We at the TI Group have recently published, in March 2019, a Learning Report related to the first two years of The Reach Fund, in our role as the learning partner of Access – The Foundation for Social Investment. We helped Access and others involved in The Reach Fund to reflect on what they have learnt during this pilot phase. This is the first of a series of blogs where evidence from the Learning Report will be explored, with consideration given to its implications for the sector.
We start with the big picture, looking at how The Reach Fund sits within the lineage of previous investment-readiness grant programmes. This all started with the Investment and Contract Readiness Fund (ICRF), which ran from 2012-2015. This was followed by Big Potential (BP), which had two components – Big Potential Breakthrough (BPB, 2014-2017) and Big Potential Advanced (BPA, 2015-2017). Based on the learning from ICRF and BPB/BPA, and in conversations with others in the sector, Access developed a series of assumptions that influenced the design and management of The Reach Fund. The evidence from the Learning Report offers a chance to evaluate these assumptions and consider the trajectory of investment-readiness grant programmes over the past seven years.
Please note, only BPA and not BPB is focused on in the table below as BPA is more directly comparable to ICRF and The Reach Fund, as it focused on organisations closer to raising investment. The data comes from the Learning Report and the latest published evaluations of ICRF and BPB.
A lot has been learnt over the course of these three programmes. Evaluations have been published relating to ICRF and Big Potential, and significantly, Social Investment Business (SIB), which has managed all of these programmes has recently shared what they have learnt during this journey. This article takes a narrower focus, looking at three trends that we have identified:
- Smaller grants and the evolution of what ‘investment-readiness’ looks like;
- The changing roles of providers and investors; and
- The shift towards reaching smaller charities and social enterprises.
An evolution of what ‘investment-readiness’ looks like
One of the most noticeable differences between ICRF/BP and The Reach Fund, aside from the sole focus on investment (rather than contracts), is the average size of grant and the total number of grantees. This stems from an evolved understanding of ‘investment-readiness’. Prior to the launch of The Reach Fund, there was a growing awareness throughout the sector that ‘investment-readiness’ was at risk of becoming a catch-all phrase that encompasses all aspects of capacity-building that relate to enterprise and trading. In ICRF and BPA, bigger grants were awarded to charities and social enterprises, focusing on securing larger investments and contracts. In BPB, grants of between £20k and £75k were awarded for earlier stage support for charities and social enterprises, further from achieving investment. All of this was carried out under the term ‘investment-readiness’.
In contrast with the previous programmes, The Reach Fund gives smaller, more targeted grants that specifically aim at getting charities and social enterprises ‘across the line’, so that they are suitable for social investment. The early indications are that smaller grants can help charities and social enterprises secure investment. By October 2018, the end of the pilot phase of The Reach Fund, 70 charities and social enterprises had gone on to receive investment. This is expected to increase as a large number of organisations were awarded grants towards the end of the pilot and, therefore, are still pursuing social investment.
Alongside The Reach Fund, and – significantly – not referred to as ‘investment-readiness’, Access has launched a pilot Enterprise Development Programme (EDP), which works at an even earlier stage of a charity or social enterprise’s journey towards developing trading activity. It is designed to build the capacity for resilient trading models with positive impact, and includes grants, managed by SIB, for feasibility work and for developing a trading initiative, as well as peer learning via the School for Social Entrepreneurs and sector support from Homeless Link, UK Youth and the Centre for Youth Impact. The intent is capacity building rather than investment – although investment might become appropriate for some of these organisations in future.
The separation of ‘enterprise development’ from ‘investment-readiness’ is an indication of an evolved definition of the latter. Perhaps a more helpful understanding of investment-readiness should refer to targeted, later-stage support when charities and social enterprises are at the threshold of social investment yet face barriers that impede their progress. Not referring to all support as investment-readiness’ reinforces the message that the main purpose of all these programmes is to help charities and social enterprises become more resilient in their pursuit of social impact. The purpose is not investment. This is a point clearly made in SIB’s Strength in Numbers report. Social investment is a means that is appropriate in some circumstances, not an end.
The experiment: From provider-centred to investor-centred
Another significant change has been the role of providers within investment-readiness grant programmes. One of the central assumptions behind ICRF was that in order for there to be a flourishing social investment market in England, there needed to be a market of specialist advisors, known as ‘providers’, which could offer investment readiness support to charities and social enterprises. ICRF was considered to be one way of helping develop this market. As a result, providers became central to the mechanism of the fund. Charities and social enterprises had to pick from a list of ‘approved providers’ in order to receive a grant. The provider would then, alongside the charity or social enterprise, approach social investors for the purpose of securing investment. This approach continued with Big Potential.
The Reach Fund revisited this assumption and sought to test an alternative – placing the investor at the centre of the programme. The question behind The Reach Fund is whether investors are better placed to help the charity or social enterprise secure social investment? In The Reach Fund, charities and social enterprises can only apply for a grant if they find an investor (known as an Access Point) that is interested in offering repayable finance to their organisation. With the aid of a diagnostic, the investor helps the charity or social enterprise understand what barriers they are facing to receive investment. Then, and if needed, they work together to find a specialist provider or providers who can help the charity or social enterprise overcome that specific barrier.
With The Reach Fund, the investor and the provider’s roles changed. Evidence from the Learning Report shows that the charities and social enterprises are positive about this. They valued their relationship with the Access Point more highly than any other part of the programme: they scored this aspect an average of 4.3/5, (where 1 is poor, 5 is excellent). Similarly, the Access Points consider The Reach Fund to be offering charities and social enterprises what they need in order to become ready to receive investment (they scored this an average of 4.1/5 where 1 is not at all, and 5 is completely). Feedback from both the charities/social enterprises and the Access Points has also been largely positive about the quality of work from the providers. (The perspective of the providers will be explored in a future blog.)
From ‘scale’ to ‘reach’: Reaching more charities and social enterprises
ICRF and BPA were designed to support charities and social enterprises aiming to secure at least £500k in repayable investment or contracts that had a value in excess of £1m. Inevitably, this meant that larger, more established organisations were most eligible for grant funding. For example, in BPA, the average organisation that applied for a grant had a turnover of £2.1m, profits of £39k and was 13 years old. The Reach Fund, as the name suggests, was designed to reach smaller charities and social enterprises and help them access smaller amounts of social investment. Of those that have received a grant from The Reach Fund during the pilot phase (Oct 2016 – Oct 2018), the median turnover was £87.5k, 68% generated a surplus of less that £10k and the average age was 6 years. The average investment achieved for organisations in The Reach Fund pilot was £250k, smaller than the intended investment of £500k or higher in previous programmes.
The change from ICRF to The Reach Fund was a shift from trying to ‘scale up’ social investment in the sector, to trying to ‘reach’ more charities and social enterprises. The early evidence suggests that The Reach Fund has enabled a significant change in the size of organisations that social investors are working with. Not only is this shown by the size and age of grantees but also by the feedback from social investors, who suggest that The Reach Fund has enabled them to work with ‘smaller and more fragile’ organisations than they otherwise would have.
This is not to say that investment-readiness grants should not be used to help well-established organisations scale, but rather The Reach Fund has shown that grants can also be used to help charities and social enterprises who are smaller and younger become suitable for social investment.
What learning still needs to take place?
As the evidence base grows, more understanding will emerge about these three trends. Perhaps the most interesting aspect of the data will be the number of charities and social enterprises that go on to receive investment. In a few years, we will have a better understanding of how many charities and social enterprises The Reach Fund has helped ‘cross the line’.
Additionally, there are other areas of the Learning Report which show that The Reach Fund is still facing some of the same challenges as previous funds. Perhaps the most notable of these is the challenges faced in reaching specific regions. Previous programmes have struggled to work with organisations in the East of England and in the Midlands. These areas have proved particularly challenging for The Reach Fund, as has the South East. Whilst a lot has been learnt through the evolution of investment-readiness grant programmes, there is still the opportunity for more learning to take place.
You can read the full learning report here.