Social investment can be powerful tool in the box of resources available to the VCSE sector but knowing where to start can be a challenge. CIP Investment Manager, Jules Tompkins, shares some tips to help organisations get started.
The social investment market in the UK is worth an estimated £2.8bn and offers a huge diversity in the types, and complexity, of investment ‘products’ available. Some VCSE organisations, particularly those small-medium in size, don’t see social investment as an option for them but this could be a missed opportunity. It’s true that it doesn’t work for everyone but it can be a powerful resource that helps to unlock future income streams, no matter what size or stage that organisation is at.
Social investment is rarely a route to sustainability on its own but if it’s used as a tool, alongside others including grants, tailored support, collaboration and access to professional advice, it can be transformational.
So where do you start? And how do you get to the stage of deciding if this is the right tool for your organisation?
1. Do your homework
Taking on repayable finance is a big decision and it’s important to do your homework. Allocating resources for this can be a challenge but it’s an essential first step.
Look for opportunities – think about the existing work of the organisation as well as the potential for something ‘new’. A change to the way services are funded or commissioned can lead to an opportunity, or need, for social investment but so can innovation, particularly when it’s rooted in existing expertise. What are the strengths of the organisation and how can you capitalise on these?
Know your market –one of the first questions a social investor will ask is ‘what’s the market?’ and this should be one of the first questions organisations are asking for themselves. Social investment relies on an income stream to make it work and you’ll need to demonstrate where this potential income stream will come from. It’s not always possible to carry out in-depth market research but a good understanding of the potential market is an essential starting point.
Shop around – there are a lot of social investors out there (CIP being one!) and we’re all slightly different. Finding an investor that is well aligned to the aims of the organisation is an important part of the process and can involve talking to a few different investors before finding the one that feels right. The Good Finance website has a lot of information about the social investment sector, tools and resources that can help with research and a searchable directory of social investors.
2. Talk to your Board
Organisations seeking to take on a social investment need to do so with the full commitment and confidence of their Board. Research by the Institute of Voluntary Action Research (IVAR) found that where smaller organisations reported the process of taking on social investment as stressful, it was in part down to a poor relationship or engagement with their Board. The organisations had not entered into the process in a planned way and this compounded other challenges making the overall experience more negative. On the flip side, organisations that had explored all options, understood the process it was entering into and had a confident and engaged board still faced challenges, but found these more manageable with better outcomes in the longer term.
3. Don’t worry about the jargon
The social investment sector can get a bit carried away with technical jargon and language that only financiers and lawyers appear to understand. Every sector has its own jargon and there is often a (relatively) simple explanation underneath. There are lots of jargon busters and guidance documents out there but the best advice if you don’t understand something is to ask. Good communication is essential in any investor relationship and if you don’t understand what a potential investor is actually saying, it’s more likely to lead to problems further down the line.
4. Take some advice
No one understands an organisation better than its people but different perspectives can help unlock new ideas and opportunities, as well as saving valuable resources if an idea is unlikely to attract investment. The social investment market offers a lot of free advice and support but sometimes just talking to an Investor can be a big step forward. As the CIP Investment Manager, a lot of my time is spent talking to organisations and exploring ideas with them. Inevitably not all of these come to fruition but it’s a valuable exercise and can often help shape an organisation’s thinking (one way or the other) as they consider next steps.
5. Stick with it
The process to take on a social investment takes time and a commitment on both sides. It can be challenging and in all honesty, can take longer than everyone expects at the beginning but it is often a rewarding and valuable experience. It’s not always easy and a dose of pragmatism can be helpful but when organisations and investors work together the relationship they create can pay dividends (literally!) for years to come.