Well done, Social Enterprise Scotland and CEIS

Heartiest congratulations are due to Social Enterprise Scotland and CEIS for their organisation of a highly successful Exchange at the SECC, Glasgow on Thursday 21 March 2013. Not only was the Exchange well-attended but it was less densely populated than last year by London investment bankers and brokers trying to sell Structured Social Investment Projects. Though the mood was of grim reality, many acknowledged that this was better than hyped up claims about Social Investment.

But there was still much discussion about Social Investment. It took Nigel Kershaw from Big Issue Invest to strike one of the Exchange’s more memorable moments, when, during an afternoon Theatre Session on “Financing Social Enterprise”, he questioned:

    “Finance is just a bloody tool. How do we embed the sense of Social Mission?”.

The Panel just looked nonplussed and could only mouth less than memorable platitudes in reply.

As a Board Member of the Social Entrepreneurs’ Network Scotland, Huckfield once more declares an interest. Senscot promotes its own definition of Social Enterprise, in which Social Mission is critical. These are the details of the Voluntary Code of Practice for Social Enterprise in Scotland – the Senscot Code

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Time to Draw a Line in the Sand on Social Investment

Many of us outside the “London Bubble” have been saying for a long time that it’s time to draw a line in the sand for Social Investment and that the £400mn unclaimed assets from dormant bank accounts and building societies could be more effectively used to support the real needs of Social Enterprise and the Third Sector

  • 10% of Social Enterprises. Despite nearly £1bn of funding from Big Society Capital, Big Lottery, the Cabinet Office and others to promote Social Finance and Social Investment, it will only ever be of interest and accessible to around 10% of Social Enterprises.
  • Out of reach, inaccessible and unwanted. Ambitious projections for Social Investment growth come from Big Society Capital and the supply side. Most evidence from the demand side in a long line of surveys shows that Social Investment is out of reach, inaccessible and unwanted by most Social Enterprises.
  • Unclaimed assets could be better spent. As shown below, others are becoming fed up with the way Big Society Capital is spending unclaimed bank and building society accounts. More are concluding that these are public assets which could be better spent.
  • Social Enterprise survival risk. With many Social Enterprise and Third Sector Organisations now eating into reserves, merging and declaring redundancies, there is a real risk that through this unrelenting emphasis on Social Investment, many smaller Social Enterprises which are desperate for grants or loans between £20,000 and £50,000 for working capital, to scale up or deliver services, may not survive.
  • Doubts about the intermediaries. As shown below, there are growing doubts about many so-called “Social Investment Intermediaries” which don’t understand the constitutions of Social Enterprises and Third Sector Organisations which don’t allow dividends.

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Continued Outpourings on Social Investment from the “London Bubble”

The deluge on Social Investment from those in London hardly allows the rest of to find shelter. This is a random sample:

Ten Reforms to Grow the Social Investment Market from Bates, Wells and Braithwaite in July 2012 on page 5 represents a typical example:

    “Funding Gap
    The 2011 State Aid application of the UK Government in respect of Big Society Capital, estimates that Social Enterprises are receiving £0.9-1.7bn less finance than they need, when compared to the level of financing of SMEs using information derived from the 2010 BIS SME survey”

    “Potential Growth
    A June 2012 internal study carried out by Big Society Capital estimates that total investment inflows into the UK Social Investment market has the potential to grow from £165mn to up to £750mn by 2015 on the basis of demand for Social Investment on the part of Social Enterprises”

The Report produces no evidence of this “potential to grow” and offers “special thanks” for comments and feedback to Social Enterprise UK and Big Society Capital!

Beanbags and Bullshit “Sense of Relief” posting . David Floyd’s posting last week, is rightly wary of Social Investment. But while he welcomes the Chancellor’s first steps towards tax relief for investment in Social Enterprise, he seems to overlook that it has been Third Sector Organisations within the “London Bubble” – ACEVO, NCVO and Social Enterprise UK – which have been pressing for tax relief just as hard as Big Society Capital’s Investment Bankers Glee Club.

The 2013 Budget : 10 Things You and Your Charity Need to Know by NCVO’s Head of Policy Karl Wilding, refers to Big Society Capital as “our partners” and then refers to the NCVO Commission on Tax Incentives for Social Investment Analysis and Recommendations January 2012 – produced by NCVO and Social Enterprise UK happily sitting alongside Big Society Capital, Social Finance and Bates, Wells and Braithwaite – the usual crowd of well-heeled intermediaries.

The Commission Report includes the perhaps remarkable quotation on page 11 from Bridges Ventures on “how the social sector’s potential is held back by lack of appropriate growth, development and risk capital”:

    “Bridges Ventures, for example, observed how the “traditional venture capital model is not appropriate for social ventures, where the social mission is core to the business usually are not comfortable aiming to sell onto another business or issuing shares on an ordinary exchange because the social mission may be compromised by the new owners’ desire to maximize profits”

Perhaps we should not be surprised about another recommendation on page 14?:

    “To ensure that the tax rules can be applied in a meaningful way to non-profit distributing bodies, equity-like investments for social ventures could be defined by the reference, not to profit, but to performance and results, however they may be defined. Instruments and arrangements which exhibit characteristics more akin to equity than debt should be treated as analogous to equity.”

In other words, in their Report NCVO and SEUK are saying that not only should performance and results should be measured to secure equity investment, but also to ensure tax relief on that investment. Surely many NCVO and Social Enterprise UK members are unaware of what London based organisations are saying on their behalf?

Bridging the Gap between the Social Investor and the Civil Society Organisation by Paul Henry and Chris Hardy in Pioneers Post on Saturday 16 March 2013 again perpetuates some of the myths:

    “Initially many viewed, or were led to perceive, Social Investment as a replacement for public sector funding. It has been said that the issue being faced by the sector is a lack of available Social Investment, leading the Government to focus on expanding the amount and types of social finance available.”

    “Our experience from engaging with grass roots Social Enterprises, charities and community groups is that the majority do not see Social Investment as an attractive proposition, or more often they have not considered it at all”.

Despite all this, the Pioneers Post piece concludes that it’s now up to Social Investment Finance Intermediaries to bridge the gap. Don’t they understand, as shown below, that there is no gap to be bridged? For the 90% of Social Enterprises, Social Investment, in all forms described in detail by Paul Henry and Chris Hardy, is either inappropriate, irrelevant or inaccessible for their real needs.

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The Evidence just keeps Building against Social Investment

In the face of this growing army of well paid intermediaries, many of them strangers to most Social Enterprises, there is a constant flow of Reports showing that the demand for Social Investment is minimal:

  • Investment Readiness in the UK by Dan Gregory, Katie Hill, Iona Joy and Sarah Keen (ClearlySo, New Philanthropy Capital and Big Lottery Fund) (page 9) “Furthermore, it seems that significant time and resources are being wasted by applicants and investors alike in working – but failing – to secure deals. This increases transaction costs and market inefficiencies and could be considered as a market failure. Conversion rates among social investors, (not including government-backed softloan and grant funds) appear to sit between 5% and 15%. At one extreme, Community Builders had 4000 enquiries leading to 200 applications and 37 investees – equivalent to less than a 1% conversion rate and thus a significant mismatch of perceptions between investors and applicants”.
  • Rethinking Community Practice – Gabriel Chanan and Colin Miller (Policy Press) “There is a scattering of good neighbourhood work by Locality and others, but the biggest current resource in this field, the £600m Big Society Bank, is misguidedly trying to turn all community and voluntary organisations into small businesses. This important fund ought instead to endow a system of grants and service level agreements which the myriad of small and medium sized community groups could safely operate to back up neighbourhood partnerships.”
  • Institute for Voluntary Action Research Charities and Social Investment by Niamh Goggin and Leila Baker (Research Report for the Charity Commission) (page 24) “Most study participants also said that Social Investment should not be seen as a panacea for the financial needs of all charities or for every social problem. Study participants in charities and some national bodies suggested that non-charitable Social Investment intermediaries were overly concerned with charity demand for investment rather than charity need for investment to meet the needs of their beneficiaries. Estimates of Social Investment demand have been based on projected growth of Social Enterprise opportunities to supply public services, rather than on charities’ need to grow in scale and scope to deliver on their charitable purposes”.

    (page 29) “The charity sector appears to be largely absent from conversations about the Social Investment market, while non-charitable intermediaries have been actively participating in them. Our study findings suggest that there is little movement between the practical experiences of charity investees and the theories and ideas behind the development of the Social Investment market”

  • Shining Armour or Sheep’s Clothing: View on Social Investment in the UK by Mary Duffy (Clore Social Leadership Programme/New Street) (page 4) “The involvement of for-profit ‘social businesses’ raises mission related concerns and there is discomfort among some about downplaying organisational structure for recipients of Social Investment.

    (page 18)“Even the ambitious (and contested) projected UK demand for Social Investment of £1bn by 2016 only equals the amount that UK charities currently borrow annually from commercial lenders yet the apparent lack of investees is used by critics to challenge rhetoric about the importance of Social Investment. Arguments framed in terms of a lack of ‘investment readiness’ among charities and social enterprises are further criticised by sceptics as an absurd laying of blame with the customer for not turning up at the store”.

    “….Notwithstanding how various investment readiness support programmes may support those seeking investment, in this context Big Society Capital‘s aspiration to invest an estimated £3 billion overall seems a considerable stretch. This is one reason why BSC and others are looking to widen the investment space beyond charities and not-for-profit social enterprises to include for-profit social businesses. Whilst not all for-profit social businesses are easy to slate, some organisations in this space are more readily cast as inconsistent with a core social mission.”

    (page 27) “There is a view that many intermediary organisations populate their teams mainly with those from the finance side, demonstrating what they prioritise and what they are seeking in terms of direction. This leads to trust issues – are these ‘bankers out of work following the crash’ trying to cash in on something to ‘tide them over until they go back to earning big bucks’? Are they ‘rich ex City guys seeking salvation’?”

Shortage of space rather than lack of evidence precludes the inclusion of even more reports. If Investment Readiness in the UK above, based on a survey of nearly 7,500 Voluntary, Community and Social Enterprise organisations, doesn’t convince Big Society Capital and its entourage that there are big problems with Social Investment, one wonders what will?

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And, Finally

Huckfield fears that as Big Society Capital and its entourage encounter more resistance from even more Social Enterprises turning their backs on Social Investment, the Government’s answer will be for the Cabinet Office and Office for Civil Society to step up the Technical Assistance funding to overcome a perceived “market failure”. Stand by for another £10mn for Investment and Contract Readiness.

  • Big Society Capital and its well heeled intermediaries are being funded from unclaimed and dormant bank and building society accounts – so it’s really our money. Surely we should have more say on the way it’s being used?
  • Social Investment is the Coalition Government’s Big Idea for the Lough Erne G8 Summit in June. Despite spending up to £1bn to create a Social Investment Market, the Government does not have the evidence to support its case. Since Social Investment isn’t working, Social Enterprises should be pressing their MPs to table Parliamentary Questions, asking how the nation’s unclaimed assets of dormant bank and building accounts are being spent.
  • A series of regional conferences and seminars might be convened for Social Enterprise and Third Sector Intermediaries, Trusts and Foundations to spell out clearly to the Government that there are more effective ways of spending nearly £1bn than supporting the lifestyles and ambitions of the Big Society Capital Glee Club.
  • If there is no turning away from Social Investment to meet the real needs of Social Enterprises and Third Sector Organisations, there is a genuine risk that many will go to the wall. Their capacity, their experience and their social mission and purpose may not be recoverable.

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