Put simply, social investment is the use of mostly repayable finance to achieve a social as well as a financial return. A social investor hopes to receive their original investment back with interest generated from the trading profit of the social enterprise. And they also expect the investment to result in measurable social impact.
Social enterprises use the investment to increase their impact on society, for example by growing their business, providing working capital for contract delivery, buying assets, or developing new or existing activities that generate income. As with any kind of finance, not-for-profits need to be in a position to secure the investment and be prepared to satisfy investor requirements. This is commonly known as investment readiness, and focuses on five key building blocks:
1. Good leadership and governance is crucial to any social investment plan and its area that social investors look at in great detail. Any investor needs to have confidence in the team who are managing their investment.
2. Investors and funders always look at financial performance and track record, and whilst the past is no guarantee to future performance it does demonstrate the ability of an organisation to achieve financial outcomes.
3. The ability to demonstrate that there are sound financial systems and controls in place is vital for investors and funders and many want to see that the board and management have accurate information for decision making and performance monitoring.
4. Social investors are as much interested in the quality of services provided as the social impact of the organisation within its community or with its customers. Being able to accurately evidence and report on quality and impact is a crucial element of investment readiness.
5. When looking to scale and grow by moving into new or developing markets it’s important that the market potential is clearly understood and genuinely achievable.
The good news is that the Enhance Social Enterprise programme is supporting the growth of the social enterprise sector across the Heart of the South West LEP area covering Plymouth, Torbay, Devon and Somerset. Through this programme existing social enterprises, community sector groups that want to transition into trading and budding social entrepreneurs in need of help to develop their ideas can receive a minimum of 12 hours of FREE tailored business support from a range of partners.
Alongside business support many social enterprises and other not-for-profits need access to finance to support their growth plans. Some are in a unique position in terms of the range of finances that they potentially have access to, many can look to secure repayable loans and equity investment in the same way that for-profit organisations can. Most also have access to non-repayable grants in the same way that charities and NGO’s can.
Despite the apparent abundance of sources of finance available, social enterprises in the UK repeatedly report that access to finance is the main barrier they face, both at start-up and in trying to reach sustainability. By comparison, traditional SMEs report obtaining finance as only the sixth biggest obstacle to their growth.
All is not lost. In addition to the support offered through Enhance Social Enterprise there is investment readiness grant funding available to support organisations regardless of where they are on their investment readiness journey, such as The Reach Fund.
Once ready to take the leap into securing social investment, Social enterprises now have access to an increasing number of social investment products and services aimed at and specifically developed for the sector. These products come from a range of organisations providing the spectrum of social investment and social finance support in the UK, and include not only Devon Community Foundation and our Devon Social Investment Fund, Somerset Community Foundation and their Somerset Social Enterprise Fund, but also organisations such as Social Investment Business, Social Finance, Access, Big Issue Invest, Resonance and CAF Venturesome to name a few.
If you would like to know more about social investment then please do get in touch, I’m sure we can help with your investment readiness and social investment needs.
Blog post written by Mark Cotton, Financial Sustainability & Social Investment Mentor
The Heart of the South West Enhance Social Enterprise Programme is funded by the European Regional Development Fund (ERDF) and delivered by Devon County Council, Devon Community Foundation, Somerset Community Foundation, Real Ideas Organisation, Dartington School for Social Entrepreneurs, Iridescent Ideas and Cosmic.
The Heart of the South West Enhance Social Enterprise Programme is receiving funding from the England European Regional Development Fund (ERDF) as part of the European Structural and Investment Funds Growth Programme 2014-2020.