This week Ecorys published their most recent evaluation report on the Growth Fund, examining the progress and impact of the programme up to the end of 2020. 

The Growth Fund is a partnership between The National Lottery Community Fund and Big Society Capital, delivered by Access through a range of social investors., It makes up to £50m available to support charities and social enterprises to grow and create social impact in their communities. The Growth Fund uses a combination of grant funding, made possible thanks to National Lottery players, and loan finance from Big Society Capital and other co-investors, to address specific gaps in the social investment market.

Growing the reach of social investment

During the period evaluated the Growth Fund had made over 500 investments (which has since risen to 600). The report finds that investees had “on average, half the income and one-eighth of the assets of those who normally attract social investment” and received “much smaller-sized loans” than the wider sector. The report also finds that “Growth Fund deals accounted for over a third of all social investment deals recorded in BSC deals data in 2019”. This picture tallies with our own analysis of Growth Fund vs. the wider market and demonstrates that the Growth Fund has succeeded in making social investment accessible to smaller organisations requiring smaller levels of finance.

Blending different requirements

The report observes that “the partnership has realised that although they all support the over-arching aim of the Growth Fund, they have different views as to how the Growth Fund should have been structured and which aspects should be prioritised during decision-making”. This is perhaps unsurprising given the programme’s complexity combined with the scale of its ambition. The difficulty (and opportunity) in a programme like this is in making the subsidy work for everyone. The structure must balance the requirements of the capital provider(s), the constraints of the grant source, the objectives and support needs of the wide variety of social investors delivering the funds and – most importantly – the needs of the charities and social enterprises that the programme is designed to serve. This programme is not only blending finance but had to blend interests, incentives and requirements from a range of partners that have come together with this common goal. Whilst this has not been easy, the evidence suggests that it has been successful in reaching the types of organisations that it was set up to serve.

Not just first-time investees

It was assumed by some that most organisations requiring Growth Fund investment would not have taken on social investment before, however, the evaluation suggests that there is a more nuanced picture here. Around a third of organisations surveyed by Ecorys reported that they had received investment in the past, although vitally this did not distinguish between secured and unsecured investment. A small proportion of investees (15% as of June 2021 according to Access’s data) have received a second Growth Fund investment. In Access’s view, while a relatively rare occurrence, this is a positive indication – not just that the Growth Fund has been a good experience which organisations wish to return to, but that the programme has been able to support organisations on multiple stages of their journeys. Given the size and type of organisations that the Growth Fund is reaching, it is perhaps unlikely that most will be able to make the jump from blended investment to commercial finance in just one step. The Growth Fund seeks to serve organisations for whom suitable finance would be inaccessible without subsidy, and it seems clear that this group is not limited to only first-time investees. 

Increasing financial resilience

The report finds that “overall, (charity and social enterprises’) financial resilience grew after taking on Growth Fund finance; the majority of (investees) attributed this growth to the fund”. This impact is not solely attributed to the money, but to the overall experience and the broader support that their social investors provide: “(investee) managers often highlighted that the process of researching into and testing approaches to diversifying their income sources led them to have a better understanding of their organisation’s business model and how they could continue to develop it in the future”. The report correctly highlights the challenges around collecting and attributing social impact data but finds that investees “reported that (the Growth Fund) helped them increase their social impact”.

Turning knowledge into action

As the report notes, “there is, therefore, much to take from the Growth Fund into future blended finance programmes, but areas to experiment with further”. One of the Growth Fund’s strengths is that it has been a faithful experiment in testing one clearly-defined approach to subsidy from which we are increasingly able to draw some valuable conclusions and learnings. Ecorys’ work has been extremely helpful in highlighting some of the areas to build on in future programmes, although it will be important to weigh up the potential challenges as well as benefits to any alternative structures used.

Follow the links to read Ecorys’ full evaluation report and executive summary, as well as blogs by Big Society Capital and The National Lottery Community Fund.