Last week saw the release of Investment Readiness in the UK, a report commissioned by the Big Lottery Fund and researched/authored by ClearlySo and NPC. It follows hard on the heels of The First Billion, published by Boston Consulting Group, estimating that the demand for social investment could reach £1 billion by 2012 – quite a leap from the 2010/2011 ‘deals done’ rate of £165 million.
The two reports are connected, because in order to convert BCG’s exciting estimate of demand into investment in actual delivery of goods and services benefitting millions of people, you first have to complete some financeable deals.
And to do financeable deals, you need organisations that can take on social investment – ie ones that are ‘investment ready’. So the new report is a vital part of the jigsaw, and it is welcome news that the Big Lottery Fund is planning a fund to help support investment readiness.
As part of the research, NPC organised an enormous survey to back up the fascinating feedback from the interviews being done by our colleagues at ClearlySo. The Big Lottery Fund very helpfully allowed us to contact its myriad grantees, and ClearlySo tapped into its prodigious contact database. In all, we surveyed nigh on 7,500 organisations and were overwhelmed by the response – over 1,250 replied, a much higher response rate than anticipated, for which many thanks to all respondents!
And the findings? Well, very baldly, organisations with assets to offer for security and straightforward, low-risk financing needs can obtain finance – with a bit of effort. It’s not a total walk in the park – more respondents told us it was difficult than easy – but bearable. And often it was a mainstream bank providing the money.
Organisations with higher risk propositions and therefore more complicated financing needs told a different story and found it much harder to obtain finance. There were a number of obstacles aside from the availability of this type of capital. Knowledge was scarce: knowing what sort of finance to go for, where to get it, from whom, and how. Meanwhile concerned investors reported struggles with knowing how to structure deals realistically and fairly.
The paucity of advice and support needed to get to a completable deal results in a serious mismatch. Over half of the organisations reported receiving no external support. But when asked about what they would like, there was plenty of hunger for support. For those at an early stage, a step-by-step guide to obtaining finance – what sort and where – was in great demand. For those further down the line, bespoke business and financial planning advice and contact with peers who had been in a similar boat would be very welcome.
The good news is that this problem isn’t hard to fix. Step-by-step guides and decent signposting would deal with many queries. On more detailed support, there is the problem of who pays for this, but Big Lottery Fund and Social Investment Business (using government funds) are both demonstrating a willingness to invest in capacity building. Good news.
But to complicate matters further, the two sides had different perceptions of skills within the organisations seeking finance. Around half of potential investees (even the ones who have so far failed to get the finance they sought) believe their financial, business, marketing and management skills need no improvement. But intermediaries and investors repeatedly report the opposite, particularly with financial skills and business acumen. It was telling that those successfully obtaining finance were sometimes more self-aware than those who didn’t…
So this is quite a mismatch. One interpretation could be that there is a group of organisations looking for finance for whom this type of funding isn’t suitable. In which case getting them out of the pipeline quickly, so that they don’t waste their own or others’ time, would be sensible. Indeed, NPC’s own social investment taster training – a morning to explore at a very basic level what its all about – regularly weeds out charities puzzling as to whether social investment is for them. NPC can help charities with the strategic puzzle of whether to pursue social investment. And we can also provide an honest assessment of whether a charity’s skills are likely to cut the mustard with intermediaries and investors.
More support for organisations will undoubtedly help this important market to develop, and the authors hope this report will help.
Iona Joy is head of funder effectiveness at New Philanthropy Capital
Further articles from Alliance magazine related to these topics: