FINANCE NEWS: Social economy groups need to embrace equity investment

Equity investment may be as viable for social economy organisations as it is for conventional businesses, a new report will claim.

Sharing in Success: Patient Capital for the Social Economy in Scotland, to be launched next month by the community development finance institution Community Enterprise in Strathclyde, argues that the willingness of social economy organisations to seek outside investment is the key to success.

In order to attract it they should be willing to offer investors seats on their boards or management committees.

The report reinforces the Government's message that voluntary organisations should move away from dependence on grants to sustainable forms of finance.

Social Investment Scotland, a £3 million loan scheme for the voluntary sector backed by the Scottish Executive and Scotland's four largest clearing banks, was set up in September. Chancellor Gordon Brown has also introduced tax credits for investment in community development finance initiatives.

The report says there is a "latent demand

for equity investment within the social economy and a reciprocal interest in the public and private sectors.

However, concerns on both sides that commercial returns are not big enough to attract private investors to the social economy look likely to be overshadowed.

"Despite the fact that potential commercial returns are not as large as those normally required by private venture capital investors, we have found that social economy enterprises react positively to the option of equity,

the report says.

Social economy organisations are often penalised by public sector funders if they make a surplus, but equity finance requires a payback for investors.

The report recommends that social economy organisations be prepared to cede some control to investors, while the private sector should commit to testing the market place for five to ten years.

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