How appealing to think that finance and philanthropy could collide to create a marketplace where commercial skills and disciplined analysis help to improve the lives of those in need. In 2012, it seemed likely that social investors would be pushing on an open door.
In the UK, the ‘cautiously confident’ predictions of The Boston Consulting Group that demand would rise to £1 billion by 2016 demonstrates the positive mood of the time. In 2014 Social and Sustainable Capital (SASC) launched two new funds – a £20 million Community Investment Fund and a £30 million Third Sector Loan Fund. The funds had been designed to address the perceived needs of the sector, and were informed by discussions with existing investors and a thorough analysis of the range of products available at the time.
The reality is that the social investment market has grown at a significantly slower rate. Much of this has been outside the control of both social sector organisations and investors. Continued austerity has put considerable pressure on the revenue and margin of many organisations in the voluntary sector. The environment has not been conducive for organisations taking on investment, for the first time in many cases.
By mid-2017, SASC had made twelve investments, ten of which were made from our Community Investment Fund. The relative success of this fund was in part thanks to an innovation in the fund’s offering – although innovation may be the wrong word as we adopted a tried and tested approaches that had somewhat gone out of fashion.
Organisations like the International Finance Corporation and our UK partner The Social Investment Business have shown that giving organisations a combination of grant and loan could provide investees with a one-time leg up that created an ongoing sustainable model.
SASC has been working with The Power to Change Trust (an independent charitable trust that supports and develops community businesses) on a pilot partnership which has resulted in five outstanding organisations receiving funding they otherwise would not have been able to access.
By early 2016 it was clear we needed to refine our other fund offering to have broader appeal as only two investments had been made. What wasn’t working?
Simply speaking we were offering what we thought charities and social enterprises wanted or needed. We had to admit to ourselves that we were wrong. When we reflected on why we might be wrong, we realised that in the run up to the original launch we hadn’t actually asked the right people the right questions.
We weren’t going to make the same mistake twice. We wanted to ensure the re-launch reflected the demand side of social investment by giving social sector organisations the opportunity to directly inform some of the fund’s features.
We enlisted the help of Nick Temple, the Deputy Chief Executive at Social Enterprise UK who brought together a broad range of organisations for workshops. He also interviewed social sector leaders about how social investment could better meet their needs. He held in-depth and honest discussions about what he termed ‘the 4 P’s’ of the social investment process: product, price, process and portfolio.
So, what did we learn, and what has changed in the renamed ‘Third Sector Investment Fund’?
The fund now offers ‘investments’ rather than ‘loans’, for example investment periods of up to 15 years (reflecting the profile of longer term capital rather than traditional loans), and more risk sharing. Additionally, we are now able to support a broader range of social enterprises, extending our reach beyond charities, Community Interest Companies and other regulated organisations.
But perhaps the most valuable feedback concerned the engagement with the organisations we hoped to invest in. It was clear from the workshops that communication throughout the customer journey was key – collaboration, not transaction – an insightful lesson we hope can benefit the entire social investment market.
Benjamin Rick is co-Founder and Managing Director of Social and Sustainable Capital (SASC).
See more at http://www.socialandsustainable.com