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Many social venture leaders are looking of ways to raise funds to scale but are faced with a multitude of options, and often barriers. For many, social investment might be the best option not yet explored. In this blog, we put together the five key things you need to know before exploring the possibility of acquiring social investment.

1.    What is social investment?

Social investment is the use of repayable finance for social purposes.

Social investment can offer social enterprises valuable investment to help you achieve your ventures goals. 

You may like to use social investment for a number of different reasons. Perhaps you need money to: 

•    Get your venture off the ground.
•    Provide additional funding to maintain delivery and continue making a positive impact.
•    Grow and innovate your venture.
•    Buy an asset to improve long-term financial stability. 

Learn more about social investment and how it works in practice via the Understanding Social Investment. 

2.    What type of social investment is best for me and my venture?

There are two main types of social investment:

Borrowing which is essentially a debt to your organisation. It comes in the form of a loan which you agree to repay over a set period of time. Most debt investments are paid back with interest - a fee you pay to the investor for the use of their money.

Shares which is equity to your venture. It means you sell shares in your organisation to an investor (think Dragons Den). Equity investors receive a share of any profits paid out by the organisation and get to have a say in how the organisation is run.

There are plenty of different types of borrowing and shares funding.

Want to dive deeper into the various products and types of repayable finance available? Check out Types of Social Investment. 

3.    What do I need to consider before taking on social investment?

Before seeking social investment, there are several important questions that you need to be able to answer about your venture first…

•    How much investment are you going to need?
•    How are you going to pay it back?
•    What’s your business model?
•    What’s your social impact?
•    What’s the legal structure of your organisation? 
•    How much time, resources and people power do you have to help implement the social investment? 

Having a clear idea of what investors will want to know will stand you in good stead for getting, implementing and paying back social investment. 

Hungry for more? Check out this previous blog from Good Finance exploring 13 Things you ought to know before considering social investment. 

4.    Where can I access social investment?

There are two main groups of social investors:

•    Through an organisation such as social investment organisations, social banks or trusts and foundations. They will have different market sector focuses and may provide a certain type of social investment.

•    Through an individual or group of individuals such as crowdfunding, Angel investment or community shares. 

Organisations that are actively exploring social investment can use the Good Finance Fundmapper tool to narrow their search and find the social investor (/s) best-suited to their social enterprise. 

5.    How much is social investment going to cost us? 

There is, of course, a cost to social investment. Investors need a financial return on the money they lend you. This is so the money can be recycled and lent again and again to other organisations in your position. 

Different investors will have varying appetites for loss and risk, and that will contribute to the total interest rate on offer. It's a good idea to speak to several social investors to ensure you're getting the best possible terms for your organisation.  

The Cost of Capital Calculator by Good Finance is a simple and convenient tool to estimate the total cost and monthly repayments.

 

Those are the basics of social investment and should give you a platform to explore it as a viable option for your venture. But there’s so much more to learn!

If you want to understand more about social investment, what it is and how it might inform part of a financial toolkit to help your social enterprise in the future, book your place on the upcoming School for Social Entrepreneurs course, Unlocking Social Investment, with the first session happening on Monday 20 May.