LinkedIn, by Niamh Goggin
Small Change and The Good Economy are working with the Joseph Rowntree Foundation to help align its social investment activities more directly with its anti-poverty strategy.
So far, we have mapped JRF’s existing social investment portfolio against JRF’s four outcome areas, housing, work, social security and popular engagement to end poverty. We carried out desk research on national, European, American and developing countries’ experience. We have interviewed JRF investees, charity social investors, private social investors, venture philanthropists, international social investors, anti-poverty organisations and a range of individuals and groups with experience and expertise in social investment and/or anti-poverty work. We attended the bi-annual social investment conference, The Gathering, in Leicester and ran a workshop there with a mix of social investors and potential investees. We organised an Ideation Event to secure insights into how social investment can tackle the issue of in-work poverty.
Here are some of the issues that we are thinking about;
1. Appropriate finance for potentially high impact, scalable not-for-profit start-ups
When the current wave of charitable social investment was relatively new in the UK, there was basically one financial instrument – a loan. You could have a short or a medium-term loan; you could have a small or a medium-sized loan; you could even have repayment holidays. But the choice was a loan or nothing. A scalable start-up with high impact potential in the private sector had a well-developed path for raising appropriate private equity capital. This would typically involve moving from angel investors to seed funding to series A, B, C and initial public offering (IPO). We need a similar pathway for not-for-profit organisations, which allows them to concentrate on development and scaling, without capital or interest repayments, until they reach profitability.
2. Impact first vs Pari passu (on an equal footing in terms of risk and return)
As part of the process of growing the social investment market, charitable social investors often invest alongside private social investors. When investing in ‘for profit’ markets, the early investor who takes the most risk could expect a higher rate of return than late investors, who come in when a project has already proved itself. In the topsy-turvy social investment market, it is not uncommon for charitable social investors to be asked to take ‘first-loss’ positions and to be offered a lower interest rate than private investors with safer positions. Some see this as private investors pushing around nice charitable investors. If impact is the motivation for charitable social investors, is the right approach to structure the investment to maximise impact, even if that means taking higher risk and lower return?
3. Moral authority
Can charitable social investors develop and exercise a moral authority in social investment, that is stronger than their financial position? How and to what extent could they work with investees to define and set the terms for social impact delivery and reporting in their social investments? Can they bring private social investors along with them, acting as a kind of guarantor for real social impact?
These are just some initial thoughts, sparked by our research so far. If you have any comments, ideas or suggestions, please join the conversation on Twitter: #solveukpoverty