Can Social Investment ever be simple?

We’ve just launched a new online resource – Social Investment Made Simple. This blog tells you the story of why we did it.

philanthropic capital by Business Illustrator
Over the last 3 years, I’ve heard the term ‘social investment’ being used increasingly frequently across the voluntary sector (and beyond). It took me a while to get my head round what this term meant, partly because people use it in different ways. Some are referring to finance that has both a social and financial return – where the investor gets some money back and the project they’re investing in creates social benefit at the same time. Some people use the term to mean any kind of financing of social impact, whether or not there is a return for the investor. And some people use ‘social investment’ to refer to very specific financial models, such as the Social Impact Bond. At NCVO, we had a fantastic resource from Charity Bank on loan finance for trustees, but that didn’t cover some of the other terms I was hearing.

Confusion I went to lots of conferences and talks and read various documents which talked about a lot of things I didn’t understand, and which debated the role of this mystical concept in the future of civil society. I went to events where there more people in suits than not (in the voluntary sector!). These mainly served to obfuscate and confuse me and make me wonder whether I should I get round to adding to my suit stock (current level: 1, purchased in 2006 for an interview and worn to every interview since). But the fog only really started to lift when I heard an explanation by John Kingston, then Director of CAF Venturesome, and one of the pioneers of practical investment finance for voluntary organisations in the UK.

He explained it as a spectrum, where, at one end, an ‘investor’ gives money to a project for a negative financial return (i.e. a grant), and at the other, for a positive return, where the investor may get more money back than they put in. All along the spectrum were different types of investment with different levels of risk for both the investor and the investee. What all of these models had in common was that the investor was expecting to see a social return, regardless of the level of money they might get back.

graph-socialinvestment_0
Copyright CAF Venturesome

Enlightenment As John spoke, I could see other people round the room starting to get it. At the end of the session, the feedback we got was mostly along the lines of, “Now I understand it, I know it’s not right for us,” or “I think we could do this, but we’re not ready for it yet.” John’s simple explanation had helped people make a decision about whether investment finance was even vaguely an option for them. But not everyone has the chance to spend 3 hours with John Kingston, or indeed any of the other fantastic speakers we had that day (Malcolm Hayday of Charity Bank, Tom Hall of Scope, and Tim Jones of Allia, all of whom have shaped the market for social investment in this country).

We knew our members’ opinions of social investment ranged from enthusiastic to sceptical to downright hostile, yet the over-riding sense we got from talking to people was one of confusion and, often, fear.  Is this the way things are going? I don’t understand? Won’t we be selling our soul? And the big question – we’d have to pay something back??!!! The one we decided to start with was – what the hell does it mean?

Enthusiastic Excitment We decided to focus on the basics – the ‘what’ rather the ‘how’. We commissioned CAF Venturesome, who have been using investment finance to help organisations grow for a long time, to create a new resource – Social Investment Made Simple. This simply explains:

  • what different terms mean
  • when you might use that type of finance
  • an example of an organisation that’s used it to support their work
  • who provides this type of finance

The truth is, finding the right income for your mission is not straightforward, especially as the world of funding changes around us at such an electrifying pace. There are complex models of finance that can’t be explained in a sentence (my comms team asked me to explain ‘quasi-equity’ in a single sentence without using the words ‘debt’ or ‘equity’. Answers on a postcard because I failed). It’s not easy to understand, and it’s certainly not going to be appropriate for every voluntary organisation or social enterprise.

The point is, to be able to even start thinking about social investment as an income option, you need to understand the terms. Then you need to get help from an expert, and you need to get your organisation into a position that can take on the level of risk involved. You might need to convince your trustees and your beneficiaries. You’ll almost certainly have to write a business plan. You’ll need to understand your cashflow. You might have to completely change the way you work, think and communicate. You might even need to change your legal structure. But you’re not going to do all this at once. So have a look at Social Investment Made Simple and calm down.

Find out more

‘Best to Borrow’ – Report on social investment and how to decide if it’s right for you by New Philanthropy Capital Social Investment Made Simple CAF Venturesome Tom Hall’s blog on mixing donations and loans to raise capital for Scope

Laura Smith

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Laura coordinated the core work of the Sustainable Funding Project and led on the delivery of the project’s mission to encourage and enable voluntary and community organisations to develop and implement a sustainable income strategy. Laura no longer works for NCVO but her posts have been archived on this site.

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