We round up the best advice from our recent live Q&A on how to improve the ‘investment readiness’ of social enterprises
Jonathan Jenkins, chief executive, The Social Investment Business Group
Investment readiness IS NOT:
• a bit of consultancy, polishing a business plan or some flashy powerpoint slides
• telling an investor they should be interested, even if it doesn’t fit their criteria, because it’s doing a good thing
• presenting utterly unrealistic income growth projections
Investment readiness IS:
• relationship building and listening to what an investor is interested in funding, understanding how they structure it, what their financial/social return expectations are
• presenting BOTH viable model and a credible management team – you can’t have one without the other.
• getting a quick “no” rather than a long drawn out “maybe”
• the mental resilience to keep going when you are faced with rejection – which will happen
Investors should not ignore profit distributing vehicles: I think there is a massive untapped pool of social businesses, which might not be a CIC or a charity, but are clearly doing good, and should not be seen as rapacious capitalists
Social Investment Business is running a £10m Investment and Contract readiness fund for the Cabinet Office. We have a panel of most of the UK social investors (chaired by Big Society Capital) looking at applications from readiness “providers” and will be accepting applications from social ventures in the next month or so.
I think UnLtd’s Big Venture Challenge was one of the best variations on a theme – it selected 25 ventures and put money into them directly. They used potential future investors to help them make the selection, and as a result many have gone on to get investment from people who had never previously invested in impact investments.
Azlina Bulmer, programmes and development manager, Charity Bank
Social investors do look for ‘social impact’: There are so many different ways of measuring impact, including a a social return on investment (SROI). While measuring impact is an important, unfortunately there is no single method which would satisfy more than one investor, so it is also important that any method chosen is not going to be too burdensome for the organisation.
Investors must break down the language barrier: There is a need to bridge the gap between social investors and social enterprise. There is much resistance to even looking at social investment as an option. Many thinks it is complicated and perhaps as investors we are guilty for not making things simpler.
One size does not fit all: We must never forget that each organisation is its own entity and therefore should be treated as such.
Get feedback: If investors turn you down, really push them for their reason(s).
The money is out there: Most investors will say that there is actually quite a lot of money available to lend; what we are not seeing is good number of proposals. With Big Society Capital, you will see more money became available.
One organisation that really stands out for me is The Lighthouse Group in Bradford. They started with a relatively small investment from us less than 10 years ago and now they operate nationally.
James Wise, portfolio director, Social Business Trust
Those seeking investment should ask the following questions:
• what do you need funding for? (For instance, growth or subsistence?)
• what type of funding is most suitable? (Do you have time to find grants, the willingness to share equity or the resources to pay back loans)
• who are the right people to provide this? (If grants, foundations or HNWs?, if loans is it banks or social investors?)
Investors will look at the market: We have seen social enterprises with a great team that tick all the boxes below, but are providing a product or service that is in a small or shrinking market. If this is the case, you have to focus on how you will outperform the competition / diversify into new areas to achieve growth.
Consider grant funding: With regards to organisations with low / no revenues, an initial option is to find grant funding to help build the resources to find new ways to raise revenues. While it is certainly more difficult to get paid for services in the social sector at the moment, the landscape is changing very quickly and new opportunities are opening up.
Many funding bodies are set-up specifically to provide grants so that social enterprises can explore these new routes. See Social Business Trust, Impetus and UnLtd. Some Government funds are also available.
Stephen Rockman, founder, Merism Capital
Offering an investor an ROI is pointless: Its hard to know what/how investors are targetting and, personally, I find it slightly presumptuous. Invariable such calculations are pretty basic and therefore more or less meaningless.
Investors don’t believe forecasts: The business model how/where you make money/surplus is key to the piece.
Questions regarding structure are indicative of two things: (These include ‘how is impact measures?’ and ‘who invests pre-revenue?’)
• social entrepreneurs need to get smarter in terms of how/when they approach investors (timing is everything)
• we investors need to do a much better job of explaining what we do both to each other and potential investees.
More initiatives are needed: Big Venture Capital was great. The sub £250k market failure exists in many sectors and is worse here than the other side of the pond. I hope that we’ll not be the only seed impact fund for much longer and that also angel initiatives start to deliver
Peer2peer networks: These are essential for entrepreneurs in building skills, providing critical input and creating a critical mass that will attract investors. 100% of our deals come via networks we’ve grown, created via hubwestminster or support.
Prachi Mathur, associate vice-president, Intellecap
The key milestones from pre-startup to sustainable/investable social enterprise are:
• Proven revenue model – show that your product/service brings funds into the company on a regular basis
• You have broken even – show your revenue now meets your costs
• You have a strong team / second line of management
• You have clear organisation structure and have put in place systems and processes to manage next phase of growth
• Your customers and vendors speak highly of you and the services
• The business can rapidly grow – i.e. there is strong demand for the product/services and this growth will require further capital infusion
Sustainability is essential: Grants can only take you to a particular point, after which the enterprise will have to look for more grants. Hence, it is important that we look to create sustainable enterprises who are able to fund themselves over a period of time.
It is for this very reason that Intellecap has started the Intellecap Impact Investment Network – to facilitate early stage investments (less than USD 500,000) by creating a dedicated and passionate community of angel investors. Some of these angel investors are also first time impact investors.
• Dipika Prasad, who works with Prachi, adds that the Sankalp Forum, run by Intellecap, outlines ‘5 tips to improve your chances of receiving capital.’
Servane Mouazan, chief executive and founder, Ogunte
A co-mentoring programme is certainly useful: These help people access incubators or finance platforms better equipped. This probably helped the 25 Big Venture Challenge winners.
Ogunte’s Wave PI – Pre Incubator prepares women social entrepreneurs to go on that investment (or financing) journey. In parallel, we work with aspiring women activist angels, so that they understand the profile of applicants, their resilience level, the sector they are evolving in, what behaviour they will come across, and how they can then best invest knowing all this.
This talk by Halla Tomadottir about the way they invest at Audur Capital.
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