Seb Elsworth: Financing the recovery from Covid-19

Investment itself will only be part of the support that charities and social enterprises need as part of a longer-term partnerships with investors

Over the last couple of months, the Access team has been working closely with the Barrow Cadbury Trust, our partners in delivering the Connect Fund, on a call for ideas to help shape the second phase of our new blended finance programmes.

These are aimed at supporting the sector to rebuild its trading and asset base over the coming years. We will make funding available to social investment providers who will then blend our grant with other sources of capital to develop new patient and flexible social investment products to support charities and social enterprises. 

The call for ideas sought views from charities and social enterprises, infrastructure bodies as well as social investment organisations on a number of key questions.

These included how such a programme should be designed to best meet both the needs of charities and social enterprises, as well as bring in as much additional finance to support the sector as possible. 

A series of roundtables was supported by written submissions, and a number of important themes emerged that would help inform a broader response to financing the recovery. 

An early question that emerged is whose recovery are we talking about? Access’s work focuses on enhancing the resilience of charities and social enterprises and so we naturally think about eligibility in terms of established organisations. 

However, a number of respondents stressed the importance of thinking about the recovery of communities, not just organisations. In places where pressing community needs are not being well met by existing organisations there may be an imperative to create something new. 

The challenge for a social investment initiative is whether repayable finance can be the right tool to support a new organisation before it has an established revenue stream. 

In terms of new social investment products, there was a clear consensus that more patient and flexible investments are needed, including longer term loans, and more equity-like finance.

As recent research by Shift Design has highlighted, there is more need for this sort of finance than there is demand, partly because few organisations are aware that this sort of investment exists. 

There was also consensus that those products should be simple and easy to understand no matter how complex the plumbing that sits behind them. 

However it is clear from this initial call for ideas that designing exactly how these new products will work, and how the social investment provider needs to be capitalised in order to be able to offer these products, will require a more in-depth process. 

The type of social investment offered, and the term of the investment, must be based on the financing needs of the business models of the charities and social enterprises who have been impacted by the pandemic – who need this sort of finance, but can’t currently access it. 

When funding social investment providers with a blend of grant and other capital, the trick will be to strike a balance in the use of the grant so that it provides enough flexibility to create the required products, but allows the opportunity for the model to be replicated and attract other investors. 

Investment itself will only be part of the support that charities and social enterprises need during the recovery.

Respondents to the call for ideas also stressed the need for additional capacity-building support before taking on investment, and alongside the investment they receive as part of a longer term partnership with their investor. 

There were various discussions about how this should best be provided, and a key question for the next stage of the programme will be how much resource is dedicated to this sort of non-financial support from the programme. 

It is clear that social investment has not made itself relevant to all parts of the charity and social enterprise sector, and that take up amongst some parts of the sector such as the BAME sector, seems disproportionately low. 

We therefore specifically invited views on how best to embed equality and inclusion in the design of the programme.

This has involved drawing on a variety of sector initiatives, including the Equality Impact Investing project and the Diversity Forum, as well as specific discussions with equality infrastructure organisations. 

The discussions focused on support for the BAME sector, and noted that many BAME organisations are themselves relatively small, potentially explaining why they have not received much social investment previously.

A range of key questions emerged from the discussions, including whether the aim is to get more capital flowing to organisations led by diverse teams, and/or into organisations with a specific mission to tackle inequality. 

Respondents stressed the need for social investment providers to build new partnerships to reach deeper into the sector, and ensure that the composition of their investment committees and other decision making structures better reflect the sector they are seeking to serve. 

The call for ideas has been hugely helpful in designing the next steps for our programme, and we intend to work closely with a cohort of social investment providers and other partners in a co-design  to build on these themes over the coming months. 

We hope that these insights will also be helpful to the broader funding community in considering how we collectively support the sector’s recovery. 

Seb Elsworth is chief executive of Access, a foundation that helps to widen access to social investment for charities and social enterprises

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