build a specified percentage of ‘affordable homes’ and make Section 106 contributions to the local community. But why not cut out the social middle people and get these business people to ‘do it better’ by giving that direct responsibility for housing a set percentage of people on the local waiting list for social housing?

I’m not advocating either of these ideas but they’re examples of the kind of thing businesses would need to do if they were going to replace the actual life and death services UK charities provide.

Do charity critics like Wahhab actually want businesses to do that stuff? If not, how is that stuff going to get done? This isn’t an abstract intellectual discussion – it’s a discussion about if, how and where the least well off people in society get to have their dinner.

Government’s finished so I’m replacing it for $1 million  

Fortunately, not all socially motivated business leaders are limiting themselves to the relatively minor task of replacing charity. For ‘the French Bill Gates’, Alexandre Mars, it’s the state that needs replacing.

While the sub-editors of this Guardian interview with the tech entrepreneur turned philanthropist may have slightly amplified his hubris with the headline: ‘States don’t have the money to do good. Business does‘ it’s not an unfair reflection of the general tone of the article.

Mars has a made some money doing tech stuff and he’s putting some of that money into setting up Epic, a ‘philanthropy middleman’ which channels the donations of other wealthy people to charities. So far: “The foundation, which has staff in London, New York, Paris and Bangkok, has exceeded its 2016 target to raise $1m. As a result, each of the 20 charities it has selected will receive at least $50,000.

And: “Next year, a further 10 charities have been selected for support (from 2,000 applications), including two more UK charities, sport-based not-for-profit Street League and east London employment project ThinkForward.

That seems pretty good to me but it’s not immediately clear what it’s got to do with policymakers who ‘don’t have enough money‘ needing business to ‘step up‘.

A useful ‘size of Wales‘-style comparison figure for ongoing social spending in the UK is the budget of an average-sized secondary school. That’s around £4million per year.

The money Mars & co are providing to ‘change systems‘ in social good across the world this year* is enough to fund one of these UK schools for less than three months. The funding he’s putting into UK charities would fund that one school for just over a week.

It’s true that governments in the developing world are now struggling to provide the level of welfare provision that their citizens expect based on the levels of taxation that those citizens are willing or able to pay. It’s clear that business people could play a range of useful roles in solving that problem. It’s less clear that restricted donations of post-tax personal profits – whether by the French Bill Gates, or even the Bill Gates who is actually Bill Gates – is likely to be the most important of those roles.

Where spreadsheets have no aim 

And then, just when many of us working in and around social/impact investment thought 2016 had nothing else up its sleeve, came the exploding cherry on the cake of absurdity: Bono announcing that impact investment wasn’t working and he was turning up to sort it out.

Here’s the intro to the article in the New York Times:

“‘There is a lazy mindedness that we afford the do-gooders.’

That was Bono, the musician turned activist turned investor, lamenting the pitfalls of what has become an increasingly fashionable form of financing: social impact investing.”

By paragraph three the verdict is clear:

Most of these efforts have had mixed results; either investors lost money, or the social impact was negligible or nonexistent.

It has become, as Bono told me, ‘a lot of bad deals done by good people.’

The summary is that Bono, Jeff Skoll and a bloke who works in private equity and ‘resembles a Buddhist monk‘ apparently reckon no one involved in impact investing has ever thought of the idea of an impact fund being quite big and measuring the impact of its investments.

To some extent, as a social entrepreneur, I can see a delicious irony in some blokes rocking up and telling impact investors that everything they’ve been doing for years is a load of sh!t – and they should listen to the real businessmen (and rock star) who know how to do things properly and have finally cleared the space in their diaries to tell us.

But however delicious that irony is, the aftertaste is rank.

Anger and stupidity 

We enter 2017 in a moment brimming over with both anger and stupidity – and we need to find ways to channel the anger effectively and avoid the stupidity.

We shouldn’t accept the status quo but nor should we blithely accept *something else*, whatever it happens to be. Alternatives to the status quo, even alternatives proposed by clever business people and Bono, need to be challenged as strongly as the structures and models they’re seeking to replace because social change worth having is complicated and difficult.

*Value of $1million in £ at time of writing around £817,000


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12 SIBs of Christmas – The 1st Annual World Leading Social Impact Bond Quiz

Social Impact Bonds are a world leading financial instrument launched here in the UK in 2010. Since then we have continued to lead the world in launching them.

Earlier this year, then Cabinet Office minister, Rob Wilson noted that: “Social impact bonds are barely mentioned in the media today” before explaining: “In a few years time they will be the most talked about funding mechanism for government social projects. I will be talking about them a lot.

This is inspiring stuff but as social entrepreneurs we are often reminded of Gandhi’s tip that we should ‘be the change we want to see the world’. There is a small but genuine danger that, for all his gravitas, Rob Wilson may not be able to bring about this change on his own. The 1st Annual World Leading Social Impact Bond Quiz is my small contribution towards our collective impactful effort.

The answers will posted on here sometime next week. If you want to email your answers to me – david (at) socialspider (dot) com – I will compare them to a historical set of answers to a different quiz and decide whether I think you’ve won.

Existential question:

1. Social impact bonds all involve some form of payment by results contract – which (one or more) of the following other characteristics also applies to all social impact bonds launched across the globe before June 2016:

(a) Use of a Special Purpose Vehicle

(b) At least partially financed by socially motivated outside investment

(c) Investors have capital at risk

(d) Described as “A social impact bond”

(e) Presence of a counterfactual measure

(f) Service delivered by a charity, social enterprise or other non-profit

Leading the world:

2. What percentage of all social impact bonds in the whole world (as of June 2016) have been partially commissioned by the UK’s former Secretary of State for Work & Pensions, Iain Duncan Smith: 

(a) 23%

(b) 5%

(c) 12%

(d) 7%

3. Featured on the rate card for a UK social impact bond programme: “Improved attitude towards school – £700” is a proxy for which social outcome:

(a) Increased educational attainment

(b) Improved employability

(c) Reduced risk of committing crime

(d) The success of the UK social investment market

4. Launched in 2014, the Fair Chance Fund was a £15 million scheme to fund social impact bonds to tackle youth homelessness. What nickname was the fund given by investors and charities who were interested in applying but did not want to use the UK government’s preferred special purpose vehicle-based social impact bond model?

(a) Negligible Chance Fund

(b) Reasonable Chance Fund

(c) Cat In Hell’s Chance Fund  

(d) Fat Chance Fund

Saving the world:

5. In 2014, New York Times columnist, Nicholas Kristof appeared to suggest that a major international emergency could be tackled using by social impact bonds. Was it:  

(a) Russia’s action in Crimea

(b) the ebola outbreak

(c) global emissions of CO2

(d) the Greek government debt crisis

6. (Based on publically available data) which of these activities has not yet been the focus of a social impact bond or equivalent financial instrument – or an initiative to create one:

(a) saving the rhino

(b) reducing costs of road trauma

(c) tackling noise pollution

(d) teaching coding to primary school children

(e) improving building & fire safety in garment factories

Guess the investor:

Based on these innovative visual clues, identify the investors in social impact bonds in either the UK or the US:



8. investor2



Talking about them a lot:

10.  Which US Senator, talking about social impact bonds in a 2015 congressional hearing, exclaimed: “I don’t get this at all… I think this is an admission that government isn’t doing what it’s supposed to do. This strikes me as a fancy way of contracting out”:

(a) Joni Ernst

(b) Michael Bennett

(c) Angus King

(d) Ben Sasse

11.  Which UK civil society leader, speaking to a House of Lords committee in 2016, claimed: “The challenge has been the hyperbole around social impact bonds, which have got a disproportionate amount of resources… The government has developed this totem, the social impact bond, and is dedicated to achieving success with it.”

(a)Big Society Capital boss, Cliff Prior

(b) Social Enterprise UK CEO, Peter Holbrook

(c) Esmee Fairbairn Foundation CEO, Caroline Mason

(d) NCVO Chief Executive, Sir Stuart Etherington

12. In March 2015, which then UK cabinet minister hailed “the first trillion” of potential global impact investment:

(a) Nick Clegg

(b) Chris Grayling

(c) Theresa May

(d) Iain Duncan Smith

Merry Christmas and here’s to another year of talking a lot about social impact bonds.


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Metric martyrs

For the few of us still bothering to take an interest in the impact measurement industry’s geostationary orbit of planet earth, there’s been a couple of divertingly divergent interventions from top academics at London School of Economics recently.

First up, my friend Julia Morley, from the Department of Accounting, incurred the wrath of impact consultants’ umbrella body, Social Value UK, with her research blaming “an elite group of social investors” for providing “the main impetus for the adoption of social impact reporting” which “may create dysfunctional incentives for social enterprises” as a result.

Perhaps unsurprisingly, Social Value UK offered a storming social media media rebuttal:

Julia’s full paper, Elite networks and the rise of impact reporting in the UK social sector, merits further reading but I’m respectfully sceptical about parts of her abridged argument, albeit for different reasons to Social Value UK.

Who cares?

For me, the idea that social investors are forcing charities and social enterprises to adopt impact measurement over-estimates both the extent to which most social investors are interested in impact measurement and the extent to which most charities and social enterprises care what social investors think.

Maybe we’re seeing more organisations using the word ‘social impact’ on their website and/or calling their annual report ‘Impact Report’ but, as last year’s Oranges & Lemons report illustrated, there’s not much actual impact measurement being demanded by social investors. And, for most charities and social enterprises, social investment remains an obscure siding in the wider market for finance where nothing of practical relevance is on offer.

Impact measurement is a fundamentally important component of social impact bonds (SIBs – see previous) because it’s baked into the business model. Irrespective of our view on whether SIBs provide good value for money, the value proposition makes sense. The organisation (and investors) need to measure impact so that they get paid, the government needs to measure impact so that it knows whether the contract has succeeded on its own terms.

In terms of conventional social investment into organisations, it’s not clear how impact measurement creates value for anyone other impact measurement consultants. Organisations don’t get a cheaper loan for measuring their impact – and that’s understandable because (in general) social investors don’t get a better deal from wholesale investors for proving impact. It’s often claimed that public sector commissioners are more likely to buy from organisations who can demonstrate their impact but, SIBs aside, I’m not aware of any published evidence that this is true.

What’s the point?

I should make clear that I’m not putting this forward as an argument against the social value of impact measurement. I don’t believe it’s acceptable for charities and social enterprises to have no way of determining whether what they do is/remains socially useful – and the reporting systems advocated by impact measurers are one way of doing that. So there be may good reasons why government, grant-funders or others should (continue to) pay for measurement – but (SIBs aside) the commercial drivers for most organisations and investors to fund measurement themselves are (still) not obvious.

Fortunately, as Dan Gregory noted yesterday, some of Julia Morley’s LSE colleagues have some ideas:

There’s a shorter version here.

As Dan suggests, it’s genuinely wonderful to encounter people so optimistic that their response to the fact: “there has been a rise in the tools available for measuring the social impact of business – to the tune of more than 150 impact assessment methods” is: “In an effort to move impact assessment forward, we propose a holistic, transparent platform – called the External Rate of Return (ERR).

The full situation seems to be that with people primarily on social change failing to do much social impact measurement but creating loads of complicated, highly contested measurement systems that no one uses – so the answer is to create an impact measurement system based on a complicated, highly contested financial measure Internal Rate of Return (IRR) and attempt to get businesses who are not primarily motivated by social change to use it.

As if that wasn’t fantastical enough, the added twist is that the model requires interested members of the general public to turn up a website and vote on the impact data that companies are providing.

On what possible basis would this actually happen? 

If you are not an impact measurer yourself, you probably don’t need to be told that there’s no logical reason why a statistically significant number of members of the general public would turn up to a website and express an opinion on a company’s impact data.

As with many of the specifically social-focused impact measurement approaches, the creators of ERR are apparently focused on creating a theoretical model that would work really well in the event that large numbers of stakeholders on all sides of the equation were interested in it, while seemingly ignoring the question of why those stakeholders might be interested (or not).

While the impact measurement industry is unremitting in its demands, not just for funding but also for changes in the law, there’s ongoing confusion about what problems it’s solving and who it’s solving them for.


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Leading the world round and round in circles

As someone who spends plenty of time talking to people doing something or other related to popular financial instrument, the Social Impact Bond (SIB), I’ve long since come to terms with the fact that almost everyone involved has as little idea of what’s going on across ‘the market’ as everyone else.

A prize specimen of confusiana is that the only defining characteristic of a SIB – in the sense that it applies to all SIBs but does not apply to other payment-by-results contracts – is that the people involved in funding and delivering the contracts choose to describe the contract as a SIB.

Usually, though, the disagreements around SIBs are blurry, nerdy ones about things like counterfactuals and special purpose vehicles. How refreshing then, in recent weeks, to see two social investment leaders taking completely opposite positions on a relatively simple point of contention within our world leading SIB debate.

The disagreement is a prime example of the knotty challenges faced by supporters of SIBs (and outcomes contracting more generally) even if, unlike (for examples) the National Audit Office  or Toby Lowe and Kathy Evans, we accept the arguments for these mechanisms on their own terms.

First up: in his the second part of his interview with me for this blog, Big Society Capital boss, Cliff Prior, called for SIBs to become more rigorous in proving their impact. He explained that: “We are doing all we can to get SIBs to be larger and repeat. The evidence that we’ve got from SIBs to date is pretty positive on the social impact but it’s not big enough, and it doesn’t have a sufficient control to compare what would have happened otherwise, with normal service, to convince the Treasury.

He then added: “… what we need to do next is design the next step of that methodology bigger, more focussed, and with a proper control, so that, in two or three years’ time, we can go to the Treasury saying, ‘Look, this is now convincing evidence of where it works.’ 

The alternative view came from Clearly So CEO, Rod Schwartz who, in his reliably provocative Third Sector column, criticised public sector commissioners on the basis that: “They tend, for example, in many of the SIB structures, to cap investor returns or share out only a portion of the savings.

Before asking: “Why not be more generous and encourage far greater investment? There is also bureaucratic resistance to the new and a preoccupation with precise monitoring, which can be very costly to implement—on many occasions, this undermines the process and creates deadweight loss.

And (my bolding): “Might there not be opportunities for considering less costly and maybe somewhat less rigorous oversight? I sometimes feel our search for the perfect is undermining the good.

BSC in correct shocker

BSC are rarely accused of being right but Prior is right about this – at least in terms of understanding the problem.

Schwartz is advancing a completely legitimate hypothetical position – that, in theory, he believes it would be better if the state spent more via SIBs/PbR and offered contracts that gave investors bigger returns – but it’s not entirely clear what it’s got to do with the actual state of ‘the market’ for SIBs in the UK at the moment.

The situation currently is that:

(a) there are plenty of social organisations who would like to be paid to deliver services via a SIB or another form of outcomes contract (and intermediaries that want to help them)

(b) there are large pots of subsidy from Big Lottery Fund (winding down soon) and Central Government (new phase launched recently) to cover development costs plus an average of 20% (and some cases far more than) of the cost of SIB contracts

(c) there are several investment funds dedicated to investing in SIBs or other PbR contracts delivered by social organisations – and other philanthropic investors who are keen to back SIBs i.e. plenty of investment

What there is not is large numbers of councils and CCGs seeking to fund there services via SIBs – even with Big Lottery or Central Government offering to pay 20%+ of the bill.

Whether or not we agree with Schwartz’s view that public sector commissioners should be setting up more SIBs, there are clearly practical reasons why most of them aren’t.

The biggest of these is that – even in instances where they work on their own terms – most SIBs in the UK don’t offer short term savings to the public sector agency that is actually paying for them.

Proxy abstainers

That hasn’t mattered so much until now because most of the completed or currently ongoing SIBs commissioned in the UK (22* out of 32) have been commissioned by central government departments.

For them, the logic just about works. It’s possible for the Department of Work & Pensions to theoretically bank the savings generated by improving a teenager’s ‘long-term employability’ with a SIB-backed intervention that gets them to pay more attention in school and get better exam results.

The current rounds of subsidy are focused on getting councils, CCGs and other local agencies to pay up.  Many councils, in particular, are currently strapped for cash to preserve vulnerable residents’ basic existences and dignity. They’re not in the market for some proxies for something really good that broadly-related statistics suggest might happen in the future.

If a council is looking to commission an alternative to a service it currently delivers, a SIB-funded option is only a viable option if it: (a) demonstrably provides a better service for the same money than an alternative option or (b) direct and specifically causes another service that the council is paying for to cost less in the near future.

More expensive and worse

At the current levels of rigour, very few councils are choosing to commission SIBs (at least partly because) they’re not confident they can achieve either (a) or (b) – even with 20% (and in some cases far more) subsidy on the table.

In suggesting the way forward is less rigour and bigger payouts to investors, Schwartz is effectively offering a plan to ramp up sales of a heavily-subsidised product that most customers already don’t want while making it more expensive and worse.

That may be the best way to bring in more investors but the UK SIB ‘market’ doesn’t currently need more investors, it needs more customers. Not for the first time in UK social investment, an honourably intentioned investor-focused approach misses almost all the practical points.

Things can only get subsidised 

Fortunately, there are some councils (and other agencies) who are interested in SIBs. Big Lottery’s Commissioning Better Outcomes fund is due to allocate its remaining funds over the next few months so anywhere between 10 and 30 SIBs could be launched in the UK over the next year.

All the indications from ‘the market’ though are that – even if the actual figure is at the higher end of that estimate – there is likely to be 10s of £millions worth of investment, available to invest into SIBs, with nowhere to go for the foreseeable future.

New SIB/outcomes models that offer a clearer demonstration of their value may or may not change that situation. Models that offer higher returns and less evidence probably won’t.








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Prior engagement – part two

Towards the end of the first part of my interview with Big Society Capital (BSC) chief executive, Cliff Prior, we discussed the possible role of social investment in the context of the wider economic climate facing charities and social enterprises in the UK. –

The discussion prompts me ask Prior about the extent to which he feels the expectations for the social investment market at the time the organisation launched four years ago have proved to be correct – and to what extent they’ve been modified.

The answer is clear: “Oh, I think substantially modified. Then, any startup will tell you that the business plan that you’ve got, once you’ve hit reality, you rapidly discover the world is a different place.

The biggest difference between the world social investment leaders imagined and the world that currently exists is, it seems, the attitude of institutional investors. As Prior explains: “I think there probably was an initial idea that it would be possible relatively quickly to draw on institutional finance, and to scale up deployment of social investment very rapidly. That hasn’t happened. From my contacts internationally, there are very few places where that has happened.

Safe as houses

So what’s going wrong? Is it that institutional investors are disgusted at investees lack of enthusiasm for impact measurement and won’t invest until charities and social enterprises can definitely prove they’ll generate £100 of SROI for every £1 invested?

Apparently not. It’s that most institutional investors only interested in safe, profitable property investments. Prior explains: “Institutional finance tends to come in not for the first fund, not even necessarily for the second fund. It’s the third one. Institutional investment wants proven risk and reward characteristics and it wants a quantum, some people say half a billion and that’s the smallest you’ll ever get them interested in.  Well, in the UK, that’s social housing and not much else.

So where has new social investment been coming from? “In practice it’s been foundations, high net worths, family offices. Now more angel investors have come in. That isn’t to say that there aren’t some sources of funds from institutions outside of social housing but it’s been more on the CSR end.

I ask whether BSC has changed its strategy as a result. Prior’s response is that: “There is still a scenario that sees institutional finance come in. That’s social property. There is going to be the need for institutional finance into key social assets in the UK. They are at a scale. They are asset backed. Institutions could come in and do that. That’s great. Having that stream of work does not stop us also looking at other streams of work, including the much more peer-to-peer, community end and that middle ground of the more wealthy people, family offices, foundations. Impact led money. People putting their money into things where their first priority is the social benefit.

I’m not entirely sure what this means for BSC’s investment activity. I ask if it means that they’re going to end up putting most of their £600 million into property, while focusing on other areas in the other role as ‘market champion’. It seems to be more complicated that that: I don’t know that’s the case. With social property, we get much higher leverage. For every pound we put in, we get a lot more pounds from elsewhere. So, the total investment fund amount might be much bigger, but I don’t know that our slice of it would be overly disproportionate.

No business plan for a politically expedient semi-detached quango survives contact with reality

At this point, Prior mounts a wider defence of BSC’s initial business plan: Just come back to that initial view. People criticise that quite a lot, and I don’t. I think the only way something like BSC was ever going to happen was to ‘speak future truth’. A vision of the future. It might be 10, 20, 30 years ahead, but this is the big put your flag on top of the mountain. If you don’t do that, you don’t get anything big. There are plenty of other examples in the social sector of that.

Unfortunately: Reality then hits, and it turns out to be rather different. The path is a lot more long and winding. Other paths branch off and go into really interesting and fruitful directions. The creators of this organisation did a really, really amazing job of getting something which now the rest of the world looks on with huge envy. Six other countries trying actively trying to replicate it, at the moment. Yes, it’s got some constraints around it, but the constraints don’t stop us doing some really useful things for charities, social enterprises, and their beneficiaries.

I suggest one way that BSC’s worldview may have changed over the past four years is in relation to public services. In 2012, there was speculation that there would be a real shift towards charities and social enterprises delivering public services. The First Billion report, produced for BSC by Boston Consulting Group, had public services a key element of its forecast for major growth in demand for social investment. It doesn’t seem like that growth has happened. 

Prior partially disagrees: “Well, yes. It’s happened, but it’s happened smaller scale and more piecemeal. We come up against a number of other barriers. I think this is still worth working at very hard. I think, for example, work and health, as a new initiative, it’s of a size and broken up into segments which are within the reach of our charities and social enterprises, which previous programmes weren’t.” 

Our friends with metrics

Then, of course, there’s these things called Social Impact Bonds (SIBs) . Prior explains: “We are doing all we can to get SIBs to be larger and repeat. The evidence that we’ve got from SIBs to date is pretty positive on the social impact but it’s not big enough, and it doesn’t have a sufficient control to compare what would have happened otherwise, with normal service, to convince the Treasury.

He adds: “So, my thinking on this, and I think the team here are probably in agreement with it, is that what we need to do next is design the next step of that methodology bigger, more focussed, and with a proper control, so that, in two or three years’ time, we can go to the Treasury saying, ‘Look, this is now convincing evidence of where it works.’ So, it’s not going straight from the small experiments to full on. It’s having that intermediate stage.

This sounds logical but if, having tested the idea, we are now going to see more, bigger SIBs, who are the customers? Councils don’t seem to have much cash at the moment –  I ask whether Prior thinks they’re going to pay?

He’s hopeful: “I think it’s entirely possible that they would, partly through the devolution arrangements. In Greater London, there’s a couple of efforts at the moment with reasonable chances of bringing a number of boroughs together to co-invest. So, yes, it’s possible. It’s started to happen in the US. Larger scale initiatives. Obviously they’ve got a bigger population base to work with.

In fact, SIBs might even help councils cope with cuts: “Just standing back from the methodology approaches, government and particularly local government have less money to spend. Many local government departments have had to cut so many headquarters’ staff that the capacity to think of something new, design something new, implement it, how much do they have that time?

At least, if they’re made simpler: “In terms of staff who can lift their eyes from the day job, they are really constrained now. So, can we give standard templates? Can we make it easier for them? Or there’s this new Government Outcomes Lab. Can that do that kind of job?

My work on SIBs has suggested there’s often divisions between those advocates who prioritise SIBs becoming bigger and more rigorous in their measurement of outcomes, and those who advocate larger numbers of smaller SIBs using easily replicable models. Prior seems to be suggesting a mixture of bigger, more rigorous and more simple. Is that right?

I would say more standardised.

He adds: “Maybe that’s a better way of putting it. If you buy a flat in a leasehold block, you will get a chunk of documentation an inch thick. The reason why you can sign that at a reasonable cost from a conveyancing lawyer is that 98% is standard and only 2% of it is something special to this. So, it’s not necessarily that you simplify it. If you standardise it, and you only have a couple of individual changes that apply to this particular one, that makes it easier for people to pick up.

Crystal balls

Exciting though SIBs are, it’s almost time to move but I can’t do so without asking Prior about Civil Society Minister, Rob Wilson’s prediction that the SIB will be ‘worth more than £1 billion by the end of this parliament’. 

Given that, at the time of the interview, the current estimated market value of all UK SIBs launched between 2010 and 2015 was around £150 million worth of possible contract payments and around £50 million of investment* this seems optimistic.

Prior agrees: “If it was SIBs alone, I’d be really surprised, by 2020.

Though he adds: “If we think of outcomes funds more broadly, I think that’s realistic. Yes. That could happen.

Given that the market for outcomes-based contracts is already worth £15 billionit’s not entirely clear what Prior means by this but he isn’t responsible for Wilson’s predictions so it may be a bit much to expect him to explain them.

The inbetweeners

We could talk forever about SIBs – and that may ultimately be how the world ends – but for now we move on to discuss the artists until recently known as Social Investment Finance Intermediaries (SIFIs)**. 

There’s no shortage of opinions about what these organisations should be doing. I ask Prior for his take: do we need more of them? Do we need fewer of them? Whose job is it to make them viable businesses?

I think that’s a really good question. That’s one of the questions that I came to about six weeks in. I suddenly thought, ‘Hang on a minute. What’s the right number?’ Too few and there’s not competition, and charities and social enterprises need to have a choice. They also need to have the different specialities. Too many and they undermine each other. It just doesn’t become workable.

He adds: “This is an expanding field of work. We reckon about 20% growth each year. So, we should probably have just enough and a little bit more from now because next year that slack will be taken up. What is that number? That’s a very good question.

I suggest that, as some social investment leaders have suggested (at least in private), we could have fewer intermediaries doing more deals each. Prior is not sure that’s a good idea: “You could, but if I was running a charity looking for social investment, I’d want to have a choice. One of the surprises of the team here is that people tend to go to one investor and do the deal with them and not haggle on price. I can’t imagine any charity or social enterprise doing that in any other way that they bought anything. They would tender. They would haggle. They would look at choices.

I think it’s great if there’s a choice of intermediaries for a charity. It’s fantastic. It’s fantastic if somebody offers better terms than somebody else. That’s how it should be. It should be driven from that end.

Taken for grant dependent

I suggest that if we continue to have similar numbers of intermediaries to the 30-50 we have now, they’re going to continue to require subsidy and that this could be a problem. Prior agrees: “It is. Again though, some intermediaries might well need subsidy on a continuing basis, in the same way that you were highlighting that there are some charities and social enterprises with investment needs where really they just need repayable money on soft terms. It’s entirely likely that the intermediaries that are organising that for them might themselves need subsidy. That’s entirely possible.

So, again, look at the Access system. The blended grant element there is partly about the operating costs and risks to the intermediary, and partly about softening the interest rate pain on the individual charity.

As the Alternative Commission on Social Investment (amongst others) has reported, 100s of £millions of state and Quango subsidy has been poured into the UK social investment market since 2010. I ask Prior about the circumstances in which subsidy is and isn’t right.

Well, subsidy for particularly difficult areas. Subsidy for the development phase. Yes. We have to really think about the real value of the money. Would it be better just to give it out? At what point do the cost and subsidies to intermediaries and etc., etc., at what point is it better just to say, ‘Just do this as a grant. Do it light touch’?

Prior notes that this is not just a question for social investment: “That is a really important question to keep looking at, and to keep looking at the total cost. In the total cost of social investment, of course, you think of the total cost of fundraising. Public fundraising averages around 15% of the cost of funds. It costs to raise money, however you do it.

BSC are the champions

Before concluding, I’m keen to ask Prior about BSC’s dual role as a wholesaler investor into the social investment market and as the ‘market champion’. Does he think there’s a potential conflict between those roles?

Oh, there’s definitely a potential one. We might feel it’s really important to develop the market in a particular kind of way, and therefore we will invest in an intermediary which, if we had looked at it logically and rationally, we would have realised that wasn’t ever going to work. So, are we spending the money badly because we want something to happen for market development reasons? Looking at it the other way, we might have invested in good intermediaries and used the market champion role just to support their continued existence. So, yes, of course there are risks to that but I think we’re in such early days that the benefits of the dual role considerably outweigh the downsides.

I ask what happens if it turns out that the best way for the social investment market to develop would be to not have a wholesaler: “That would be a really big challenge for us, wouldn’t it? I don’t think that that’s an issue at the moment. Of £1.5 billion social investment out there, our slice of that is relatively small. If we were half of that, that would be a really big risk. I don’t think we’re anywhere near that. The way things are going, the market is escalating faster than we are deploying. So, we would become less and less a percentage. I think that’s useful. I look at some of the other countries that are trying to develop equivalent organisations, and I worry a bit, because they are so much bigger than anything else in their country.

He adds: “It is a risk. One of the things I was really pleased to see when I came in here was staff are entirely happy and feel it’s absolutely right to support the creation of social investment mechanisms which are nothing to do with our investment, and in some places even undermine it. So, for example, the push that we’ve done on social investment tax relief, getting that out to financial advisors and other people who advise wealthier people and might use that. Potentially that undermines social investment funds.

That all sounds great but ultimately what’s the point?

Finally, I ask Prior what success looks like for him at BSC. What would he like to have happened by the end of his time in this role, whenever that may be?

He responds: “To me, it is this tool in the tool kit. The tool should be accessible, easily understood. If people have got comfort that the tool is there and, if the time was right, they’d know how to use it, and it would be on reasonable terms without overbearing complexity and burden on them, that would just be fantastic.

He adds: “As well as that, I would love social investment alongside social enterprise and all the other social innovation, all the other tricks that we’ve got in the book, to solve a problem. I look at something like, for example, the Winterbourne challenge. We know exactly who [people living in dysfunctional care homes] are. We know what their needs are. We know what their aspirations are. Years after an enquiry report, why are their circumstances still so poor? That should be solvable. Could social investment contribute to solving that?

Let’s be more ambitious. The Poverty Premium. If you’re poor, pretty much everything you buy costs more. Your power supply costs more. Your mobile phone costs more. What can we do about that? What can we do to solve some of the big problems that require capital investment?

There are other problems that are amenable to other things, but there’s some problems which need social investment. Along with the charities and social enterprises that are trying to address those issues, I would love to help solve some of those problems. That’s, maybe, being too ambitious, but hey…

It’s good to be ambitious.

Thanks a lot to Cliff Prior for making the time to do this interview.


*Wilson has not explained whether his prediction is for the size of the investment market or the contract market.

**Current BSC guidance is that they should now be referred to as ‘social investors’


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Prior engagement – part one

It’s a truth widely acknowledged that, when in conversation with a London-based social investment expert, you’re never more than six minutes away from discussing social impact bonds (SIBs).

In fact, we’re barely three minutes into my late-June chat with Big Society Capital (BSC) chief executive, Cliff Prior, when the much championed instrument rears its disruptive head.

We’re talking about whether Prior is finding the new role different to what he expected and he cites SIBs as an example of where he’s view from the inside of the social investment wholesale organisation is different to the situation he imagined while looking on (while in his previous role as chief executive of social entrepreneur support organisation, Unltd).

Acknowledging that SIBs are “a contentious area” that will “probably cause people’s eyes to roll” he’s keen to talk about the feedback from organisation funded using the model:

Talking to the charities and social enterprises that have delivered them, I haven’t heard anybody yet who hasn’t said, ‘A painful process, but we come out of it way stronger, and the social impacts are fantastic.’

On the other hand, he adds that: “the financial side is not so good. So, people think of [SIBs] as a finance structure, but actually the thing that’s going well with it is the social side.

While disagreeing with him on many issues, I always found Prior to be friendly and thoughtful during his time at Unltd and these qualities are now combined with clear excitement about taking on his (relatively) new role.

Expanding on the idea that his new sector is often misunderstood, Prior suggests there is a divide in perceptions of social investment between the minority of organisations who have received investment and, in many cases found it helpful, and the “great majority” who “haven’t even looked at it, let alone tried and decided it wasn’t for them.

The missing middle

BSC published research earlier this year  estimating total outstanding UK social investments worth over £1.5billion, made up of over 3,400 individual deals.  

I wonder whether Prior has a broad idea about how many charities and social enterprises in the UK social investment might ultimately be relevant for? He cites some more recently published research highlighting the likely markets:

In the piece of work NCVO did it for us on the most promising territory they were identifying was not the biggest charities and social enterprises, because they can largely do things of their own, and not the smallest, because they’re too small for it to be viable. It’s the middle ground, and certain kinds of organisations in the middle ground.

Prior’s back-of-an-envelope-style totting up – based on a working knowledge of the total numbers of social organisations in the UK is: “If you think of charities and social enterprises that actually hire a team as reflecting what would be an investable group, it probably would be around 50,000 or 60,000.

Though he caveats that with: “What proportion would want to use social investment at any one time? That’s really the question. I think it’s always going to be a minority.

It’s a question that immediately provokes several other questions: “Different kinds of money on different terms, how much would that change? So, for example, pricing of social investment is a very live issue. Is that a determinant that would really make a difference? Is it complexity that makes a difference? Is it risk cover that makes a difference?

Given that the latest state of social enterprise survey from Social Enterprise UK notes that the median turnover of a UK social enterprise is £151,000 and the average amount of finance sought is £60,000. I suggest that in the event that social investors were looking to invest in 50,000 to 60,000 organisations, the size of the deals on offer will be a really big factor.

Prior is (seemingly) not completely convinced: “That’s probably the case. Of course, by number of deals, that will always be the case. By volume of money, it would skew it differently. That’s already the case with the 3,000 that are using it now. The lion’s share of that are things like social bank lending, then some of the funds that have been around for a long while like Key Fund, doing relatively small amounts but to large numbers of charities and social enterprises.

He adds: “I guess what I’m saying is it’s likely not to be one story. There are likely to be different segments of charities and social enterprises for whom different things matter.

These differing priorities are currently being considered as BSC develops its new three-year strategy (the current one ends in 2017). Prior reflects that, having been operating since 2012, BSC is: “not in absolute pioneer zone anymore. We’ve done four years’ work, five years by next year, but we’re still probably in early adopter territory.

As a result: “We will be able to identify a number of plausible scenarios for different parts of the sector. Some of those might look a little bit contradictory. Some of them might say, ‘Actually, it’s pretty close to full commercial financing. It will draw in institutions, and it’ll be big scale.’ That would be a perfectly reasonable approach, for example, for social housing.

Alternatively: “On the other end you might say, ‘Small community organisations.’ You’d have a plausible case to say, ‘Crowdfunding; peer to peer; community shares.’ Those kinds of things would be much more likely to succeed. It’s much more passion led.

State Aid squished my impact

While it’s clearly true that different organisations have different needs, it’s less clear about whether BSC has the flexibility to meet them. Most funds developed by BSC-backed intermediaries only invest amounts of £200,000 or more. I ask to what extent the terms under which BSC was created inhibit its ability to respond to demand from different groups of charities and social enterprises.

Prior’s response is measured, if inconclusive: “Somewhat. Being a wholesaler means there are two levels of cost. There’s our cost, and there’s the retail investor’s cost, apart from the burden on the charity and social enterprise itself. The expectation of a rate of return, that makes some things difficult.

Probably the biggest deal is the question of state aid. Big Society Capital is designed to support the development of a market that’s currently broken or not even there, without distorting. It’s very unlikely, even regardless of a referendum vote*, that any government, European or UK, would not be worried about distorted effects, so would have some similar set of constraints on us.

Over the past four years, State Aid  has played a recurring role as the obscure, incomprehensible bogeyperson often blamed for BSC’s failure to direct its funds to the most obviously underserved areas of demand**.  

It is broadly defined by government as: “Using taxpayer-funded resources to provide assistance to one or more organisations in a way that gives an advantage over others” – and BSC was required to seek State Aid clearance from the EU before setting up the organisation***.

It’s potentially mind-boggling stuff but, considering Prior’s specific point, I struggle to understand how it’s possible to do anything very useful in a market that’s ‘broken or not even there’ without distorting it.

I suggest that if, for example, it turned out there were some investors who were happy to invest in charities and social enterprises for no return beyond getting their money back, and BSC chose to invest alongside them, it would be aligning itself with a market rather than distorting it.

Prior’s response is: “Yes, but if that was all there was, would that ever be enough? You have to think about the shape and size of the social sector. 

He continues: “We’ve identified £1.5bn of socially-minded investment into social organisations. We’ve also identified around £60 billion of commercial investment into the social sector. At the moment, a huge wodge, over £40 billion of that, is social housing. There are plenty of other charities and social enterprises that have big, capital-intensive needs. That’s almost certainly going to exceed any zero-return money that might be available.

Prior goes on to explain the ways that Social Investment Tax Relief could offer an opportunity for investors to get a return while providing small organisations with loans at close to 0% but, given that the wholesaler has £600 million to invest, I’m keen to get an idea of whether BSC is able (or willing) to change it’s own approach to investment to make more smaller, riskier deals more widely available.

While the answer begins with yes, the meaning seems closer ‘no, unless someone else is prepared to subsidise it’:

Yes. There are different ways that we can do it. We can invest into blended finance, as with Access. We can support the development of social crowdfunding.

Social crowdfunding hasn’t had anything like the same journey as yet. Could it? There are other countries where it does. Or might it work more as in the French system, so it’s people choosing to put some of their long-term savings into funds which include a social investment element.

So, yes, there are different ways of achieving different things. This isn’t one story.

Things are getting worse, please take our expensive money

We move on to the question of where social investment fits within the wider landscape of social sector funding. How can social investment help charities and social enterprises respond to the current economic climate?

For Prior: “Social investment is one tool in the toolbox. There is always a danger of people thinking it’s the tool and that has all sorts of distorted effects. Probably a minority of charities and social enterprises will use it but then that’s also true of mass public fundraising: only the very biggest charities that do that sort of thing to any scale.

He makes clear that: “For social investment to be viable, there has to be an income stream. So, is it public fundraising? Is it trading? Is it public service commissioning? What is it? Do those sources generate a surplus? If there isn’t a surplus, you’re not going to be able to pay it back.

For non-asset backed investments in particular, Prior acknowledges this is a major problem: “For charities in particular, completely asset locked, profit locked, rather different for social enterprises, they’re often trying to use debt for things which, in the commercial world, you would use equity or some other means.

He adds: “So, where is this going to work? In general terms, for the social sector, this is probably the worst bear market**** in memory. It is a really tough time and, at the same time, the social needs they’re trying to meet, generally speaking, are rising. I think most charities and social enterprises have come to the conclusion that this isn’t a temporary aberration. It’s not just hunker down and try and survive until better times. This is the new normal.

It’s a picture many charity and social enterprise leaders will be familiar with but Prior outlines a clear hypothesis for the role (or, at least, a role) for social investment in helping organisations find a way forward:  “So, then you start thinking, ‘How can we do things differently? Can we achieve more impact for less revenue?’ I’ve met a number of organisations where the leadership has thought hard and grasped the nettle of, ‘We just have to do it in a very, very different way.’ The change from model A to model B has some cost to it, social investment, on the basis that you’re going to transform the model, and that you will get the income back to do a new style of work.

If that sounds risky, that’s because it is: “Of course, it’s a courageous thing to do and I hugely admire the folk who are doing it. For some charities, it will not be the right thing to do. Financial risk is one thing, but the risk of vulnerable beneficiaries suddenly losing their services is quite another order of consideration. So, this won’t be for everybody but I think that is a particularly important use of social investment in the current circumstances and what looks like prevailing for the next few years, at least.

Part two of this interview will be published next. There’s more on SIBs in part two, I promise.

*The interview took place on June 23rd, the day of the referendum on the UK’s membership of the EU

**Explored in detail in the report of The Alternative Commission on Social Investment, most of which I co-wrote with Dan Gregory.

*** In a recent blog post for Flip FinanceBSC’s former Head of Strategy, Matt Robinson, suggested that the government should: ‘use Brexit to get rid of state aid rules for the UK social sector entirely’.

****Prior is not suggesting there’s a bear market in social investment itself but in the commercial activities – such as delivering public services – that organisations might use social investment to undertake


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