It is becoming increasingly apparent that the social investment market does not meet the needs and expectations of the organisations it is there to serve. Without the needs being met, can we really call it a market?
Social investment needs to undergo some changes if we are going to support social organisations to develop their businesses and their social impact.
New research is helping us to understand the sector. Social Enterprise UK and SASC recently released a report highlighting the main challenges that social investment faces; that social investment is too rigid, fixed and inflexible; that risk is not fairly between the investor and investee; and that the process of taking on investment is too lengthy and often cumbersome. There is clearly this ongoing mismatch between the supply and demand for social investment.
Social investment needs to undergo some changes if we are going to support social organisations to develop their businesses and their social impact. Here are the key areas that that would make a substantive difference.
Flipping the language to the investee’s perspective
The world of social investment is flooded with acronyms, jargon and confusing language – making things needlessly difficult for social entrepreneurs new to the space. If we want social investment to be accessible to social ventures we need to find a way for social entrepreneurs and investors to better communicate with one another.
Some simple changes would include:
- A greater focus on the development of the investor and investee relationship. This should focus on the better understanding of the potential investee needs, and then the investor aligning their products to this. This requires flipping the conversation from a focus on the investor's products, to the investees needs.
- Clearer communication about the expectations of the investee and the level of understanding they will need to progress with the investment.
Increased market connectivity
Establishing whether social investment is the right route for growth and sustainability for the social entrepreneur’s business can take time and resource. However, once they have gone through this process the next challenge is even greater - attempting to navigate this complex and fragmented market. All investors have different application processes, different timelines and often less than transparent eligibility criteria. Good Finance will go some way to helping organisations navigate the market, but is there more that can be done to help entrepreneurs along the way.
Some ideas for this include:
- A shared application platform across multiple investors. This would enable social businesses to apply to one platform that would provide the level of data required for multiple investors, therefore removing the need for multiple applications. I know this was an area initially explored by Good Finance during its early development; it should now be revisited to test whether it’s viable option for the sector.
- Social investors sharing data and due diligence with one another. If an investor feels a proposition isn’t right for them, is there more that can be done to share their due diligence with other investors in the market?
- Social investors and funds being more market specific i.e. funds focussed on impact areas. That way it allows for a clearer path of investors for social organisations to engage with. These investors can then create a ‘pathway’ of support and finance to match the organisation’s stage of growth within a particular market.
Investors can’t be expected to provide the support and bear the costs of supporting social organisations through their growth journey. There needs to be greater funding or subsidy in the market for intermediaries to provide this kind of support.
If this is funded correctly then intermediaries can provide support that many social organisations in the market require. This could mean business support to assess investment appetite and applicability, and to help them through the investment journey.
A lot of this funding is, or has already been, withdrawn in our market (such as the Social Incubator Fund, Big Potential, and UnLtd’s Big Venture Challenge). Without appropriate funding, this support will fall upon the shoulders of the investors in the market which will be unsustainable with the cost ultimately being passed onto the investee.
There is a mismatch between the supply and demand of funding. Until the sector works together, to offer a common and easily understood language, and begins to offer better connectivity then challenges will be felt by too many social ventures. We need to collaborate to share data, ideas and insights to create a properly functioning market. It’s a significant challenge, but one that must be met.
By David Bartram, Head of Ventures, UnLtd
(David is a member of the Good Finance Stakeholder Review Panel, an advisory group that provides critical feedback on the performance and future direction of the website and project.)