Social investment market could be worth £1bn by 2016, but investment readiness is a concern
The UK’s social investment market could be worth £1bn by 2016, according to a Big Society Capital report released in September, while research from the Big Lottery Fund says investment readiness is a concern.
The First Billion: a forecast of social investment demand says that the average annual growth in the social investment market could be 38%. But even by 2016, it would provide only 7.4% of organisations’ needs, according to the report, written by management consultants Boston Consulting Group for Big Society Capital.
It is based on a mixture of interviews with 40 existing organisations working in 26 subsectors, as well as public data relating to those sectors.
Adrian Brown, principal at The Boston Consulting Group, who led the research, commented: "Social investment is clearly a market ready for growth. There is increasing interest from commercial and other investors, and growing demand for capital from social organisations. There is continued need for strong, positive action from donors, commissioners, investors and market intermediaries."
However, a lack of business skills means many voluntary, community and social enterprise (VCSE) organisations are missing out on investment, according to another report commissioned by the Big Lottery Fund.
The UK-wide report into the social investment market, carried out by ClearlySo and New Philanthropy Capital, based on survey responses from 1255 organisations, found that many VCSE groups seem to be unaware of what is required of them. Nearly half of survey respondents who failed to secure investment felt they did not lack any financial, marketing, business or financial skills.
This contrasts with the views of investors who noted the lack of suitable financial skills among potential investees as a critical barrier. NPC and ClearlySo interviewed 40 investors and social investment intermediaries who also noted a lack of understanding of the concept of social investment and the challenge of changing mindsets from the traditional charitable model to a business model.
Growing the Social Investment Marketplace: Investment Readiness in the UK does indicate potential demand for investment-readiness support from the sector to be about 70,000 or more organisations in the next five years.
Peter Wanless, chief executive of the Big Lottery Fund, said: “The social investment market could be an exciting opportunity for some VCSE groups to develop further and access a new source of finance. Readiness for such investment remains a challenge in many places and is a current focus of attention for investors, investees and other interested parties.”
The report demonstrates a need for more support in the emerging social investment market as 43% of organisations that were unsuccessful in securing funding reported that accessing advice was ‘difficult’.
Iona Joy, head of charity effectiveness at New Philanthropy Capital, said: “NPC’s survey of investees and potential investees demonstrated a healthy appetite for advice, support, guidance and peer to peer contact. Respondents indicated that it can be difficult to get targeted advice and support; information on financial options and investors; and help with structuring and negotiating products and deals. However it was clear they would welcome advice and support on these issues.”
The findings of the research report will help in the creation of an Investment Readiness Fund to be launched by the Big Lottery Fund in 2013, which will contribute to the goal of supporting the development of the social investment market in England in a way that will enable VCSE organisations to better serve those most in need. It will be aimed at those organisations whose potential is not yet sufficiently developed to apply to the Cabinet Office Investment and Contract Readiness Fund, being delivered by The Social Investment Business Group, which last month announced its first £1m of awards to eight social ventures.
Daniela Barone Soares, chief executive of social finance intermediary Impetus Trust, said: “We commend Big Lottery Fund for identifying the issue of investment readiness in the social investment sector. The new research corresponds with a view we have formulated over a decade of investing into ambitious charities and social enterprises: more money is needed to get the sector to investment readiness before unleashing very large amounts of capital.”
She continued: “In our YouGov survey of charity CEOs, 70% say they need an income generation strategy; 65% say they need a strategic business plan; 58% say they do not have the right staff structure for growth. High potential charities and social enterprises need financial processes and robust impact measurement systems if they are going to be able to participate in the social investment marketplace safely. More needs to be done now to help transform the sector at this stage before it can reach its true potential in the long run.”
The Big Lottery Fund and Big Society Capital, along with the Cabinet Office and Nesta last month signed up to a joint investment readiness charter, which outlines the key principles for supporting investment readiness.