From charities to social enterprises: in yesterday’s blog we focused on the results of the 2012 UK Giving Report and concluded that charities need to be more enterprising. Today, it’s Social Enterprise Day and, being social investors, we thought it’d be good to discuss how demand for social enterprise services is a key precursor to investment.

‘Investment readiness’ is a much bandied-about term, often cited as a major reason behind why demand for investment hasn’t sky rocketed in the last few years. There’s a barrier to rapid growth in demand, it is argued, because many social enterprises lack the skills necessary to handle investment. Initiatives have been put in place to improve this: the Cabinet Office’s Investment and Contract Readiness Fund, mentoring schemes (like SE-Assist) and accelerators (like Young Foundation’s Accelerator). This is all well, good and necessary, but it is not sufficient.

The other big aspect to this is having sustainable business models.  In other words, there must be healthy demand for the work that social enterprises do to generate their revenues and facilitate investment – a point that could be better emphasised in the investment readiness discussion. Social investors, in so far as they want to be repaid, will want to know first and foremost where repayment will come from. So if demand for the investee’s products and services isn’t there then the enterprise isn’t investment ready.

Which is why we welcome campaigns like that of Social Enterprise UK, which in the run up to today, Social Enterprise Day, has been encouraging social enterprises to trade with each other – getting them more embedded in each other’s supply chains, creating a more mutually beneficial and sustaining social economy. 

But it shouldn’t stop there. We should be encouraging social enterprises to fit into the supply chains of the wider economy by promoting demand for their services amongst corporate and individual consumers.  The government has started off on the right track, passing the Social Value Act that will require local authorities to consider social and environmental well-being in their procurement process, but there’s scope for more initiatives to stimulate demand beyond the public sector.

So, investment readiness: a two-headed beast that needs taming. To be investment ready, an organisation needs the systems and skills in place to handle investment and demand for it’s services, but demand and revenue must be there in the first place. This leads to a wider discussion about how to make the appetites of consumers more sensitive to social issues – and whether they’re willing to pay the true cost of the service or product. But key players behind the idea of social enterprise – government, networking bodies, social innovators and investors – can help change appetites by increasing awareness, stimulating interest and driving demand.

The £10 million Investment and Contract Readiness Fund, being delivered by The Social Investment Business on behalf of the Office for Civil Society will enable social ventures to access new forms of investment and compete for public service contracts.

Grants of between £50,000 and £150,000 are available on a rolling basis to ambitious social ventures who need at least £500,000 investment, or who want to bid for contracts over £1 million. It is hoped that the grants will enable smaller social enterprises to scale up and bid for public service contracts.

Minister for Civil Society Nick Hurd said:
“We want to make it easier for charities and social enterprises to access capital. This fund is for ambitious organisations who want to access social finance but know they are not yet investment ready. It allows them to get the support they need.”

The Fund is focused on enabling social ventures to access specialist support from an approved investment/contract readiness provider with a track record in helping organisations secure social investment or win contracts.

An engaged Investors Panel, including CAF’s Director of Social Investment Stephanie Sturrock, sits at the heart of the Fund, deciding the kind of support that social ventures applicants need to really scale up their operations and impact.

Ventures will need to work in partnership with an approved provider to submit an application to the Fund. The approved providers for the programme so far are ClearlySo, Locality, Resonance and Social Finance. Additional providers are still welcome to apply to participate in the programme.

The Social Investment Business’ Chief Executive, Jonathan Jenkins said:
“The Fund aims to complement the work of Big Society Capital and catalyse a more vibrant impact investment market in the UK. We want social ventures to collaborate with trusted, experienced providers whose work is deemed “investment grade” by our expert panel. We want to encourage both providers and ventures to develop high quality investment / commissioning grade proposals and have dispensed with traditional sector funding windows to allow organisations the opportunity to submit primed proposals on an on-going basis.”