I wrote a few weeks ago about how trading is now the best opportunity for growth in the charity sector, and how social investment can play a role in developing enterprise activity.
However, the social investors are increasingly telling us that they are experiencing demand from charities and social enterprises that are not specifically motivated by growth. These organisations aren’t planning to take over the world, or even necessarily to expand their offer beyond the communities in which they already work. Rather they are motivated by the need to adapt to survive, and are seeking to transform their models to do so. This is especially true for organisations seeking to borrow for the first time and to borrow smaller amounts.
From reducing statutory income, increased competition from other organisations and changes in the fundraising landscape, the old models that have sustained charities for decades are evaporating. These challenges are resulting in sector leaders thinking how to sustain vital funding for services on which vulnerable beneficiaries depend. For some, enterprise can be part of the answer, and social investment can help provide some breathing space and develop that enterprise activity.
Take for example Direct Help and Advice in Derby, a charity that provides free legal advice around housing and debt to help prevent homelessness. Following significant changes to legal aid, and a dispute with their bank, they took on a £45,000 loan in 2013 to provide a financial lifeline to rescue the charity, reflect on their business model, adapt and survive.
The impact of these investments is perhaps best measured by considering what might have happened if the investment hadn’t been made. Direct Help estimates if the service had folded in 2013, 1,000 families would have been struggling for legal support to enable them to remain in their homes.
So if it’s not all about growth, how do you know if it’s working?
From the perspective of a funder who is trying to learn about the long-term impact of investing in a charity or social enterprise, this poses an interesting challenge. If the goal is simply to help organisations to grow then it is relatively easy to look at performance reports and see whether greater social impact is being delivered – and review financial information and assess whether the income of the organisation has grown.
However, when the objective of taking on the investment is to stimulate earned income which replaces funding lost from other sources and to simply keep the organisation going, then "success" may still result in fewer beneficiaries being helped and a drop in overall income.
In order to assess whether the investment has had a positive impact on the organisation, the funder needs to understand a counter-factual – what would have happened without the investment? Would the outcome have been a greater reduction in impact or income? This is or course impossible to do for individual organisations, and establishing formal control groups for this sort of learning is impractical at best and immoral at worst.
One way to gather this information is by looking at trends across the sector as a whole from well-established data sources, like those produced by the National Council for Voluntary Organisations and Social Enterprise UK among others. It is then possible to ask to what extent the organisation that has received investment is able to adapt better than the sector as a whole.
To do this effectively, it is necessary to make sure that you are comparing apples with apples, and asking the same questions of your investees as the broader market surveys. To ensure that the reporting burden on the charity is proportionate, that may mean not asking other things you would really like to know. But if success is only relative, then the counter-factual is essential.
This is the case that I believe social investment will be able to demonstrate over the next few years – and we need the right data to prove it.
Seb Elsworth is the chief executive of Access, a foundation that helps charities and social enterprises access social investment