Seb Elsworth: Social investment is truly a broad church

In its enthusiasm, social investment can sometimes conflate ideas that are actually very different

Seb Elsworth (Photograph: Claudia Leisinger)
Seb Elsworth (Photograph: Claudia Leisinger)

During March, social investors convened in Leicester for the second biennial "gathering".

The agenda covered some of the key issues facing the growth of the industry: how we best meet the needs of our investees; how we manage the relationships between philanthropic and commercial capital; and how we ensure that social investment is as diverse as the sector it is seeking to serve.

It is valuable for any movement to have the opportunity to reflect on the bigger trends affecting its work, and to collectively hold itself to account for the extent to which it is delivering on its potential.

There was a great deal of energy and enthusiasm, but what struck me was what a broad church the field of social investment is and how, in its enthusiasm, it can conflate concepts that are in fact quite different. In reflecting on the event it is useful to unpick some of this.

Before I get into it, and just to be clear, I am not saying that these different concepts are more or less important or worthy than others. Rather, it is helpful to be clear about what it is we are each trying to do so that we can find the right fellow travellers and invest in building powerful collaborations. And to those who are trying to do something aligned but actually different, we can be supportive from the sidelines.

First, in seeking to make social investment more useful for more organisations, we are often not clear enough about the distinction between supporting an early-stage social entrepreneur in developing a new enterprise and supporting an established charity to develop trading models.

While there are of course similarities here, one is a model very specifically focused on building the skills, capabilities and networks for an individual, whereas the other brings different complexities around culture change, governance and working within established networks.

Second, when speaking about investment it is easy to slip into the assumption that your goal is to help bring that organisation or its intervention to "scale".

Notwithstanding the huge difficulty in actually making this happen in the social sector, it is important to recognise that many charities and social enterprises do not have the ambition or the opportunity to scale. For many, their mission and their community are symbiotic; expanding out of it doesn’t make sense.

In addition, scale in one organisation might simply displace the work of another. In the hugely turbulent world in which charities and social enterprises operate, the goal might not be to grow but simply to survive and, if possible, become a bit more resilient.

Using investment to help grow an earned income stream might help an organisation to sustain the status quo and maintain its impact in its community. That is not a bad outcome and should not be overlooked.

The third distinction, which is perhaps a little more subtle, lies in whether we are really trying to mobilise capital to support an organisation or, more generally, to address a social problem.

Often, of course, these things should go hand in hand, but a focus on using capital to achieve rapid impact at scale can take you away from engaging with charities and social enterprises – the very organisations that are most likely to achieve that impact.

One reason why this distinction matters to me, and I am going to come off the fence here, is that being agnostic about the form of the organisation that is delivering impact can lead to the undermining of one of the key characteristics of our sector, central to securing public trust and our particular models of governance: the asset lock.

There is a growing narrative in the field of social investment that more flexible legal forms need to be pursued by social purpose organisations so that more equity capital can be used for the pursuit of impact. For many organisations at an early stage of earning revenue, managing loan repayments can be a burden. Equity might well be better placed to meet this need.

However, most asset-locked organisations, such as charities and some other social enterprise forms, cannot take equity because they cannot be owned. Some support for social enterprise start-ups specifically recommends company-limited-by-shares structures to make it easier to raise large-scale finance in the future.

I worry about this because the argument is backwards. A shift towards other legal forms risks undermining a key characteristic of our sector and cutting the sector out of the flow of capital it needs. It also ignores the key point that the most significant impact on communities around the country is driven by charities and social enterprises.

Much better would be for us all to focus on developing more appropriate equity-like products for asset-locked organisations that meet their needs in terms of the burden of repayment but do not undermine their asset-locked status.

I am glad that all of us working in the field of moving capital to social impact come together under a broader sense of shared endeavour.

For Access, our task remains specifically to help more charities and social enterprises to build their resilience through being better able to access capital. Clarity over our respective purposes helps us all to best identify the solutions that will work for the organisations we seek to serve.

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

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