Social investment is talked about and touted but the voluntary sector is sceptical about its origins and suitability for their needs.
The voluntary sector is changing. Cuts in public funding are being felt, particularly at a local level. Government grants have declined significantly, and Government contracts for charities peaked in terms of total value in 2010. Donations from the public are not increasing. More than four out of five charities are expecting demand for their services to rise, but only 15 per cent of those feel equipped to handle an increase. It is clear that charities and social enterprises have to change in response. However there does not appear to be sufficient infrastructure, support, resources or capacity in the sector to help lead and manage the transition. Ways of financing the voluntary sector need to respond to this new context so the voluntary sector is not left to bear the brunt of changes alone. In seeking to help, the coalition government between 2010 and 2015 has done a great deal to stimulate the development of a social investment market, including through the creation of Big Society Capital in 2012, the funding of various investment readiness programmes, and creating a new tax relief for social investment. However…
Social investment is not felt to be of the sector – charities and social enterprises perceive it to be disempowering, something imposed by government and financial services. Its role is not embedded in existing networks and relationships and there is suspicion around the messengers (government and financial services) and their tone (“be more business-like, be more efficient”). The creation of BSC was significant in terms of injecting new capital into the sector but did not address these perception challenges. The voluntary sector often feels that it has to “shape up” and get “investment ready” in order to meet what capital supply there is; but few are the right shape. Is social investment just a consolation prize for austerity?
The social investment that is taking place is ill-fitted to the needs of the vast majority of charities and social enterprises; designed instead around large deals, assets, and government contracts. It does not reflect the realities of their various enterprising activities and, instead, feels like it is driven by the demands of investors: seeking market returns, transferring risk, and emphasising competition rather than collaboration between organisations. A National Lottery Community Foundation commissioned report in 2012 highlighted this mismatch, concluding:
“Organisations that are looking to raise finance are primarily interested in longer term finance of less than £100,000 to help them scale up their existing activities. This does not match the dominant type of capital on offer to this sector”
Access’s role in the ecosystem
Access finds allies to experiment with and the narrative of social investment shifts to the resilience of the voluntary sector. Evidence and learning increasingly make this a shift not just of language but practice; charities and social enterprises are increasingly valued and empowered to access a full range of finance that meets their diverse needs.
Learning about the use of grants for social investment
Access is set up by three key partners (Cabinet Office, Big Lottery Fund (later called the National Lottery Community Fund), and Big Society Capital) and tasked with developing programmes to stimulate both the demand for social investment from the sector, funded through a £60m endowment from Government, and the supply of the right sort of finance to meet the sector’s needs, blending grant funding from the Big Lottery Fund and debt from Big Society Capital into the Growth Fund. Across both of these strands of work, Access seeks to use grant subsidy to help build the market – a wholesaler of subsidy to sit alongside the wholesaler of capital; ultimately to make social investment more charity-shaped.
Designed to be different from the outset, Access is created with a fixed life of ten years to spur experimentation and learning, a small team so its work has to be delivered with and through partners, and a clear set of values. This includes the commitment to “total impact” across all of Access’s work, including investing its endowment in a way which is as aligned to its mission of getting more capital into the sector.
In the Spring of 2015 Access hits the ground running by launching the £45m Growth Fund and opening up for applications from organisations who want to utilise the blend of grant and loan on offer to make small scale unsecured loans to charities and social enterprises.
In seeking to broaden the range of organisations making loans to the sector, the Access team engages with a wide range of applicants. Interest is strong but establishing the first funds takes longer and is more complex than anticipated. However by the end of 2016 four funds are live and the first loans are being made to charities and social enterprises. Access also starts to publish learning from the programme, including initial reflections on the use of subsidy in blended finance. Investments continue to be made in new funds through 2017 and the fund closes to new applicants at the end of the year. By the time the portfolio was fully committed in 2018 there are 16 funds across 15 social investors totalling £50m. The majority of these are new investors, spread around England, offering a range of efficient approaches, innovation and reach into the sector.
By the end of 2018 the Growth Fund is challenging assumptions about social investment, and allowing social investors to offer investment much more suited to what charities and social enterprises are asking for. Nearly 250 loans have been made; reaching the right organisations (more than half turn over less than £250k); at the right sizes (average investment size is £64k); for the right purposes (to support the development of trading activity); in almost all parts of England. The programme was responsible for nearly 30% of all social investments made that year. Excluding the Growth Fund the median investment size in the market is £250k and is increasing. Prior to the Growth Fund the average size of investments considered “non-bank lending” by BSC was over £180k.
There is some significant complexity in the Growth Fund structure owing to the nature of the partnership and the respective sources of money, and the evaluation of the programme reflects on whether in future it would be better if one organisation managed both the grant and loan elements. However, the programme partners and social investors appear to be absorbing this complexity and managing to create simple and flexible products for the charities and social enterprises who benefit.
Jennifer Westwood, Director, Therapist & Trainer from IntraQuest who received an investment from the Northern Impact Fund delivered by Key Fund said:
“We’ve got the business model nailed and the Key Fund has really helped us analyse what’s working and what’s not. It’s been a lifesaver really. As a small business, it’s very easy to go under just because people aren’t paying as quickly as needed. It helped us bridge that gap and stabilise us as a company. And it helped us to analyse our business, particularly the CIC that’s more driven by need. Our vision is big and our heart is big, but we have to do it one step at a time and not be overwhelmed to meet everyone’s needs. Key Fund has been instrumental in bringing about balance to make it a sound business model. It’s given us that breathing space, and helped us focus.”
Following an extensive consultation, Access’s initial capacity building programmes begin in 2016. A three pronged approach sees the launch of the Reach Fund, the Impact Management Programme, and Access’s support for Good Finance.
The Reach Fund supports charities and social enterprises who are keen to take on investment but who need some specific support to overcome barriers to doing so. The programme’s design is influenced by a number of previous “investment readiness” programmes and is intended to give charities as much control as possible in shaping their investment readiness plan with direct input from the investors.
The Social Investment Business are selected to run the programme and launch the Reach Fund in the Autumn of 2016. Although the programme gets off to a relatively slow start, as the social investors who could refer charities and social enterprises into the programme (the Access Points) get used to it, by the autumn of 2018 the programme has made over 220 grants totalling more than £3m. 70 of those grantees have already gone on to raise investment at a total value of over £17m.
Crucially the Reach Fund succeeds in putting charities and social enterprises in control (grantees score their sense of control of the process at 4.3/5).
“This grant was nearly perfect. The grant gave us the freedom to bring in the right people who knew us. We were successful at raising the investment and this grant is the only reason we were able to.”
“We have found it very useful to be allowed the freedom to develop relationships with service providers and manage our own agenda for development.”
The Impact Management Programme runs from 2016 to 2019 and offers support for charities and social enterprises seeking to grow their ability to quantify, report on, increase and ‘get paid for’ their impact. Delivered by a partnership led by New Philanthropy Capital, it is co-designed by the sector to ensure it is user-friendly and reflects organisations’ needs. The programme provides tools, resources, events and makes £1.8m of grants to charities and social enterprises who are seeking investment or contract opportunities and looking for support with impact management.
While awaiting an extensive evaluation of the programme, the IMP and other impact support programmes raise questions about whether a lack of impact management capacity is really a major barrier to charities and social enterprises raising investment, especially when compared to the need to develop a sound revenue model.
To address the major challenges experienced by charities and social enterprise in navigating the market, Access supports the development of Good Finance in partnership with Big Society Capital. In the first three years the website and events reach over 74,000 users and details nearly 80 investors and advisors.
Following these three initiatives, in 2017 Access develops a partnership with Barrow Cadbury Trust to support the sector’s infrastructure directly, via the Connect Fund. In its first two years the Connect Fund supports over 50 projects around the country, in both social investment specialist support organisations and the broader voluntary sector infrastructure. These include initiatives around capacity building, data sharing, building diversity and networks, developing standards and templates and promoting market information.
Overall, Access’s experimental approach to using grants is starting to enable the right-shaped social investment to reach more charities in more places. The initial suite of programmes has brought learning about where – and how – grants can make a difference to social investment.
Access’s approach to capturing learning from its programmes also begins to evolve. An initial learning report is published reflecting on the first year of operations, a range of research is commissioned on topics closely relating to Access’s work, and the TI Group are selected as Access’s learning partners.
Access publishes its first dashboard in January 2017 and does so each quarter covering key metrics across all the live programmes.
Through these initial programmes Access is learning that social investment can be designed for smaller charities and social enterprises and that creates a new willingness to engage and change, which means social investors can get comfortable working with organisations they previously deemed too risky.
All eleven of the social investors interviewed as part of the initial evaluation report for the Growth Fund express their interest in either carrying on their work as social investors or acting as a pathfinder for others to follow after Growth Fund. They collectively see that providing loan and grant packages of below £150,000 is essential to the VCSE sector.
“One of the most successful things we have ever done” and “We see this kind of financing as key to supporting the social economy and the solutions these organisations bring and deliver.”
The Reach Fund also helps social investors to reach a much more diverse range of charities and social enterprises who had previously been excluded from benefiting from investment. The median turnover of the grantees was under £100k.
One Access Point commented that the Reach Fund is helping their pipeline become:
“Better in terms of ethnicity, gender. In the past, people have had an education level, and experience level that the system is biased towards – [it was] excluding people who can’t articulate things properly. Reach Fund has enabled a turnaround in these cases.”
At the same time, Access is increasingly aware that talking about social investment as the goal does not (and should not) resonate with charities and social enterprises.
Not talking about social investment
Based on its learning so far, in early 2018 Access makes a significant pivot – moving away from the language of supply and demand within the social investment market, to focusing on the role enterprising activity plays in increasing the resilience of charities and social enterprises.
Access reframes its theory of change in this light and in its published strategy identifies three broad stages of organisational development where it seeks to focus its interventions: earlier stage enterprise development, investment readiness and in the provision of smaller scale blended finance.
Directly seeking to address the first of these stages constitutes a move upstream and includes launching a new experiment: the Enterprise Development Programme (EDP), which works within specific sectors to provide a broad menu of support for charities and social enterprises to test and develop new enterprising activity. Social investment is not itself the goal; rather helping organisations to generate more income via enterprising activity which can help build resilience, which may also in time be further enhanced by taking on social investment.
Access begins the EDP with a 12 month pilot focusing in the homelessness and youth sectors and builds a partnership including leading sector infrastructure bodies, Social Investment Business (SIB) managing enterprise grants, and School for Social Entrepreneurs (SSE), managing enterprise learning. Homeless Link, UK Youth and the Centre for Youth Impact connect relevant charities and social enterprises to the programme and help them to navigate the range of support on offer. SIB manage two grant products: feasibility grants and larger enterprise development grants. SSE run two cohorts of experiential learning programmes for leaders in those two sectors, each with a Match Trading grant alongside. Over the pilot year 92 grants are made totalling £1.25m.
Other elements of the menu of support are also developed, including placing peripatetic finance expertise in organisations, and building a stronger knowledge base about the details of the revenue models which operate in each of those sectors. While learning is on-going, Access consider the pilot and in particular the sectoral approach to be promising, and therefore extend the EDP into new sectors and continue work with partners in youth and homelessness.
Access becomes more committed to improving connections between different parts of the ecosystem, supporting enterprising charities and social organisations. This approach is embedded in the partnership being built to deliver the EDP and in management and ongoing development of the Connect Fund. Access commits to the principles of network leadership, recognising only a network of like-minded organisations can effect long-lasting change.
Views of stakeholders are mapped. Access’s focus on the needs of charities and social enterprises and experimental approach are much appreciated. It is felt that Access’s role is sometimes constrained by partners and Access needs to do more to influence the development of social investment.
Four years on from its creation, Access is thinking hard about what it has learned from all of its experiments so far, and building the case for longer term subsidy, in particular for Blended Finance.
The Reach Fund is extended and by end of June 2019 Access’s programmes have funded 829 grants and investments, and reached over 716 organisations.
With the Growth Fund fully committed into 16 funds Access publishes detailed information about how grant subsidy was being used in the blended structure of the Growth Fund. At the same time Access begins to convene other partners to explore how blended finance should evolve and identify the best future sources of the necessary subsidy, especially focused on when the Growth Fund begins to be exhausted by 2021.
One such opportunity begins in 2018 with a commitment to Access of £10m of dormant account funds – based on the lessons of the Growth Fund. It was the first time dormant accounts funds had been used to support blended finance in this way. The £10m is blended with £15-20m of debt from BSC and an aligned commitment of £8m from Access’s endowment to support social change in specific places.
Access takes the chance to distil what it has learned from other programmes to help shape this new place based blended finance programme, to be known as Local Access. Local Access sets out to merge its hypotheses about how money can build new relationships and help solve complex social challenges inside a geographical boundary. Access works closely with a number of other foundations to identify a shortlist of 12 places which can best benefit from this blend of finance to help build a resilient local social economy and five are ultimately invested in. The programme is designed to respond to the specific needs of those five places with more opportunity to develop patient capital models.
As a further demonstration of Access’s network leadership approach, the total impact investment policy for Access’s endowment is published and shared with a number of other foundations, along with ongoing data on the proportion of the endowment which is invested directly into charities and social enterprises (just under 50%) and the impact thus generated.
Looking Forward – Our hopes for the years ahead
Shifting the balance to the voluntary sector
As Access’s programmes develop, Access’s money is a catalyst for the development of this emerging ecosystem and at first the glue which holds it together but increasingly less so. As it expands to work across a broader range of sectors, support for enterprise development becomes embedded in the work of more foundations and funders. The programme is designed in such a way as to encourage further partnership development and the sharing of ownership of the initiative, such that Access is increasingly less visible. As a result support is embedded in the existing networks of the sector, and charities and social enterprises are being guided effectively through the range of support which is on offer.
At the same time, social investors are securing sources of ongoing grant-funding and are able to offer the right products to voluntary organisations at the right time. In championing the role of blended finance alongside others, Access begins to convince social investors that they have to make a fundamental choice: either serving the needs of charities and social enterprises or serving the needs of capital.
Access’s focus on supporting organisational resilience is increasingly justified as Access and others evidence the assumption that more resilient organisations are better placed and better able to deliver impact. The role that charities and social enterprises play in tackling the greatest and deepest social challenges in the UK is clearly understood and defended in the context of the growing impact investing ecosystem. Access becomes increasingly sophisticated in the curating and sharing of its learning. More foundations are identifying the opportunities they have to meet their mission through the way in which they manage their endowments.
Charities and social enterprises feel increasingly empowered when accessing support and investment because power is democratised through the system and the resource holders listen to the voluntary sector. Charities and social enterprises have become more demanding clients and the resource holders orientate what they do and how they do it to the needs of voluntary sector. At the end of 10 years Access leaves quietly and everyone else is still talking.
After Access: “Social investment” wasn’t ever really the goal, just a tool
Access has gone but positive practices it helped to catalyse live on. Funders and the voluntary sector are trusting and collaborative and the social economy is highly valued for the benefits it brings to people and communities.
The right support is available and accessible to all charities and social enterprises, embedded in the networks in which they already participate. Support and capital are provided in a flexible and responsive form which is suited to the specific needs of the organisation at that time. Individual organisations have a strong understanding of the potential to generate earned income to support their mission – they don’t have to start from scratch.
Funders and investors supporting the development of organisational resilience collaborate effectively, each playing to the strengths of what they can offer but also understanding the limitations and what is needed to complement their offer. Funders use grant to fund activity which can’t generate revenue and blend grant and investment in appropriate products for charities and social enterprises, which encourage enterprising behaviour and are affordable over time. Charitable trusts increasingly see opportunities to do this with programmes and endowments. Trust underpins the way the voluntary sector is funded. Blended finance is an obsolete phrase because it has become the normal way of financing the voluntary sector.
The value of the social economy and coordinated support for charities and social enterprises as the core part of the social economy is understood and highly valued in terms of its ability to improve places, tackle poverty and reduce inequality.