One of the benefits pointed to by charities that have taken on social investment, beyond receiving the cash, is the impact that the process of securing a loan and of managing repayments has had on the organisation. It can aid the leadership to better understand the organisation’s financial model and be more disciplined about how resources are aligned to impact.
When it works well, social investment brings together the best of an investment mindset – to be disciplined and efficient, and to reward success – with the best of a philanthropic mindset: to be ruthlessly focused on achieving social change. This blend can help charities to be increasingly enterprising and focus on efficiencies to more effectively achieve their missions.
In our sector, an investment mindset can be relevant beyond the world of repayable finance. It is interesting to consider how this bringing together of the worlds of investment and philanthropy plays out in the way grant funders make decisions.
I recently spent a morning with a fairly small but fast-growing and clearly well-run charity in north London. It had good evidence of the impact it was achieving and a strong track record of strengthening the organisation to further grow that impact. It told me that after a lengthy funding application process and getting to the final round, it had lost out on some funding to support the development of its capacity because, as the funder explained, its need wasn’t great enough.
There might have been lots of competition for this grant pot, and of course many organisations will be unsuccessful. But the specific reason given for saying no here seems odd. If your objective as a funder is to grow stronger organisations – this was a capacity-building programme after all – then why wouldn’t you back an organisation that is already showing it has great potential and help it to do more?
It might be that for funders, and grant funders in particular, demand for funding is always much greater than can be met. This can lead to a desire to spread money as wide as possible, to give as many a chance as possible, to be egalitarian and to be averse to giving any more to those that have already had some of the pie.
This motive is perfectly understandable, especially in a sector with a keen sense of fairness. However, this traditional "deficit" model of funding – finding the greatest need and seeking to plug the biggest holes in the chosen organisations – is unlikely to be the best way to achieve philanthropic goals of maximising impact.
If your focus is on achieving maximum impact, then rewarding the success of those already achieving and helping them to be stronger still seems a more obvious way of allocating resources. Applying the best of an investment mindset to philanthropy will mean ruthlessly backing winners and those that have the greatest potential.
This is common in the world of venture philanthropy, which focuses on long-term support for an organisation to make it stronger, non-financial support to build capacity and dedicated impact-management. The European Venture Philanthropy Association champions this approach, and its work in the UK is growing.
Just as with charities themselves, bringing the best of an investment mindset to grant-making can achieve more. It can help funders to focus more specifically on the impact they want to see, and build strong resilient organisations that can deliver that impact.
Seb Elsworth is the chief executive of Access, a foundation that helps charities and social enterprises to access social investment