Social Enterprises – the growth quandary

16 June 2011 | By Cause4 staff

In February 2011 Government launched Growing the Social Investment Market: A vision and strategy - a six-point framework starting with ‘enabling’ actions and leading to more direct intervention including consideration of tax incentives to encourage social investment. It is clearly positive to encourage a thriving social investment market where social ventures can find access to the capital they need to grow, together with a strategy to make it happen. The report outlines that philanthropists can help by seeing social investment as a “core proposition in their portfolios and not just as a marginal product”. However, with truly scalable social enterprises ‘as rare as hens teeth’ – is this really the right approach from Government?

Cause4 believes that the answer to the problems of scale revolves around looking at the two types of investment available to social enterprises:

Finance-first investment, which places significant focus on ‘reasonable financial returns as well as social returns,’ for investors. Examples of such funding include the Bridges Ventures and Big Issue Invest.

Impact-first investment, which has ‘social impact as its core focus, recognising the trade-off required between social impact and pricing for financial risk.’ Examples include investment from trusts and foundations and philanthropists who often do not expect to see a major financial return on their investments.

At present there seems to be a cultural aversion to taking on non-grant investment. Most social enterprises are more than happy to search for funding from impact-first investors, with a full understanding that taking such investment is a low-risk strategy.

However, as this funding comes under increasing pressure social enterprises are struggling to access sufficient capital for expansion. With a squeeze on invested funds from charitable foundations, we also think that it is short sighted to believe that charitable foundations will take advantage of the new guidance from the Charity Commission allowing them to invest for social return and take “a more ambitious approach to social investment”.

With the introduction of the Big Society Bank it is essential that the initiative helps improve the supply of finance and acts as a driving force for the whole social investment market. The strategy gives examples of the three main types of investment proposed for the Bank including funds for front-line social ventures, funds for social venture intermediaries and funds to develop new investment vehicles such as Social Impact Bonds and building market infrastructure. The social investment market will be watching closely to see the social impact of the bank, its investment and most importantly its influence on the speed of social enterprise growth.

If organisations can gain a newfound confidence to consider finance-first investment then we will see a wave of bigger and better social enterprises coming through in the next few years. The impact on society at large of this can, we envisage, only be positive.

Back to top

Blog index

“Arts Fundraising & Philanthropy has changed the game for arts fundraising as Clore did for leadership.”

Phil Gibby, Director Arts Council England, South West

More by posts by Cause4 staff

Cause4's Pick of the Month - August 2019

1st August, 2019 | By Cause4 staff

It's a new month and the Cause4 team are excited to introduce another four inspiring individuals that are guiding the way in charity leadership, social entrepreneurship, Trusteeship and Arts Fundraising. Read on to meet our pick of the month for August. 

Cause4’s response to: The UK Civil Society Almanac 2019 Report

15th July, 2019 | By Cause4 staff

The UK Civil Society Almanac Reports, released by the National Council for Voluntary Organisations (NCVO), is a crucial source of data that has been providing insights into developments in the voluntary sector since 1996. NCVO has now released its latest annual report, of which the following response will outline key findings including positive growth in terms of grants and investments, whilst public donations and fundraising decline. Diversity in particular has been highlighted as an ongoing issue within the sector throughout the report.  

Cause4's Pick of the Month June 2019

4th June, 2019 | By Cause4 staff

As we approach summer and the longest day of the year this month, we can’t believe quite how fast this year has gone – or the 10 years that led up to our birthday party in May! In our spirit of Sharism, check out our favourite Charity Leader, Entrepreneur, Trustee and Arts Fundraising and Philanthropy Fellow of the Month for June!