Tim Wilson's tips on social investment

Clarify your aims, involve the trustees and use intermediaries, says the grants and social investment officer at the City Bridge Trust

Tim Wilson
Tim Wilson

Stepping Stones, the social investment fund run by the City of London Corporation’s charity, the City Bridge Trust, launches its next round of funding – worth £1m – on 23 September. Here are my key points for charities and social businesses to contemplate if they want to get into this space.

1 Don’t follow the funding

Apply the same rigour to social investment that you do to grant-fundraising – be clear about what you want to achieve, how you will deliver work towards that goal, how much this will cost, and only then consider where funding might come from. In many cases grant money (free money, in other words) will be better than social investment, which usually comes at a cost (interest payable) and will be a balance-sheet liability. It’s a revenue source for some organisations, but not for as large a cross-section as we would like at the moment (hence the offer of £1m support through our Stepping Stones Fund).

2 Win the support of your trustees

Very few of the social investment deals I’ve witnessed have run entirely as planned. They can take longer and involve amendments to delivery plans. Buy-in from trustees is a clear signal to potential investors that the organisation is fully committed to the process. Early conversation with trustees is essential to bottom out their risk appetite and to check whether sufficient resources are going to be available for the deal process.

3 Call on intermediaries if possible – they are an excellent source of support

Although I have done most work with Social Finance, the sector is fortunate to have access to a small pool of other excellent social investment intermediary organisations that can advise on product development and investor engagement. In addition, they are a valuable source of information and learning, having good historic memory and a sense of what is on the horizon. FSE Group, ClearlySo, Resonance and Big Issue Invest are all playing key roles in developing the social investment market. Depending on your need, you have a range of sources to draw on as you develop your plans, and a number of models to look at when considering how your own plans might work.

4 Test your model to reasonable limits

Before taking your model to the market, it’s critical to test thinking for blind-spots, faulty assumptions, problems with numbers and so on. It might be logically coherent from your own organisation’s point of view, but if you are asking investors to commit their capital then it has to be robust enough for their due diligence. Anyone who can act as a critical friend and test out the weaknesses in the model you’ve developed will help save time in the future (it's better to rehearse tough discussions). Of course, if it is a formative idea, then grant-funding rather than social investment might well be more suitable finance, but if your aim is to use that grant towards taking a product to market then it’s still helpful to know what to test.

5 Identify your target investors and understand their risk appetite and priorities

As with grant-funders, each social investor has different priorities and their risk appetite varies. Most will work to an investment committee and have their own performance metrics. Just as there is no point submitting speculative applications to grant funders for work that falls outside their current priorities, so there is little point engaging social investors who cannot commit their capital to ventures that fall outside their geographical or thematic remit or below their target financial return. That said, this is still a nascent market, and there is insufficient deal flow to allow many investors to focus too narrowly, so early discussions can be helpful.

Tim Wilson is principal grants and social investment officer at the City Bridge Trust, which reaches its 20th anniversary this year

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