Angel investors will tide us over as institutions grow

There are thousands of high net worth people ready and willing to back social entrepreneurs, writes our columnist

Rodney Schwartz
Rodney Schwartz

The social investment sector appears to be growing rapidly and holds considerable promise. This is especially important at the current time, because severe cuts in central and local government spending are having serious consequences for the level of public services.

The advent of Big Society Capital and a wide range of governmental actions make it very likely that the social economy will grow rapidly over the next few years. According to a report for BSC by Boston Consulting Group, the social investment market will grow to about £1bn by 2016, expanding by 40 per cent a year to get there. In the past year, the market has apparently grown from £165m to £202m, so it is on the way.

What is also true is that despite the rapid pace in fund commitments made by BSC, it will take years for these funds to find their way into the market. This is because the commitments are made on a matched basis, so each of the fund managers needs to raise other funds elsewhere - a process that often takes a long time. Thereafter, each of the fund managers (if they are doing their jobs properly) will take years to invest the funds. Thus it will take some time for the institutional side of the social investment market to form and function effectively.

Delayed as the institutional market might be, the retail investment market is years behind that. Financial promotion regulations make it very difficult to offer social investments to individual investors.

In the interim, angel investment is essential. This is investment from wealthy people, usually with experience in picking winning companies, who put their money into start-ups or growing businesses.

Critical capital

There are thousands of angels - high net worth people and sophisticated investors - who are increasingly ready and willing to back social entrepreneurs. These people not only provide social enterprises and charities with critical capital, but also offer expertise, contacts and networks, which make them extremely valuable to organisations in which they invest. In particular, they provide considerable benefit to early-stage social entrepreneurs.

At the time of writing, ClearlySo was expecting to have closed its seventh deal this year, raising more than £1.5m for a wide range of social entrepreneurs. Without this capital and their advice of these angel investors, the entrepreneurial hopes and dreams would remain just that - only hopes and dreams.

Much of this capital has come through our social business angel network called Clearly Social Angels.

But while working on these deals, we have also reached out to our broader individual investor network and contacts from other networks: a social angel ecosystem is emerging.

The development of the institutional social impact investment marketplace appears to be solid, and in time the retail one should also develop; but, for the coming years, we are grateful for the difference these angel investors are making.

Rodney Schwartz, chief executive of ClearlySo, which helps social entrepreneurs raise capital

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