Social investment has widened its reach over the past five years. Many more social enterprises and charities are now benefiting from a range of investors supplying loans to underserved regions. Access’s Growth Fund investors have an average loan size that sits at £62,000, debunking the common misconception that repayable finance is just for the big guns.
And we know there is still demand. Social Enterprise UK’s State of Social Enterprise report identified that the right kind of finance is still the principal barrier to sustainability and growth. Market-sizing work from Big Society Capital also estimates that 30,000 more charities and social enterprises have the appropriate business models to benefit from the government's social investment tax relief.
But what about the socially motivated organisations that don’t get so much air time? For me, three stand out: community groups, tech-for-good companies and cooperatives. I predict that their moment has arrived and that they should, and will, take advantage of the growing number of social investors in the UK.
Different from your traditional charity model or trading social enterprise, these organisations have varying legal structures and approaches to conducting business. And while they arguably have very different outlooks on how to achieve social impact and through what channels, they all share a similar need – investment to help them grow, innovate or finance an asset.
At the grass-roots level, we have community groups looking to alternative funding as grant pools dry up. Although repayable finance might never be palatable or appropriate to a portion of these, an increasing number are considering investment to help their long-term sustainability and resilience.
Many define themselves as community businesses and have the ability to take on finance, with the community funder Power to Change reporting that 70 per cent of those it surveyed in 2017 had incomes that came mainly from trading. And whether it is a secured loan to help refurbish a community hall, or individuals purchasing community shares to help save their local pub, social investment is already part of the equation.
The second group comprises tech-for-good ventures. The new kid on the block, they have experienced a recent boom, with the number of ventures doubling in the past two years. This is perhaps unsurprising as social entrepreneurs living in a digital age look to capitalise on technological advances to provide solutions to social problems.
Already we have specialist social investors working in this space. But as the innovation foundation Nesta recently identified, hundreds of business accelerators and incubators operate in the UK, yet only 6 per cent describe themselves as having a social focus. Does this present a potential gap for social investors?
Last, we have cooperatives. With a long and established history in the UK, cooperatives are owned and run by their members, giving people control of the businesses they are closest to. Data from Co-operatives UK indicates a significant increase in membership in the past two years, from 11.7 million to 13.1 million, with an increasing annual turnover, currently at £36.1bn.
Specialist cooperative investment funds already exist, but the think tank the New Economics Foundation recommends better and suitable finance, responding to the difficulty cooperatives often face in accessing effective, patient capital. Again, social investment could play a viable role here.
So what does this mean for the sector?
Some might argue that an already cash-strapped charity sector should always be prioritised. Others, that social investment is better suited to tech-for-good companies and community businesses, because their trading models are more conducive to this kind of finance.
Wherever you sit on the "charity first, subsidy okay, deep impact" versus "profit first, market-rate returns, wide impact" spectrum, we can surely agree that a resilient sector should be driven by available and diverse funding options, of which social investment inevitably plays a role. No organisation with a social mission should miss the opportunity to access new or different forms of finance. If the supply exists, who are we to dictate where the socially motivated demand comes from?
Of course, there is a tendency to be too binary in how you segment the market, when in reality it is far less clear-cut. Many organisations view themselves as a combination of these classifications. It is not uncommon, for example, to see community groups with charitable status trading as social enterprises.
One thing is clear though: impactful organisations, however you define them, will continue to need finance. For the social investment market, this means the potential to catalyse the movement into the consciousness of more groups of people, while also proving it can be adaptable to the needs of a greater variety of social sector organisations.
Kieran Whiteside is project manager of Good Finance, which helps charities and social enterprises navigate the world of social investment