Several major venture finance outfits including venture capital firm Catalyst are looking to set up social sector funds to invest in charities and social businesses, Third Sector has learned. The funds could be in place by the autumn.
This, together with other similar initiatives, could see venture funding become a major source of financing for new charitable businesses. The Bridges Community Development Venture Fund, which has £20 million funding from the private sector matched by the Treasury, was launched in May, with a remit to invest in businesses and social enterprises in deprived areas.
This is good news for the sector, according to consultant John Pepin, a proponent of venture funding who advises charities on plans to seek alternative sources of finance. Venture capital offers an alternative to charities funding their own business ventures, which often grow very slowly because of a lack of resources.
end of the market in particular - wealthy individuals who seek lower returns than mainstream venture capitalists and invest for longer periods - find charity businesses an attractive investment opportunity, said Pepin. "With venture capital, the investment helps to deal with cash flow issues,
he said. Charities only need to provide time, effort and intellectual property. If the venture fails, the charity is not liable for any debts.
Charities need a good business idea, a proper and specific business plan to prepare properly for venture capital investment, he warns. The new business should also have some separation from the charity.
Venture capitalists seek high returns when they sell on after the business has been established, so the charity has to be prepared for the investor to sell on their stake.