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Demanding social investment

Professor Fergus LyonMiddlesex University

Social Investment: promise and possibility27th November 2012

ESRC/TSRC Policy Seminar in collaboration with Nesta

What does ‘access to finance’ mean? • Confusion of

– Repayable or loan finance, – grant finance – income

• Demand for – grants– Innovation funding– £50-£250K long term capital

Current use of repayable finance• 13% social enterprises

successful in seeking loan finance (SEUK, 2011)

• 18% of social enterprises get bank loans – but 60% of those over

£1m (SEC- State of SE 2009)

• 21% of VCSE successfully secured repayable finance (ClearlySo and NPC, 2012)– 47% had to provide security

to back the finance

Unsuccessful loan seekers• 12% of SE were unsuccessful when seeking loans

(SEUK, 2011)• 13% of all SMEs unsuccessful or get less than

requested (BIS,2011)• 8% of National Survey of Charities and SE (2010)

were dissatisfied with access to loan finance• 7% of VCSE had tried but had not yet been

successful in securing loan finance (ClearlySo and NPC, 2012)

Emerging demand?• Is there an emerging demand for loans?

– 30% of VCSE seeking or interested (ClearlySo and NPC, 2012)

• Challenge of having business models allowing for a surplus

• The debt burden on those that ‘inherit’ from investment friendly social entrepreneurs

• Will it lend where others will not? Should it lend in these cases?

Investment readiness• Strength of business propositions

– 1 in 4 of those borrowing said they did not generate surpluses to repay finance (ClearlySo and NPC, 2012)

• Presentation and pilot testing of propositions• Capacity building and confidence• Networking and relationships especially in

early stages• Demonstrating both financial and social

returns

Measuring the social returns• How can social investment use social impact

metrics?– can you compare project versus project?– Use of social impact reports to show legitimacy

• Competition forces organisations not to publicise their social impact or to down play it

“I am not sure what value it brings, I am suspicious, I told …..(consultant) to be conservative … we downplay the financial figures”

“We are often in competition when tendering… models may allow organisations to cherry pick clients that will support their claims…. potentially there are lots of areas to make claims of financial value which can be overstated”

Challenges reported by those measuring their impact

• Working with indicators set by funders• Deciding what data required and which method• The cost of measurement in applications• Balancing setting indicators with innovation• Allowing SEs to use discretion in measurement• Interpreting (and trusting) the results• Dangers of comparing the uncomparable• Encouraging the reporting of smart failure

Ensuring trust in approaches to social accounting

• Search for a common approach but still competition between approaches

• Use of trusted professionals for social accounting

• Under- reporting to ensure no loss of legitimacy and trust

• Auditing procedures – but these are open to interpretation

Conclusions• Social investment can provide finance for

delivering social benefit …..• …however it is not a substitute for other forms

of support and capacity building• What is the gap it is filling?• Suitable to those organisations that can make a

surplus• Continued challenges of showing a social return

Six questions you should ask about any impact measurement1. What indicators?2. Who was asked?3. How many people asked or what data used?4. How has the value been measured? How

monetised?5. Has it looked at what would have happened

without activity?6. What reported (and what left out)?