If you fell asleep in 2004 and woke up today, one of the biggest changes you would notice (besides the welcome near-disappearance of 'Big Brother') would be the proliferation of social finance intermediary organisations – organisations that raise money from different sources and invest it in the social sector. The next thing you would notice would be the large gap between the pile of money raised by the intermediaries and the amount actually finding its way into charities and social sector organisations.
Go for a latte with one and a few well-placed questions will tell you that while they have no big problem raising finance (especially since the creation of Big Society Capital) many do have problems shifting it. You won’t need to wait for long to hear of 'slow deal flow', ‘lack of investable propositions’ or ‘shortage of backable teams’.
So what's really going on? Nobody knows for sure (despite lots of fancy reports) but, as an entrepreneur, I think it’s actually quite hard to hit the double-whammy of social impact and profit for investors. If you do get the business right, you tend to excel in one or the other. Enterprises that convincingly tick both boxes are still a bit thin-on-the-ground.
So how can we create more candidates? I have three simple suggestions based purely on my enterprise experience.
My first is about better marketing and sales. I don’t think social finance is at all well sold to the sector. The products are not clear. The sales-force consists of brilliant young people from investment banks rather than friendly bank-manager types. You have to go to London. You can’t keep up with the talk. You come away with a terrifying to-do list. The answer here is to sell social investment differently. Create simpler products that reflect the market, not your last job. Employ a few greybeards and ex-charity CEOs. Set them up in Manchester not Mayfair.
My second idea is actually about better products. Or, rather, products that the market likes. I think that the social investment offer is a bit ahead of its time when set against today’s social sector. Most charities and social enterprises can’t yet see how they might meet social need through loans or returnable finance, however soft. So they don’t call. To bridge the old world and the new, we need more finance products that that bring charitable money and social finance into the same deal. Such a mix acknowledges that meeting social need can, in part at least, not always be addressed through business-type finance. And it would go a long way to opening up the social finance market to more organisations.
My third suggestion is to widen the pool of potential investees to the private sector. Some are already doing this, but most social finance is aimed at the charity and social enterprise sectors. However, this is small beer when set aside the mainstream enterprise sector. With 500,000 new limited businesses a year being set up, the social finance sector needs to reach out to those private sector businesses within this group who want to achieve social as well as financial success. Research suggests that this is a common mix of motivations among Generation Y and the Millennials. It is therefore right that social finance reaches out to those who seek both private profit and social impact.
To conclude, it’s still morning in the social finance sector. That we have hundreds of millions in funding to deploy is something to be celebrated rather than decried. The challenge now is how we put that money to work. This is now, largely, a question of the right products and the right way to meet the market where it actually is, not where we want it to be. And to reach out to who is making a social impact, whichever type of company they happen to run.Back to stepping out now