There are six key areas to understand about your organisation before you should consider taking on social investment
1. Amount of money you need
This will impact the types of product you can take on and the type of investor you should contact. Some finance providers will not consider applications above and below certain amounts. You will also need to consider your ability to repay the investment in the given repayment time.
It's worth visiting Is it right for us? to help you work out, first whether social investment could be an option for your organisation, and if so, the types of investment you should consider based on the amount of money you're after.
2. Revenue model
The critical element around taking on investment is the ability to repay it. Do you deliver activities that generate an income stream that will enable you to repay investors (and create a surplus to contribute towards sustainability)? You may have a range of activities, some of which generate income and a surplus, some could have customers in future, and some parts of your work may have no revenue stream and will always need grants to fund.
A clear income stream from sales of a product or delivery of a contracted service with enough margin to enable you to make repayments is essential. It’s important that you’re clear on your business model, income streams & costs.
- Identify your customer (this could be a retail consumer, another business or a commissioner)
- Test sales of your product or service
- Understand the size of the market
- Forecast potential future income
There are lots of great examples from social enterprises and charities that have developed revenue models across employment and training, health and social care, housing and homelessness, community facilities that might help you to further Big Society Capital's social issue pages to help your develop your services and products further.
3. Business model and plan
It’s important that you’re clear on your business model, and that potential investors can understand what your business is about from a quick glance at your plan.
You'll need to be able to show your track record of delivery, how well you engage with your community and/or people who use your services, and the level of financial and business skills within the organisation.
You will also need a clear sense of:
- What you do and who your customers are
The products and services you offer and how profitable they're likely to be
How many customers you have and who they are
How you are different from your competitors
Whether the market for what you do is growing or shrinking, stable or volatile
How well connected you are to local or national networks and partnerships
Finance providers will judge the risk of investing in your organisation on the market that you operate in and the stability and predictability of your cash flow.
Further guidance on business plans including templates, resources and support is available from:
4. Social impact
As well as being able to effectively demonstrate your organisation's financial resilience and sustainability, you will need to show the social impact you’re delivering through your product or service. This is the key difference between social investors and conventional investors, such as high street banks.
It's important to know:
Whether you have a clear vision of the impact you’re trying to achieve
How you manage performance and measure impact
How you report on your achievements and impacts
Visit measuring social impact for further guidance on how to measure and report your impact.
5. Legal structure
Certain legal structures, such as CLGs (Company Limited by Guarantee), prevent organisations issuing shares, which rules out equity investment, while others like CICs (Community Interest Companies) will restrict your rights to dividend (profit) distribution.
You will need to understand what types of investment you will or will not be able to access due to your organisation's legal structure. Visit Is it right for us? to work out the best types of investment based on your current legal structure.
See further information on legal structures and investment:
- Anthony Collins - Legal structures for social enterprise at a glance
- UnLtd - Legal structuring considerations when seeking external investment
- Bates Wells Braithwaite - Social Finance
6. Time, resources and people
Taking on investment can be time and resource intensive. If you decide it's right for you, you need to set enough time aside to be prepared to report on and answer questions on your social impact, business model, legal structure and day to day finances.
Investors will want to see how you manage your finances including the systems you have in place, your knowledge of financial procedures, past and predicted cash flow and the extent of your internal financial reporting. If you have good systems and a strong track record, your organisation will be considered a safer investment.
Investors will also want to find out about the skills and expertise of your board members, staff and volunteers. Areas to focus on include finance, marketing, business development and legal.
It's important that your board members understand the opportunities and risks of social investment so they can consider whether it could help deliver your mission. The Get Informed campaign from Big Society Capital offers practical support, guidance and information for board members of charities and social enterprises.
The reality of social investment