Presented by David Floyd, Managing Director, Social Spider, at NCVO's 2015 Evolve Conference. One of two presentations covering the alternative finance landscape.

1. Social Investment: It’s not
as bad as you think
NCVO / EVOLVE 2015
The New Funding Landscape
David Floyd
Social Spider CIC

2. What I do and why I’m here
• MD of Social Spider CIC, a
small social enterprise
based in Walthamstow
• Writer and researcher on
social investment for MoJ
and Big Lottery Fund
• Project manager for
Esmee Fairbairn-funded:
Alternative Commission
on Social Investment

3. What is social investment?
‘finance provided for VCSE* organisations, which
the investors expect to both get back and to
create social impact.’
*VCSE stands for: voluntary and community organisation or
social enterprise
Source: Social Investment Explained (Big Lottery Fund)

4. Talk (a bit) like a social investor - some more
handy acronyms + terminology:
SIFIs - Social Investment Finance Intermediaries - in most cases, organisations raise funds
(primarily) from institutional investors and invest that money in charities and social enterprises.
SITR - Social Investment Tax Relief - a tax break for individuals making unsecured investments
into charities, social enterprises and social impact bonds
Institutional investors - people who invest other people’s money including our pensions
HNWI - High Net Work Individual - people who are really rich - >£1million (assets excluding
home)
The Mass Affluent - people who are quite rich - £100,000-£1million
Retail investors - any of us who have a bit of spare cash

5. 1. Why everyone’s talking about
social investment (about from the
people who aren’t)

6. Grants are hard(er) to come by
In 2003/04 grants peaked at
£6 billion, over half of all
income from government.
In 2012/13 grants made up
just 17% of income from
government (£2.2 billion).

7. There are more contracts available
In 2003/4 government
contracts were worth
£5.6 billion
By 2010/11 they’d reached
£12.3 billion
But by 2012/13 they’d
dropped to £11.1 billion

8. (In theory) growing numbers of investors are
seeking both financial and social returns
“If we can create instruments — like
social impact bonds — that can deliver
a financial return of about 7%, a high
social return and limited downside
risk, then we can meet two needs. We
can provide reasonable returns that
are uncorrelated with equity markets
and attract capital to entrepreneurs
who can develop innovative and
effective ways of improving the fabric
of our society.” - Sir Ronald Cohen and
William A. Sahlman, Harvard Business
Review, 2013

9. The UK is home to ‘the world’s first ever social
investment market builder’
“Big Society Capital is going to
encourage charities and social
enterprises to prove their business
models – and then replicate them.
Once they’ve proved that success in
one area they’ll be able – just as a
business can – to seek investment for
expansion into the wider region and
into the country.” - David Cameron, April
2012
Source: FT.Com
“The launch of Big Society Capital is
very welcome news to the social
enterprise sector. Access to
appropriate finance remains the
biggest barrier for social enterprises
keen to grow and have a greater
impact. The UK social investment
market is exciting and set to attract
capital to the sector at a time when
other sources of finance are
shrinking.” - Peter Holbrook, Social
Enterprise UK, April 2012
Source: Cabinet Office

10. The UK government has put shedloads of £ into building the
UK’s ‘Social Investment Market’
Pre-2010:
• Adventure Capital Fund - £25 million
• Futurebuilders - £150 million
• Social Enterprise Investment Fund - £110
million
• Community Builders - £70 million
Post 2010:
• £10 million Social Incubator Fund
• £10 million Investment and Contract
Readiness Fund
• £60 million Commissioning Better Outcomes
Fund (with Big Lottery)
• (At least)£400 million of unclaimed assets put
into social investment wholesaler, Big Society
Capital - with £200 million more from banks
• Social Investment Tax Relief
Figures from After The Gold Rush - the report of the Alternative Commission on Social
Investment.
Big Lottery (since 2010):
• £11.25 million to Social Finance to develop
Social Impact Bonds
• £6 million Next Steps Fund
• £8.5 million Unltd’s Big Venture Challenge
• £10 million Big Potential

11. 2. The 1st Billion? The gap
between rhetoric and reality

12. Is it £1 Billion or £1 Trillion?
“Those of us with a stake in this
market
have always believed that it has a huge
potential. From a base of just £165M
of deals in 2011, this report shows us
that demand could reach £750M in
2015, and around £1B the following
year, if current trends endure. This is
encouraging news. Now we just need
to make that demand real, and ensure
the supply of capital is there to meet
it.” - Nick O’Donohoe, CEO, Big Society
Capital - from The First Billion, Boston
Consulting Group, September 2012
“We need to capitalise on the “first
trillion” of potential global investment
money identified by the Social Impact
Investment Taskforce, launched in 2013
under the UK’s presidency of the G8. £1
trillion – that’s what it cost to deliver our
health and education systems for the last
five years. Just think what that money
could mean on the ground: how many
lives it could transform.” - Iain Duncan
Smith
Source: Daily Telegraph, March 2015

13. Social investment v
Investment into social organisations
Total value of deals in ‘Social
Investment Market’ 2011-12
£202 million
Average size: £264,000 / 90.2% secured
Total loans owed by VCS organisations -
2012/13
£3.5 billion
“Across the sector as a whole the average loan size
is under £50,000… The majority of loans outstanding
across the sector as as whole are between £20,000
and £50,000.” / 75% secured - NCVO Civil Society
Almanac 2015

14. Social investment v Grants
Unsecured finance provided by ‘Social
Investment Market’ - 2011-12
£19.8 million
Source: Growing the Social Investment Market (GHK, 2013)
Grant income of VCS organisations -
2012-13
£5.2 billion
Source: NCVO Civil Society Almanac 2015

15. Mismatches between supply and demand
What we want
“The median amount of finance sought by social
enterprise was £58,000 – below the minimum thresholds
of many specialist social investors and financiers. It can be
argued that some specialist financing structures have
fallen out of step with the actual needs of the
sector.” - The People’s Business, Social
Enterprise UK (State of Social Enterprise Survey, 2013)
49% VCSEs looking for finance sought ‘mixed-funding
product’ / 7% able to get it - Investment Readiness in the
UK - (Investment Readiness in the UK, Clearly So/NPC,
2012)
What we get
2011/12: Average investment size: £264,000 / 90.2%
secured loans - Growing the Social Investment
Market (GHK/City of London, 2013)
“Small loans are expensive. They’re expensive to
originate, they’re expensive to monitor. The default risk is
always going to be reasonably high and there’s a point at
which the rate of interest is just inconsistent with the
social mission of the enterprise” - Nick O’Donohoe, Big
Society Capital - Beanbags and Bullsh!t, 2013

16. Reasons why you definitely shouldn’t
attempt to secure social investment
• As a direct replacement for contracts, grant-
funding or donations
• To support activities that do not have a (potential)
revenue stream
• Because it seems to be the only type of funding
that’s available

17. Until recently you would have been unlikely to
be offered social investment if...
• Your org is small: turnover < £5million
• You want a small investment: < £250k
• You do not own a building
• The business activity you are seeking
investment for has no track record

18. 3. Just because you’re sceptical
doesn’t mean you should
ignore it entirely

19. Grand claims for social
investment are as yet unproven
but there are several ways that
it’s already useful...

20. If you’re bankable - Social Banks: like
banks but better
“We only lend to and invest in
organisations that benefit people and
environment. We connect savers and
investors who want to change the world
for the better with entrepreneurs and
sustainable companies doing just that.” -
Triodos
“We offer a fair rate of interest and are totally
transparent about how we use their money. In our
latest survey 99 per cent of our savers said they
would recommend us to a friend.
Our specialist knowledge and commitment to the
sector means that we have been able to provide
flexible loans to support more than 1,000 charities,
community organisations and social enterprises.” -
Charity Bank

21. Big Society Capital-backed funds /
Investment readiness support
Big investments for big organisations
• Increase in availability of unsecured
loans of > £250k - eg. SASC
• (Mostly) Equity investments in CLS
social enterprises/social businesses
from social venture funds - eg.
Nesta Impact Investments
• New approaches to buying property
for social good - eg. Real Lettings
Fund
Investment readiness to start on route to
investment
• Start-up support from Social
Incubator Fund
• Big Potential - helping organisations
to raise £50k-£500k
• ICRF - helping orgs to raise
investment or win contracts of >
£500k

22. Social Impact Bonds - for all the (many) drawbacks, an opportunity to get flexible
funding to deliver services with clear, measurable outcomes
• Payment-by-results contracts where social investors put up the money for VCSEs
to deliver services
• Commissioners pay investors based on outcomes achieved
• By August 2014 - 25 in the whole world, 15 in UK, 10 funded through a single
DWP programme
• Pros: payment for delivery, measurement of outcomes
• Cons: high costs - SPVs, wide range of subsidies, VCSEs (usually) don’t benefit
from upside

23. SITR - potential to raise relatively small scale finance from
HNWIs, mass affluent and individual retail investors
• Unsecured loans and equity deals
• Investors get 30% of their investment off their
tax bill
• No repayments for first three year
Freedom Bakery (right) raised £45,000
in SITR deal they set themselves.

24. Community Shares + Crowdfunding
Are great but I’m not going to say
much about them to avoid duplication

25. Access to the rescue - smaller, riskier finance
likely to be available soon
Access: The Foundation For Social
Investment set up to:
(a) create a pipeline of investment opportunities
for social investors
(b) placate sector leaders and organisations angry
about the irrelevance of most social investment
to most charities and social enterprises
(delate according to audience)
Blends investment from Big SocietyCapital
and grant funding Big Lottery Fund to
enable SIFIs to offer unsecured loans and
equity/equity-like investments under
£150,000
Stated aims of Access Growth Fund:
• Help more established organisations be able to
maintain and increase their social impact and their
sustainability
• Enable newer and early stage charities and social
enterprises deliver social outcomes, by providing them
with the finance they need to continue and grow
• Improve the delivery capacity of these organisations
so that they are able meet the needs of their target
group
• Share learning by being open, transparent and
collaborative around best practice to the benefit of
both users of the Growth Fund and of other funders
and bodies interested in supporting social impact.

26. Contact info:
David Floyd
Social Spider CIC
Websites: www.socialspider.com /
http://beanbagsandbullsh1t.com/
Email: david@socialspider.com
Phone: 020 8521 7956 / 07789 778 085