Social Investment – Are You Ready?
Social enterprises and other not-for-profits are in a unique position in terms of the range of finances that they potentially have access to. Many can look to secure repayable loans and equity investment in the same way that for-profit organisations can. Most can also have access to non-repayable grants in the same way that charities and NGO’s can.
Despite the apparent abundance of sources of finance available, social enterprises in the UK repeatedly report that access to finance is the main barrier they face, both at start-up and in trying to reach sustainability. By comparison, traditional SMEs report obtaining finance as only the sixth biggest obstacle to their growth.
All is not lost. In addition many social enterprises have access to an increasing number of social investment products aimed at and specifically developed for the sector. These products come from a range of organisations providing the spectrum of social investment and social finance support in the UK, organisations such as Social Investment Business, Social Finance, Access, Big Issue Invest, CAF Venturesome and Resonance to name a few.
Social investment is the use of mostly repayable finance to achieve a social as well as a financial return. The social investor hopes to receive their original investment back with interest generated from the trading profit of the social enterprise. And they also expect the investment to result in measurable social impact.
Social enterprises use the investment to increase their impact on society, for example by growing their business, providing working capital for contract delivery, buying assets, or developing new or existing activities that generate income. Since it generates a financial return, social investment allows investors to recycle their capital. This enables them to invest in more good causes than if they made a one-off donation.
However, as with any kind of finance, not-for-profits need to be in a position to secure the investment and prepared to satisfy investor requirements. It’s generally accepted that the five building blocks of investment readiness are:
1. Good leadership and governance
Good leadership and governance is crucial to any social investment and it’s an area that social investors look at in great detail. Any investor needs to have confidence in the team who are managing their investment.
2. financial performance
Investors and funders always look at financial performance and track record, and whilst the past is no guarantee to future performance it does demonstrate the ability of an organisation to achieve financial outcomes.
3. financial systems and controls
The ability to demonstrate that there are sound financial systems and controls in place is vital for investors and many want to see that the board and management have accurate information for decision making and performance monitoring.
4. social impact
Social investors are as much interested in the social impact of the organisation as they are in a financial return. Being able to accurately evidence and report on quality and impact is a crucial element of investment readiness.
5. market potential
When looking to scale and grow by moving into new or developing markets it’s important that the market potential is clearly understood and genuinely achievable.
The good news is that there is potentially investment readiness grant funding available to support organisations regardless of where they are on their investment readiness journey.
If you would like to know more about social investment please do get in touch.
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