This was a short piece that I was commissioned to write in 2013 to provide a critical analysis of the social investment marketplace; casting a light on the contradictions between the bold claims being made by social investors and the reality for frontline social enterprises. As social entrepreneur Robbie Davison has recently outlined, it seems little has changed in the intervening time since 2013…
Clearly 2012 has failed to be the ‘breakthrough year’ that the self-appointed coterie of social investment analysts in the south-east of England predicted. But, with traditional grant funding, soft loans and patient capital in short-supply, will 2013 herald the maturation of what has been dubbed the social investment marketplace and ergo, the flourishing of the social enterprise sector on Merseyside and beyond?
A recent report commissioned by Big Society Capital has outlined some frankly astonishing ambitions- from a meagre £165m worth of social investment deals completed in 2011, Big Society Capital aims to be completing £1bn worth of deals by 2016! Frankly, given the lacklustre demand from genuine social and community enterprises for this type finance the brakes should be applied to this wanton enthusiasm and unrealistic forecasting.
Looking closer, many of the claims made in the report are couched in caveats, and rightly so. We continue to see a major disparity between the reality of investment demand on the ground and the rhetoric emanating from this nascent social investment marketplace.
As has been widely observed in other discussions about the growth of a bullish social investment marketplace, there is a mismatch between the social finance products on offer and types and terms of finance requested by the social enterprises. Research commissioned by Big Society Capital reveals that social enterprises typically want unsecured risk capital on sub-commercial terms of between £10,000 and £100,000. This same research however indicates that what is on offer from social investors is larger, secured, asset-backed capital on near commercial terms.
This may sound unreasonable from a purely commercial perspective; as though social enterprises are ungratefully carping about investment opportunities that it can’t or is unable to handle. To view the situation from this perspective however is fundamentally wrong and demonstrates a misunderstanding of the role, governance, and business models of social enterprises (which are themselves dictated by the conditions in which they operate- tackling social need).
My work with social enterprises on Merseyside reveals a picture of a social enterprise sector that works in areas of acute market failure, using atypical business models, assisting some of the most hard-to-reach groups with what are often costly, but effective, interventions.
If the social investment marketplace is to reach the predicted £1bn mark and provide the injection of capital that social enterprises desperately need, social investors need to both take the financial products they currently offer back to the drawing board and garner a clearer understanding of social need.