Social investment approach

Social Ventures Scotland


 


Social investment approach


The recent Scottish Social Enterprise Strategy recognised that Scotland’s social enterprises are operating in a competitive marketplace with many barriers to sustainable development. One of those barriers is a lack of appropriate finance and funding products aligned to support services.


SVS recognises the need to increase the sustainability of social enterprise in Scotland by investing appropriately over the long term. In particular SVS wishes to identify social enterprises that can “go to scale” and produce ground breaking results that will inspire the next generation of social entrepreneurs.


Social Ventures Scotland will invest into existing or emerging social enterprises that are not currently ‘bankable’ because of the risk involved. One outcome of developing SVS will be to increase the flow of social enterprises into mainstream loan/debt finance.


 


Venture Fund


In the longer term, Social Ventures Scotland aims to establish a ‘venture fund’ for social investment into the social enterprise sector. The funding for this ‘venture fund’ will be drawn from:


§         Private investors wishing to engage in venture philanthropy.


§         Corporate bodies that wish to invest both their business expertise and philanthropic giving to fund business ventures.


§         Foundations or charitable trusts that wish to invest on a sustainable basis.


§         Public bodies that wish to channel social investment into the social enterprise sector on a sustainable basis.


By investing in dynamic social enterprises these investors will produce measurable and far reaching social outcomes. 


Social Ventures Scotland could also become a vehicle for social investment through the proposed new Social Investment Bank and the monies that may be available through ‘Unclaimed assets’. SVS would be an additional channel for investment into the social enterprise sector in Scotland.


This pilot proposal aims to test and refine how this venture fund might work in practice.


 


Brokerage


CEiS, Senscot and Forth Sector acknowledge that their strengths lie in their embedding and experience of working with the social enterprise sector. Through our networks we have strong relationships with the social enterprises that will be looking for investment. We also have strong connections with international social investment intermediaries, that allows us to draw on best practice in the field.


Through Social Ventures Scotland we aim to act as brokers for social enterprises looking for finance with investors looking to invest for a blended social and financial return.


This is a relatively new approach to investment for the social enterprise sector and we are looking for funding to pilot the approach.


SVS will provide a training programme for the potential social enterprises that will focus on strategic development, financial management, social return on investment, marketing perspective and sustainable business growth. This training programme will be provided for senior managers, social entrepreneurs and board members of the potential investor organisations.  It will have the additional benefit of developing peer support and networks within the social enterprises.


SVS anticipates that they may not be the sole investor in the social enterprises that are selected. It is anticipated that the SVS investment may act as leverage for additional loan finance from banks or community development finance initiatives. The social enterprise may already have existing grant funding in place. SVS business advisers will work closely with other investors to ensure that the appropriate social investment package is developed that balances grant, debt and patient/risk capital.


 


Preparatory Research Components


There are five key research areas;


1) Analysis of existing funding sources, identification of venture philanthropy approaches and development of a marketing strategy to attract private investment into a venture fund. This includes international initiatives where systems and contacts can be shared, the impact of UK initiatives based in England with plans to operate in Scotland, and the existing or proposed initiatives geared to supporting parts of the voluntary sector in Scotland (that may have relevance for social enterprise.) Consultation will include, Scottish Community Foundation, the Lloyds TSB Foundation, New Philanthropy Capital, Adventure Capital Fund, Network for Social Change, Pilot Light, Big Issue Invest, Impetus Trust, CAN Breakthrough, Institute of Philanthropy etc.


2) Stakeholder Discussion will be required to map out the objectives and programmes of a wide range of organisations that have an interest in investment in social enterprise. These include Highlands and Islands Enterprise, Scottish Enterprise, Big Lottery Fund, Social Investment Scotland, Equal Access to Finance Thematic Board.


3) Exploratory work through sector networks and intermediaries to establish the level of demand for investment. This will seek to differentiate between funding and investment and will look at a wide range of issues including the purpose of investment, the sectors where demand is identified and crossover to loan and grant funds.


4) Investment Readiness Support is a key part of the SVA process and the model of support will be aligned to the demand and the profile of organisations requiring support with their investment portfolio. This research will quantify and describe the support and outline how it needs to compliment existing support through Business Gateway, the Central and Lowland Scotland business support consortium etc. Work will include examining the social return on investment models to be used to demonstrate social return to public and private investors.


5) Examination of State Aid Implications and Technical Elements of investing in social enterprises that have a range of legal structures, while working with foundations, businesses and individuals that may have taxation requirements from a venture philanthropy initiative.