How Social Investment Makes a Charity Sustainable | Good Finance

How Social Investment Can Make a Charity More Sustainable

Blog | 26 February 2018

Last year Cass Business School published some practical research into social investment, specifically focused towards charity and what they want from it.

The research identified that around 60% of all charities see their business models changing and view social investment positively, but have a limited idea how to use it. Building understanding is therefore key. The research also highlighted two further critical considerations.

Firstly, for a charity to use social investment they need a champion who understands this and can think clearly about its applications. This may be a Trustee or the CEO, but someone who has enough knowledge to convince others. It is no coincidence that those who have successfully used social investment are those that have a champion and those who understand it.

Secondly, there are 17% of charities who see this as transformational to their organisations. Unfortunately, our analysis shows these are primarily those funded from government grants and contracts and under intense financial pressure. It is their business model which needs reflection, thought and careful re-imagining.

We’ve found that many charities are concerned about how they will create a revenue-generating model to pay back any such investment. Others are stuck in a grants and donations mindset and are concerned about the ethics of borrowing.

Whilst there is a wide range of both opinions and feelings, having a good understanding of social investment has been paramount for those who have successfully used it. Social investment is not suitable for all charities and is not a silver bullet to ease all funding issues. It takes time, effort and clear understanding to implement it. However, get it right and it is a powerful new tool for growth and ensuring future viability.

However, for a large number of charities, a mix of grants, donations and social investment funding is now seen as the future.

So what do charities actually want from social investment? Our research is clear, they want money that will help build their sustainability for the future and which creates predictable income streams.

But the bigger issue for the sector, I feel, is that Charity’s don’t understand their business models, and don’t have clarity on their margins and overheads for example. Some social investors want charities to develop their infrastructure to become more resilient and able to be flexible to survive in today’s markets. They don’t want charities to spend everything on front-line services, they understand that charities need appropriate spend on back-office functions too.

A recent example shows how a charity I have been working with is using social investment.

For this charity, it was a similar story to many others: grants disappearing, donations down and local authority funding being replaced with outcomes-based contracts. But this time, the conversation took a different turn.

They had created a trading model to become sustainable and were looking towards the future with hope. They were going to use some of their building space to generate external revenue, package their work as a new course they could market, potentially charge some of their existing customers for services (but they weren’t sure if this would be acceptable yet) and develop better management information systems and IT systems to grow. They had decided to focus much more closely on outcomes and were hoping to find investment for new IT, and seed capital to develop and market their new course. They wanted to prototype in a light touch way and react to what they learned.

So how did the charity sense this opportunity? They did this by really understanding the needs of their beneficiaries, the outcomes they hoped to achieve and then matching this to potential income streams. They identified that their building was not fully utilised and that they had a main activity which could easily be marketed in a different way. However, to take this on, they needed one of the Trustees to be able to sense the opportunity, and take time to really think about it.

They also needed to wrestle with the organisational culture and realise that they needed some help to get started. They found good quality information from the Good Finance website and had already started to research funders (such as Stepping Stones) to help them transform.

Whilst there is a wide range of both opinions and feelings, having a good understanding of social investment has been paramount for those who have successfully used it. Social investment is not suitable for all charities and is not a silver bullet to ease all funding issues. It takes time, effort and clear understanding to implement it. However, get it right and it is a powerful new tool for growth and ensuring future viability.

Social investment is important for the sector but we need to understand how to use it better. We also need to decide how strategically it works for our business models and future funding needs.

All of the above learning can be found in our research: Social investment as a new charity finance tool: using both head and heart’[1]

Cass CCE has also launched a free social investment guide to help organisations learn more about social investment and decide if it is right for them. We also support Get Informed, a campaign run by Big Society Capital which offers practical support, guidance and information to help board members of charities and social enterprises understand the opportunities and risks of social investment. 

By Mark Salway, Director of Social Finance, Centre for Charity Effectiveness (Cass CCE), Cass Business School

Last updated
9 April 2018