Venturesome participated in a lively panel discussion yesterday about the dos and don’ts of charity enterprise, as part of the launch of TSIC’s report Charities Unlocked.  For all charities considering setting up or expanding their trading activities, the panel had the following nuggets of wisdom:

• Consider your assets (people, skills & expertise, buildings, brand, customers)
• “Plan! and expect this plan to be challenged” - Gordon Morris, of Age UK Enterprises
• “Be realistic: “halve the growth and double the costs” in any business plan.”  - Richard Mayhew, of social enterprise Auto 22.
• On the other hand, “the best time to raise money is when you have a compelling idea” - Trewin Restorick of Global Action Plan, a Venturesome investee which has proactively responded to public funding cuts by diversifying its income streams.
• Bring your trustees along with you.  The panellists had all had the support of some commercially-minded trustees in setting up their enterprises.
• Setting up a trading enterprise is risky - 1/3 of new businesses fail.  However, some of this risk can be shared…
• … if necessary, partner with an investor willing to bear some of the risk in order to support the charity to become more sustainable and to achieve greater impact.  This may mean speaking to social investors - such as CAF Venturesome - or to existing supporters and grant-funders.
• Cash is king! – a healthy pipeline of service contracts may inspire confidence, but at the end of the day, if receipt of payment isn’t managed and cash isn’t coming into the organisation it will be difficult to cover overheads.

At the end of the day, setting up a trading activity will always be risky.  However, with the right people, plan and investment, risks associated with going into trading can be managed.  And in this time of economic uncertainty and public funding cuts, not seeking to diversify your income streams may be the biggest risk of all.

In a blog last October, we discussed the pros and cons of defining the term ‘social enterprise’. As if to promote further discussion especially, last week the Department of Health presented its own definition of social enterprise to Parliament.

The definition applies to the appointment of new Healthwatch bodies under the NHS Bodies and Local Authorities Regulations 2012 and will potentially have legal standing – a first for the social enterprise term . New Healthwatch organisations, which promote the rights of health service users, must be social enterprises following this definition.

It defines a social enterprise as:

a charity or community interest company; or an organisation which has provisions in its constitution which ensure that it:

1. distributes less than 50 per cent of its profit to shareholders,
2. states that it is a body carrying out activities for the benefit of the community, and;
3. has clauses that require it to pass on its assets to another social enterprise if it dissolves or winds up

This is an interesting development for the sector – and arguably a necessary one to drive forward awareness and acceptance of social enterprise in our economy and culture.

However, the lack of detail surrounding point ii may be an issue. As it stands, the definition is clear about the thorny issue of profit, but ambiguous about activities carried out for the benefit of the community. What activities are we talking about exactly and in what magnitude?

If what is meant by these activities is not tightened up, the obvious concern is that organisations with a very loose sense of community benefit could be tempted to adopt the label, particularly if legislation continues to create a more positive environment for social enterprise. 

Public contracts could be bid for by ‘social enterprise’ entities that are essentially subsidiaries of commercial businesses, through their retention of a controlling interest.  Economies of scale for large businesses could make the 49% profit distribution worthwhile and would undermine the efforts of enterprises more closely attuned to the spirit of social benefit – in theory at least.

Beyond what’s included in the definition, it’s worth noting that references to transparency – a characteristic commonly associated with social enterprise, and one that Social Enterprise UK includes in their definition – are absent. Combined with the above point, the suggested definition could be a doorway to obfuscating activities, contractual arrangements and delivery structures that are meant to keep public interest, and benefit, at their heart.

Having said this, it’s easy to criticise. If this is a starting point, then we should cautiously welcome it and not forget that good legislation is no mean feat. All too often, progress is hampered by technical debates that bog down initiative and harm momentum.

Nonetheless, the definition discussed here needs work. The sector needs to get a better handle on what social benefit is, how much of it we want and how it is to be delivered. If legal definition of social enterprise is the way forward, we should endeavour to get it right as early as possible.

Last week was a big one for social enterprise – Social Enterprise Day and the UK Social Enterprise Awards 2012.

We’re pleased to say that we were one of the investors in the winning nomination for Finance/Investment Deal  of the Year category at the awards. The £15m deal, led by Social Investment Scotland, financed the construction of the first wind-farm in Scotland to be developed by a partnerships between the community and a commercial company. Co-investors also included Big Issue Invest, West of Scotland Loan Fund and the Scottish Government Green Equity Fund.

Work is now underway on the four turbine, ten megawatt capacity wind-farm, which is set to earn the Neilston community almost £10 million over the next 25 years. Construction should be completed early in 2013.

A full list of UK Social Enterprise Awards 2012 winners can be found here.

Last night’s launch event for the Young Foundation’s Accelerator programme struck a chord with us here at Venturesome towers. This four month programme aims to rapidly accelerate 10 small but successful social enterprises through a combination of business support and expert tutoring from a range of inspirational leaders in the social enterprise field. The Accelerator will help the social ventures taken under its wing to achieve scale and potentially attract social investment, showing wider society new ways of meeting social needs.

Hosted by the CCLA and organised by the Young Foundation, the launch attracted a diverse guest list comprising social entrepreneurs, social investors, people from the worlds of finance and government as well as various other high-flying thinkers and doers.

Social ventures on the Accelerator programme were introduced in a slick video presentation, followed by thoughts on the scheme, as well as social entrepreneurship more generally, from Andrew Harrop of The Fabian Society, Justin Hughes who runs the Mission Excellence consultancy and John Gilbert of JP Morgan. In their final thoughts for budding social entrepreneurs, the comments of the latter speaker struck a particular chord with Venturesome: “Don’t play it safe,” said John, “commit to excellence.”

It’s a simple but powerful mantra for social innovation: coming up with new ways of solving social problems requires, almost by definition, some risk taking. It also requires the tenacity to stick with a good idea and give it your best shot at making it thrive. Crucially however, we believe that these principles apply not only to social entrepreneurs, but to anyone who has a stake in the social economy – including social investors. Social investors must also be prepared to take more risks on potentially great social returns because this is what makes them distinct from purely commercial financiers.

Latest research into the market supports this view. The First Billion paper from Big Society Capital states that 84% of current social investment deals have been secured over an asset. The paper argues that by 2015, nearly 60% of social investment demand will be for higher risk unsecured deals – the sort of stuff that Venturesome is proud to be in the business of doing.

So we’re concluding here with the following:

• High standards of social innovation must be encouraged if we’re to create a vibrant social economy;
• To scale good ideas, social enterprises must up-skill and become investment ready, which is where valuable programmes like the Accelerator come in, but…
• Social investors must also be willing to pull their weight and be prepared to inject more capital into high-risk, high-impact ventures.

We wish all the ventures in the Accelerator programme the very best in their endeavours!

Pop quiz! Which of the following are social enterprises?

• The Big Issue
• Divine Chocolate
• A4E
• Salesforce
• Facebook

The answer: all of them! Well, not quite; it seems to depend on who you ask. Social Enterprise UK cites The Big Issue and Divine Chocolate as examples of the concept. A4E’s founder Emma Harrison describes herself as a social entrepreneur. Salesforce tried to trademark the term. And Facebook’s Mark Zuckerberg has described his business as ‘mission driven’ – an element of most definitions of what it means to be a social enterprise.

In the current landscape, social enterprise is a slippery term that defies tight definition – no matter how much leading figures in the sector may try to do so.  But to what extent do we need to be specific?

On the one hand, an inability to communicate exactly what it is could be a barrier to growing the social economy. Without getting a firm grip on what’s social about social enterprise, the term becomes too wide to be of particular use, covering a swathe of very different entities. This limits our ability to properly understand the organisational structure of the social economy. If Divine Chocolate and A4E are both part of it, how do support functions, such as social investment, distinguish between the two? Additionally, there is a risk that major players may appropriate the term – whether intentionally (such as with Salesforce) or not.  

The logical conclusion would be to lobby for a change in the law to clearly stipulate what legal forms and practices constitute social enterprise. But would this be appropriate?

For a relatively young sector, perhaps it’s a good thing that the term remains fluid. In not meaning anything too specific – and yet being generally understood by individuals in the sector – it allows for a variety of organisations to enter the social economy and contributes to greater social innovation. It may be argued that rigid definition, particularly in legislative form, would deter entrepreneurs from entering the market and would send the wrong message at a time when there is greater reliance on charities and social enterprises providing public services.

Recently, Nick O’Donohoe, CEO of Big Society Capital, outlined the conditions under which the social investment wholesaler will invest into for-profit companies operating in the social sector. This has been interpreted as BSC’s view of what is a social enterprise, helpful for social investment intermediaries and their investees. Whilst not an attempt at a once-and-for-all definition, it nonetheless contains elements common to other definitions: social benefit, reinvestment of surpluses into social objectives and asset-lock. BSC is now a major, influential player in the social economy; given the above conflicting arguments, perhaps its attempt at definition is a worthwhile compromise.

In any event, it doesn’t look like the sector will decide for sure what social enterprise is anytime soon. So let’s engage in some collective speculation – what does social enterprise mean to you? Comments below welcome!

The Charities Aid Foundation has joined forces with Legal & General to run a government backed pilot scheme to help fledgling charities and social enterprises in Brighton and Hove.

Launched today, the programme has the potential to deliver millions of pounds of social investment to a wide range of charities and not-for-profit organisations struggling to raise funding during the recession.  The pilot is being funded by £65,000 from the Cabinet Office funded Innovation in Giving Fund, managed by NESTA, and £50,000 from Legal and General.

Today’s event took place at the Care Co-ops Social Enterprise Centre and included contributions from Caroline  Lucas, MP for Brighton & Hove and Jo Swinson, Minister for Social Enterprise.

Social Enterprise Assist will offer interest free loans of up to £10,000 as well as mentoring from Legal & General staff, and up to £5,000 worth of expert consultancy to charities and social enterprises.  We’re pleased to say that CAF Venturesome will be responsible for managing the loan fund and using its expertise to guide mentors through the investment appraisal process.

The scheme, if rolled out, would transform local communities by providing funding for hundreds of social enterprises across the UK.  These social enterprises will help to tackle social issues in local areas while boosting the local economy. The scheme has the potential to help thousands of people.

The programme would encourage local companies to invest time and money to support this important sector of the economy.

John Low, Chief Executive of CAF, said: “Social enterprises have the power to tackle many intractable problems in our communities, but often flounder because commercial lenders regard them as too risky to support.

“There is still a chronic lack of funding for fledgling social enterprises which are looking to expand. We need lenders to step in and back these dynamic social enterprises with hard cash and business advice so they have the support they need to succeed. These entrepreneurial organisations can make a massive difference, supporting some of the most vulnerable people in society.”

The scheme is open for online applications from today and more information can be found on the SE-Assist website.

Applications must be submitted by Friday 19 October.

Read what CAF’s Director of Social Investment, Stephanie Sturrock, has to say about hot topics including the Social Value Bill, public awareness of social enterprises and social impact reporting on page 10 of the Social Enterprise supplement that came out in The Independent on Monday.    

Launch of the Westminster Hub - really great space with capacity of c.250 for budding social entrepreneurs. We look forward to seeing the next generation of social enterprises being incubated here!

A recent piece in Social Enterprise Live on ‘Making equity work in social enterprise’ struck a chord with the CAF Venturesome team, as we are all too aware of the challenges it can entail. 

We think that understanding how equity can work for charities and community interest companies is a really important issue that needs to be explored further to help develop the social investment market.

Watch the video in full… and answers on a postcard please!

Stephen Rockman Part 1. from Social Enterprise Live on Vimeo.

We’re speaking at Action Planning’s conference ‘Generating Earned Income’ at Westminster Hall, London today! If you’re going then read this article first!

The Social Enterprise Truths….

1. Measuring social impact is about improving what you do, not just proving how well it works

2. Choose legal structure after getting clarity on mission, activities, financing, governance

3. It’s not the size of the profit, it’s what you do with it that counts

4. More-than-profit is better than not-for-profit (profit’s not a dirty word)

5. Successful social entrepreneurs build trusted, authentic relationships

6. Social entrepreneurs aren’t individual heroes; they build teams, create networks, mobilise movements

7. Social entrepreneurs can work at community, local, national and international levels

8. If a pound was donated each time a social entrepreneur quoted Gandhi, no-one would need to fundraise

9. Teach too many men to fish and you screw up the entire marine ecosystem and deplete the fish stocks

10. Scale of impact is more important than scale of organisation (or scale of ego)

Read the other 90 here! The 100 Social Enterprise Truths