Place Based Social Investment by Social Investment Business

PLACE BASED SOCIAL INVESTMENT: A PROSPECTUS FOR GROWING THE LOCAL SOCIAL ECONOMY

The Social Investment Business Group is made up of the charity, Adventure Capital Fund, and its social enterprise, The Social Investment Business. We are one of the UK’s leading social investors and have made over 1,200 1300 investments investments in charities and social enterprises ranging from under £5,000 to almost £7 million. We specialise in both community based investment and in providing simple debt products to social purpose organisations operating at both a local and national level.

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2 Copyright September 2013 ©

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Contents

Endorsements 4 Foreword

Executive Summary

4. Framework

Source – Support – Fund

Source 25 Support 27 Fund 28

1. Rationale

Learning and evaluation

Place based social investment

5. Local Impact Funds

What is the structure of a Local Impact Fund?

European money

National investors

Local investors

Local Impact Funds

Pipeline support

Local charities and social enterprises

Annex A - Support

Growing demand for social investment in local areas 10 At a time when local resources are being redirected

Supporting innovation in public services

There is plenty of money out there to support place based social investment

But what is lacking is a mechanism to make this happen

2. Vision

Adding the ‘social’ into local economic growth strategies

Creating social capital

Annex B - UnLtd support

Annex C - References

social economies

Annex D - Glossary

3. Market

The national picture

The local picture

Local delivery mechanisms

Infrastructure support for social economy activity

Leveraging social investment into communities Supporting innovation and the creation of

Social Investment Business Group: 10 years of local social investing

Where next for local, place-based social investment? 21

Endorsements

“I am interested in the opportunity for place based investment to provide communities and social enterprises with the finance they need to build a strong, local economy and create real social benefit. This is a great prospectus by the Social Investment Business Group and I would encourage Local Authorities and Local Enterprise Partnerships to engage with the sector and consider establishing a Local Impact Fund in their area.”

Don Foster MP, Minister for Communities and Local Government

Nick Hurd MP, Minister for Civil Society

“The government is encouraging and supporting local people to become more involved in the communities in which they live; to take more control over the decisions and services which affect them. I therefore welcome this prospectus. Its message of creating sustainable social investment markets for communities across the country supports Government’s vision of devolving responsibility, power and budgets to a local level.”

“Big Society Capital is supportive of the Local Impact Funds model as a helpful mechanism for channelling European structural funds into the social investment market, to help redress significant social problems in local areas and deliver positive social impact.”

Nick O’Donohoe, Chief Executive, Big Society Capital

“UnLtd is really excited by the potential that Local Impact Funds have for helping to build an ecosystem of finance and support in communities. UnLtd is committed to working closely with Social Investment Business Group to ensure that we direct our expertise and support for strategic, wrap around solutions to growing social entrepreneurship in the UK, from startup through incubation and investment readiness to achieving their full potential.”

Daniela Barone Soares, Chief Executive Officer, Impetus – The Private Equity Foundation

Cliff Prior, Chief Executive, UnLtd, the Foundation for Social Entrepreneurs

“Impetus – The Private Equity Foundation is pleased to be working with the Social Investment Business Group as we are keen to support more charities and social enterprises that are based in a range of geographical locations. If we are to achieve a real impact on communities and society, a joined-up approach amongst similar-minded intermediaries supporting the social sector is going to become more important as sources of public funding diminish over time.”

“Social Finance has partnered with the Social Investment Business Group on providing social investment to local communities. Together we will be able to support Local Authorities, and other commissioners, that are looking for social enterprise solutions to delivering better public services by providing them with the right kind of investment for their needs.”

David Hutchison, Chief Executive, Social Finance

“I welcome the concept of Local Impact Funds as a way of stimulating social investment into social enterprises and communities, serving local needs and helping people in some of the most deprived communities across the country. They’ll compliment investments CDFIs are already making and in so doing will strengthen the growing community finance market at this critical time.”

Peter Kyle, Deputy Chief Executive, Association of Chief Executives of Voluntary Organisations (ACEVO)

“Local Impact Funds could prove a brilliant way of getting loan and grant money to the many great third sector bodies trying to deliver social impact during difficult economic times. Our social fabric is under threat and I hope to see Local Impact Funds being established across the breadth of the UK. It’s time we really boosted the social investment market and this can do it.”

“Social Enterprise UK is wholly supportive of Local Impact Funds, which could drive the growth of more social enterprise zones and social enterprise towns in England. Local Impact Funds provide a joined up model of business support and investment that social enterprises across the country need if they are to grow their impact and operations to a bigger scale.”

David Frost, Chair, Local Enterprise Partnership Network

Ben Hughes, Chief Executive, Community Development Finance Association

Peter Holbrook, Chief Executive, Social Enterprise UK

“I am really pleased to see LEPs beginning to engage with the social enterprise movement. Those LEPs that choose to support the establishment of Local Impact Funds in their areas will act as an example of practical ways for working with the social enterprise sector.”

Foreword Social investment has the potential to transform the way society functions by directing money and markets away from purely short term financial gain, and towards a more sustainable kind of activity that places social benefits at the fore, and looks to invest over the long term. The Social Investment Business Group (SIB) is committed to providing simple finance to organisations that demonstrate the strongest social impacts. Over the last ten years we have invested over £320 million in over 1,200 charities and social enterprises that are proving capital can be used to effect positive social change in communities around the UK. We are proud to launch this document, ‘Place based social investment: a prospectus for growing the local social economy’, which signals our intention to bring social investment to the organisations and communities that need it the most. The social investment market in the UK is growing at speed, but it is still small, and without a coordinated local approach to investing to bring affordable finance to charities and social enterprises, it will not be able to grow to the scale that many people would like to see. This is why we have committed to helping establish two pilot ‘Local Impact Funds’ over the next year, and it is why we have built a coalition of support around the concept of place based social investment funds. We aim to show how social investment can be used to scale up social impact in deprived areas, create sustainable growth and jobs in local economies, and drive public service reform towards delivering stronger social outcomes in communities.

Sir Stephen Bubb

Jonathan Jenkins

Chair The Social Investment Business Group

Chief Executive The Social Investment Business Group

Executive Summary There is growing demand across the UK from charities and social enterprises for finance and support to bridge working capital requirements, invest in product development and fuel organisational growth.

charities and social enterprises for appropriate finance. Chapter 1 outlines the demand and supply issues, and the rationale for place based social investment.

Our experience over ten years of social investing is that charities and social enterprises working in communities require appropriate finance for growth. This experience is reflected in a recent survey that Social Enterprise UK conducted recently, The People’s Business, where 39% of surveyed social enterprises cite access to finance as the single largest barrier to their growth and sustainability, the most common barrier experienced.1 Some estimates calculate that there is an annual funding gap of between £1.3 and £2.1 billion per year.2

SIB has developed a new financial product that will be critical to bridging the gap between demand and supply: the ‘Local Impact Fund’. Local Impact Funds (LIFs) are a local social investment fund product that provides appropriate and tailored support to charities and social enterprises in a local community. Chapter 2 sets out the vision for growing place based social investment in the UK, and how Local Impact Funds provide a locally-led solution to directing the existing supply of finance to where it is most needed.

“Local Impact Funds can also be seen as an outcome of the broader structural and administrative changes that are beginning to take root in the UK”

We see at the same time that Big Society Capital (BSC) is beginning to deploy its £600 million, successfully committing in its first year up to £56.6 million of investments in intermediaries and funds that are investing in a range of charities and social enterprises and innovative new social investment products. While this is good news, more needs to be done to find a way of matching the finance that is available with the demand that we are seeing from

1 The People’s Business, Social Enterprise UK, July 2013 2 Mind the Finance Gap, CDFA, January 2013

The social investment market in the UK is embryonic, but evolving at pace. Chapter 3 analyses the state of the social investment market in the UK at a national and local level, and drawing on SIB’s experience of making social investments over ten years, assesses the future opportunity for local place based social investment. SIB has been at the centre of the social investment movement for the last 10 years and as such has developed strong links with both local and national organisations with aligned aims and

interests. Chapter 4 outlines the coalition of local and national support that we have assembled to ensure these funds work in local areas. Local Impact Funds have been structured around a premise that investment can only function if it is accompanied by appropriate investment readiness and other business support. This is particularly true of charities and social enterprises where the difficulty of operating as businesses in a difficult economic climate is compounded by the fact that their social mission requires them to act in often the most deprived areas and work with some of the most socially excluded individuals in society. They can only take on repayable investment if they receive targeted support to do so. Chapter 5 describes how Local Impact Funds will do this while maintaining the flexibility to respond to local need.

Local Impact Funds can also be seen as an outcome of the broader structural and administrative changes that are beginning to take root in the UK: there is new legislation empowering communities to take responsibility for and ownership over their local issues (Localism Act 2011); commissioners of services are now required to take social value into account when they commission and procure for the delivery of public services (Social Value Act 2012); budgets and expenditure are being delegated from Whitehall to local bodies (Local Enterprise Partnerships and the new City Deals); and the Government’s support for innovation in public service delivery (the mutuals agenda, payment by results, the Investment and Contract Readiness Fund and many other initiatives). With so much activity taking place, and so many new opportunities being made available to the sector, it is imperative that we take up the challenge of finding ways of turning these opportunities into lasting solutions for those that need it most.

“We are so serious about the value that Local Impact Funds can bring, that we have committed to invest up to £2 million of our own money to support two Local Impact Funds this year”

We have designed a new product that can leverage investment from different sources, allowing investors to achieve positive local outcomes though their investment. We are so serious about the value that Local Impact Funds can bring, that we have committed to invest up to £2 million of our own money to support two Local Impact Funds this year, and we will look to invest more of our own money into future funds. The local aspect of the finance will focus minds and energies towards success: people feel pride in their local community, and this product provides a mechanism through which local areas can funnel resources to where they are most needed.

1. RATIONALE Place based social investment Place based investment is about the provision of appropriate finance and support to small and medium enterprises that help generate new economic activity and jobs in communities facing economic change or decline, whilst also delivering a financial return to investors. Charities and social enterprises are well placed to deliver economic activity that is socially focused, and social investment can provide them with finance to support sustainable social-economic development in a local community. This is place based social investment.

Growing demand for social investment in local areas The potential funding gap for charities and social enterprises in the UK is estimated at £1.3 billion - £2.1 billion annually.3 In contrast, the provision of social investment to charities and social enterprises was £286 million in 2012.4 The social investment market is growing apace to meet this demand, and is set to grow at an average of 38% annually: up to an estimated £1 billion of done deals in 2016, yet this is not enough to meet the demand from the sector. Evidence indicates that the broader social sector, in particular charities and social enterprises, is well placed to access more social investment in local areas. The social sector receives £7 billion annually from Local Authorities for the services it delivers locally. The estimated reduction in public sector funding to the social sector over the spending review period (2010-11 to 2015-16) is £3.3 billion.5 Many charities and social

3 Mind the Finance Gap, CDFA, January 2013 4 The First Billion, BCG, September 2012 5 UK Civil Society Almanac, NCVO 2012

enterprises will look to develop existing and new income streams in response to the economic downturn, seeking social investment to cover a range of financing requirements.

•

210 social ventures created / safeguarded.

•

3,550 FTE jobs created / safeguarded over the whole finance period

There are over 163,763 charities in the UK, controlling assets valued at over £36.7 billion. Many of these are organisations already delivering critical services in communities, and are well placed to take advantage of the Localism Act to take on more assets and deliver additional services in their local area.6

•

£23 million in annual GVA contribution at the regional economy level.

And when compared to mainstream SMEs, it is clear that social enterprises provide a broad range of benefits in areas of the greatest deprivation: almost 38% of social enterprises work in the 20% most deprived communities in the UK, compared to mainstream SMEs, where only 12% are situated in the most deprived areas.7 Social enterprises are more likely than mainstream SMEs to reinvest profits locally, actively recruit local staff, employing people that are disadvantaged in the labour market from disadvantaged communities.8 In addition to the broader positive social impact that investing in socially motivated organisations brings, there are impressive economic impacts too. Recent research9 shows that the net additional economic impact at a regional scale, generated by the £202 million of social investments made in 2011/12, was:

6 7 8 9

UK Civil Society Almanac, NCVO, 2012 People’s Business, Social Enterprise UK (SEUK), November 2011 Fightback Britain, Social Enterprise UK (SEUK), November 2011 Growing the social investment market: the landscape and economic impact, ICF GHK in association with BMG Research, July 2013

Evidence indicates, in fact, that every £1 of public sector expenditure invested in social enterprise creates £6.25-£8.33 of gross value added. This compares to a lower return of £3.57 across all markets.10

At a time when local resources are being redirected Local Authorities and other local commissioners, such as the new Clinical Commissioning Groups (CCGs) increasingly have to make tough decisions about where to spend their budgets at a time when demand for public services is growing.11 The below graph shows projected spending against projected revenue for Local Authorities, from the 2010/11 baseline to 2019/20.12 A gap opens out in 2012/13 at about £1.4 billion in cash and amounts to over £16.5 billion in 2019/20:

10 Evaluation of Community Development Finance Institutions (CDFIs), GHK, March 2010 11 The graph and details below are taken from: Funding outlook for councils from 2010/11 to 2019/20: Preliminary modelling, Local Government Association, June 2012 12 NB: these figures exclude spend for Fire, Police, Housing Benefit and the Dedicated Schools Grant as services with their own precept that all receive differential treatment through the Spending Review. The overall figure for revenue expenditure is £98.4 billion in 2012-13, a decrease of £101.9 billion in 2001-12. Local Authorities are budgeting total net current expenditure of £39.2 billion on education services in 2012-13, £21.2 billion on social care, £19.6 billion on mandatory housing benefits and £11.6 billion on police services. Local Authority Revenue Expenditure and Financing England: 2012-13 Budget, DCLG, July 2012

Fig 1: Projected spend against projected revenue for Local Authorities 2010-11 till 2019-20 Income

Net expenditure

£60,000

£ (million)

£55,000

£50,000

£45,000

This scenario, colloquially known as ‘the graph of doom’, is driving Local Authorities towards having to consider new approaches towards public service delivery, including: •

•

Local Authorities working together better: Some councils have gone beyond shared back offices and have brought service delivery together in shared organisations that answer to councillors representing more than one area. Service integration: Whole Place Community Budgets bring together the public, private and social sectors within a specific geography to deliver better integrated services that spend money better on what can be shown to improve lives and promote economic growth, whilst also cutting waste and duplication.

•

0 /2 19 20

9 /1 18 20

8 /1 17 20

7 /1 16 20

6 20

5 /1 14 20

4 /1 13 20

3 /1 12 20

2 /1 11 20

£40,000

Spinning services out: In line with the Localism Act and mutualisation agenda of central Government, Local Authorities can support non state actors to deliver services where a local Authority does not have a statutory duty to do so.

The NHS budget is also being redirected towards supporting more flexible community based approaches to service delivery. The new 221 new CCGs, set up by the Health and Social Care Act 2012, have replaced the 152 primary care trusts that previously commissioned healthcare services. They have delegated responsibility for £65 billion of the £95 billion NHS commissioning budget to plan and commission hospital, community health and mental health services.

Supporting innovation in public services New administrative infrastructure coupled with delegated budgets and an imperative to support innovative approaches to public service delivery present unparalleled opportunities for charities and social enterprises. The national Government has set up a range of initiatives to build the capacity of charities and social enterprises so that they are in a strong position to make the most of this new public services environment. These initiatives enable: •

Opening up delivery of public services to charities and social enterprises.

•

Mutualisation of public services, and spinning out of existing activity.

•

Support to improve commissioning and ‘whole place’ service delivery.

•

Investment readiness and other business support programmes for charities and social enterprises.

•

Payment by results (PbR) schemes.

£6 billion) will be available to help stimulate innovation and sustainable economic growth in some of the most deprived parts of the country.

But what is lacking is a mechanism to make this happen So, whilst there is a clear demand and need for social investment to reach into local areas across the country, and whilst there is an availability and supply of finance and support to service this need, there is as yet no clear mechanism for connecting supply and demand.

For a full list of relevant initiatives and sources of support for this, see Annex A.

There is plenty of money out there to support place based social investment Big Society Capital was launched in April 2012 as a wholesaler capitalised with up to £600 million, and is looking for investable propositions from intermediaries. The 2014-20 round of EU structural funds money (of which the UK portion is estimated at circa

2. VISION Our vision is for Local Impact Funds to become the product of choice to deliver place-based social investment in the UK. Local Impact Funds are a new social investment product that aims to resolve the market need identified in Chapter 1, by bridging the gap between supply and demand for social investment from local communities: •

Local Impact Funds will be locally driven, flexible, and responsive to need and context.

•

Local Impact Funds will provide a tailored package of support and finance for charities and social enterprises at all stages of their journey, from start up to sustainability and growth.

•

Local Impact Funds for the first time will draw together into one place an appropriate blend of national and local actors and interventions, achieving more through the sum of its parts.

•

Local Impact Funds are a UK innovation that could support social economic growth anywhere in the world.

Adding the ‘social’ into local economic growth strategies The scale of the opportunity for charities and social enterprises is large. The English Local Authorities alone are seeking more effective ways of delivering circa £98 billion of services annually. CCGs will have delegated budgets of up to £65 billion annually for locally commissioned health and social care services. Many local commissioners are driving innovation in public service delivery, adopting payment by results approaches, taking part in the Whole Place and Neighbourhood Community Budgets pilots, and promoting the mutualisation / spin outs agenda.

Local Enterprise Partnerships (LEPs) are being made the principal instrument for the UK Government’s sub national economic growth strategy. LEPs will disburse Government’s forthcoming £10bn ‘Single Growth Pot’ (£2bn a year, over 2015-20), and the circa £6 billion of EU structural funding for 2014-20. LEPs were established in 2011 in order to promote sub national growth. Some of the 39 LEPs are beginning to develop close links to the charities and social enterprises in their area, and to think about how their economic strategies can take into account the social economy. The Black Country LEP, for instance, is working closely with the Vine Trust social enterprise to create Social Enterprise Zones in the LEP area. The Social Enterprise University Enterprise Network (SEUEN) published a recent report13 with specific recommendations for how LEPs could do this: 1. Each LEP should have a Social Enterprise Champion on its Board. 2. Each LEP should map social enterprises in their area and talk to local social enterprises about their needs in order to inform the development of locally appropriate support. 3. LEPs should consider a package of support for social enterprises. This may include investment readiness, innovation centres, mentoring and digital data mining. 4. LEPs should develop a project to identify key supply chains in their area and help social enterprises bid for new work / public sector contracts.

13 Why all LEPs should have social enterprise at the top of their agenda, SEUEN, July 2013

5. When developing their EU funding strategy for 2014-20, LEPs should specifically consider projects which benefit social enterprises, working with other LEP areas. Chapter 4 (‘Framework’) and Chapter 5 (‘Local Impact Funds’) set out how a joined up ecosystem of support with tailored and engaged investment can support LEPs to deliver on the last four recommendations.

Creating social capital As well as delivering economic impacts such as job creation, investing in local social economy activity inspires local communities, and supports social inclusion by amplifying connections within and between individuals and their respective social networks. Social capital creates value by helping build networks, aspiration and opportunity through connecting those with talent, knowledge and resources with those that are looking for opportunities and / or support, resulting in: •

Creation of new community groups or social networks.

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Helping people connect with others they might not usually meet.

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Taking positive action as a group.

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Promoting neighbourliness and encouraging people to help each other out.

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Promoting trust within or between communities.

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Empowering people to get involved in local decision making.

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Providing communities with greater access to information.

UnLtd, the foundation for social entrepreneurs, finds that on average every social entrepreneur it supports through its peer to peer support scheme goes on to provide direct support to a further 10 people looking to start up or grow a social venture14.

Leveraging social investment into communities Local Impact Funds can provide charities and social enterprises with access to the different kinds of finance they need: working capital to support contract delivery, finance for asset purchase, investment into research and development, finance to purchase expertise to develop capacity, systems and more. Local Impact Funds can also provide tailored business and investment readiness support to ensure that the charities and social enterprises are able to manage the social investment, and report their financial and social performance better. All of this will result in more opportunities for services being delivered by and for the community, with connections into, and support from, the local area, generating employment and multiple other outcomes in that area.

14 Annual Review 2011/12, UnLtd, 2012. In addition, 72% of UnLtd award winners encouraged another person to set up a social venture, and 59% supported another social entrepreneur in setting up their venture, either in an informal or formal role.

Supporting innovation and the creation of social economies Place based social investment will result in a more â&#x20AC;&#x2DC;socialâ&#x20AC;&#x2122; economy in local areas. Local Impact Funds will provide affordable and appropriate finance, giving charities and social enterprises the finance they so desperately need to grow and improve, and contribute to rebalancing the wider economy by supporting sustainable models and approaches that deliver social as well as economic benefits.

3. MARKET The national picture The social investment market is small when compared to other financial markets, but is growing at a significant rate. Recent evidence shows that there were an estimated 180,000 SME social enterprise employers in the UK. They are creating jobs, employing around two million people in 2012 and contributing some £55 billion to the UK economy, bringing wealth into communities and helping to rebuild the economy15. And this sector is growing. When compared with SMEs, 38% of social enterprises saw an increase in turnover compared with 29% of SMEs, and 22% of social enterprises experienced a decrease compared with 31% of SMEs16. The role of BSC in accelerating this growth in demand has been critical: within its first year of operations (2012-13) it had committed over £56 million into 20 different social investment finance intermediaries17. A report commissioned by Big Society Capital in 2012 indicated that demand for social investment could rise from £165 million worth of done deals in 2011 to £286 million in 2012, £750 million in 2015 and to as much as £1 billion by 201618. This amounts to an average 38% growth in demand year on year.

15 Social enterprise: market trends, based upon BIS Small Business Survey 2012, BMG research, Cabinet Office, May 2013 16 The People’s Business, SEUK, July 2013 17 Annual Report, BSC, May 2013 18 The First Billion, BCG, September 2012

The local picture The landscape at the local level is also evolving as a result of the Government’s public service reform agenda. There has been a steady change in levels of voluntary income (grants) and earned income (contracts) from Government funders to charities and social enterprises. From 2000-01 to 2010-11, grants from government declined from £4.6 billion to £3 billion19. In contrast, contract income from government was worth £11.2 billion in 2010-11, a real increase of £6.7 billion (151%) since 2000-01 (when it was worth £4.5 billion)20. Of the £11.2 billion of services being delivered by charities and social enterprises, only £6.121 billion currently is from contracts for services at a local level. This constitutes 8.8% of the total value of local government annual expenditure22 on commissioning and procurement of goods and services and represents the immense potential offered by the Localism Act and other initiatives to encourage people to take on services at a local level.

Empower Community Management Sustainable low carbon economy for all Empower Community Management is a ‘profit for purpose’ company that works with key community stakeholders, such as local authorities, housing associations, church groups and others, to accelerate the transition to sustainable, low carbon local economies. Their key focus is economic and ecological sustainability achieved through a socially inclusive approach. Empower have had a £108,650 grant from the Investment and Contract Readiness Fund (ICRF) to work in partnership with their ICRF provider, Social Finance, to refine their investment offering and legal processes. They started out with an UnLtd grant. With support from the ICRF, they are looking to raise £15m in summer 2013 through an inflation-linked amortising bond with a real yield of 3.5% plus inflation. This quasi-BBB product is a solid, attractive financial tool for institutional investors, with yields based on Feed-in Tariffs. The capital raised through the bond will enable Empower to help over 3,000 households in York and the North East of England access free energy which will save each household at least £250 a year or 2.5% of their average annual income. At least £10m is also expected to return to the community through the participating housing associations and Empower’s community development trust to address fuel poverty, reduce the community’s carbon footprint, fund local job creation and skills development in the clean power industry.

19 20 21 22

UK Civil Society Almanac, NCVO, 2012 UK Civil Society Almanac, NCVO, 2012 UK Civil Society Almanac, NCVO, 2012 UK Civil Society Almanac, NCVO, 2012

Local delivery mechanisms

•

Networking opportunities and events.

Place based social investment needs an effective delivery mechanism, able to act as an intermediary and ‘honest broker’ between the range of national and regional investors (including European funders) and local organisations seeking investment.

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Mentoring.

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Education.

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Incubation services.

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Consulting.

These intermediaries are often referred to as community finance providers, and include Community Development Finance Institutions (CDFIs), Social Investment Finance Intermediaries (SIFIs) and in some cases credit unions. CDFIs form the bulk of local independent social investors, with around 70 existing across all four UK nations.

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Advocacy.

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Grant funding.

They are constituted as social enterprises that invest in individuals, enterprises and social organisations that are unable to source finance from mainstream providers like banks. They are able to blend a range of funding types from soft, grant based loans through to more traditional commercial loans. This means they structure their own funds so as to be sure of best serving the communities in which they are rooted; they pride themselves on forming strong relationships with those to whom they lend, and in so doing build the confidence, skill and capability of the wider sector.

Infrastructure support for social economy activity In cities and communities across the country there are intermediary organisations that incubate and support charities and social enterprises through the provision of customised support, in addition to the provision of finance, such as:

These organisations include representative or infrastructure organisations, such as social enterprise networks, community and voluntary services and social enterprise hubs; community anchors such as universities, housing associations, colleges and large local employers; and emerging specialist agencies, such as legal, accounting and other advisory service firms for the social sector.

Social Investment Business Group: 10 years of local social investing 23 SIB has made over 1,200 investments (as grants, loans, and equity-like investments) to charities and social enterprises, totalling £320 million over the last ten years, in local communities across the UK. Over £48 million of that has been invested in local or community enterprise in the last ten years through Communitybuilders, the Community Asset and Services Fund and other asset transfer financing.

23 NB: all figures included in this section are valid to 28 February 2013. The figures exclude ACF investments, referring to SIB investments only. Figures include grant only funds, such as the Community Asset and Services Fund.

Future Health and Social Care Association CIC Supporting the most vulnerable people in the community Future Health and Social Care Association CIC (FHSC) began in 1996 with the formation of the Future Housing and Community Care charity. It converted to a CIC (a legal form for social enterprises) in 2007. It was founded by concerned members of the African-Caribbean community in Birmingham who felt that the Government’s initiative of care in the community was not meeting the needs of those who were most vulnerable, including people with mental health issues and learning difficulties. FHSC wished to move away from reliance on private sector solutions to manage their own properties for tenants that would provide a protected tenancy for 40 service users in fit for purpose properties. It applied to the Social Enterprise Investment Fund for an investment to purchase 30 apartments. The £3.11 million investment consisted of: •

£2,687,400 loan. The loan was made over 20 years at 6% interest rate.

•

£423,000 capital grant.

•

Legal fees associated with the purchases and their fit out costs.

FHSE successfully purchased and fitted out the apartments and is repaying the investment. FHSE now provides housing solutions to people with learning disabilities and other vulnerable groups, and currently employs around 120 people.

Approximately 57% of SIB’s investments have been made in health and social care and another 20% in community development initiatives (including the purchase of local land and purchase by the community). 44% of SIB’s investments were made in areas that were in the 25% most deprived areas in England. These areas include Liverpool, Bradford, Birmingham, Manchester, Walsall, Oldham, Sheffield, Northumberland and London (Tower Hamlets, Hackney). In fact, at least 267 of the 326 English districts have received an investment from SIB, showing how demand from investees for social investment from SIB has wide geographic spread24. The chart below shows all SIB investments split according to the geographical location of the investee.

Fig 2: SIB investments split according to the geographical location of the investee 15%

11% 4%

11%

15%

7% 8%

7% 22%

East England

North East

South West

East Midlands

North West

West Midlands

London

South East

Yorkshire & the Humber

24 This mirrors the findings collected Growing the social investment market: the landscape and economic impact, ICF GHK in association with BMG Research, July 2013: “the pattern was of no dominance of one sector, region or social outcome, suggesting there is diversification across the social investment market”, p2.

The table below shows the ten Local Authorities areas where SIB has made the most significant investments of grants and loans:

Local Authority

Loan

Capital Grant

Revenue Grant

Grand total

Islington25

£12.01m

£1.97m

£9.25m

£23.52m

Birmingham

£6.20m

£3.34m

£1.64m

£11.24m

Liverpool

£6.80m

£3.07m

£0.84m

£10.72m

Southwark

£5.99m

£2.46m

£1.80m

£10.25m

Haringey

£8.86m

£0.58m

£0.54m

£9.98m

Camden

£5.44m

£1.69m

£2.63m

£9.76m

Manchester

£8.18m

£0.81m

£0.67m

£9.66m

Sheffield

£3.57m

£3.87m

£1.04m

£8.69m

Wandsworth 26

£7.59m

£0.43m

£0.59m

£8.61m

Bradford

£5.05m

£1.85m

£0.89m

£7.79m

Fig 3: Local Authority areas with the most significant SIB investments

From these ten Local Authority areas alone we note:

investment (debt and equity-like) based on the responses so far. Key findings include:

•

There is good national geographic spread, covering six LEP areas (London, Liverpool City Region, Greater Manchester, Sheffield City Region, Leeds City Region, Greater Birmingham and Solihull).

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285 charities and social enterprises have responded so far.

•

There is demand for over £350 million from these 285 responses.

The overall proportion of loan to grant is: 64% / 36%.2526

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57% of respondents serve a local area (of which 43% serve only a local area and the further 14% serve their locality alongside having a larger geographical reach).

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52% of the local organisations had a turnover of over £500,000 in 2011-12.

•

41% said that over half of their income in 2011-12 was earned from contracts and other commercial activity.

•

67% of respondents sought investment of over £100,000.

•

Where next for local, place-based social investment? SIB started the ‘Future Financing Needs’ survey with its current and prospective investees in July 2012 and has examined future demand for

25 NB: 85% of the investment figure comes from investments in nine |large charities. 26 NB: 82% of the investment figure comes from investments in two large charities.

Respondents were also asked what they were seeking investment for, and the bar chart opposite shows that they seek investment for a range of activity, in particular finance for growth.

Alt Valley Community Trust Community enterprise approaches to education Alt Valley Community Trust is a pioneering community anchor organisation established in 1983 as an Educational Charity to support lifelong learning within the Croxteth community. AVCT received two loans from Adventure Capital Fund. The first was a loan for purchase and refurbishment of the Communiversity and the second was a loan for purchase and refurbishment of the Croxteth Sports Centre.

These investments have allowed AVCT to provide education, employment and health and wellbeing services to the local community in Croxteth via a number of projects including: •

The Communiversity: adult education, community development, local library, café.

•

The Skills Centre (Alt Valley Community College): post 16 education and vocational training.

•

The Sports & Wellbeing Centre: membership gym, health and wellbeing activities.

•

The Sports and Tech blocks of the former local school (which are now leased from Liverpool Community College) providing sports and vocational training through apprenticeships in construction and catering.

The first £200,000 investment consisted of: •

£100,000 loan charged at 1% interest over a term of 8 years with a 3 year capital holiday. This was repaid in full on 18 May 2012.

•

£100,000 loan, repayable by evidenced Social Impact, fully evidenced and loan repaid on November 2010.

The second £220,000 investment consisted of:

•

£176,000 loan charged at 6% repayable over 10 years with a 2 year capital holiday.

•

£44,000 grant.

Research conducted by the Joseph Rowntree Foundation (‘Rebalancing Local Communities’, October 2010) identified AVCT as a key factor that had influenced improvement in Croxteth.

Fig 4: How respondents to the Future Financing Needs survey intend to use their proposed investment

Proposed use of investment

Buy or refurbish an asset

Grow an existing service

102

Start a new service

Become investment ready

102

82 40

Real Ideas Organisation CIC Scaling up impact, entrepreneurship and innovation Investment and Contract Readiness Fund grants are used by social ventures to purchase specialist investment readiness and / or contract readiness support from accredited providers, to help them raise over £500,000 of investment or £1 million of new contracts. An application for £117,000 from the Real Ideas Organisation CIC (RIO) to raise £600,000 of investment illustrates the scalable potential of much social enterprise activity.

100

120

The SEQ is scalable, potentially creating opportunities for all young people in the UK and beyond to develop the skills and knowledge to set up and run a social enterprise project while they are at school, hopefully significantly increasing the numbers choosing ethical and socially driven businesses to work in or set up once they are adults. Over the last ten years SIB has invested £27.9 million into social enterprises across 33 Local Authority areas in the South West, of which £9 million has been invested in 14 Local Authority areas that are within the top 25% most deprived areas of England.

RIO develops creative social enterprise learning for school age young people, and one of its products is the Social Enterprise Qualification (SEQ). The SEQ is currently the only Level 2 accredited framework for social enterprise in the UK.

4. FRAMEWORK Source – Support – Fund The Local Impact Fund offer is simple - to provide a package of support that includes: •

Pipeline development in a local area to be sure that charities and social enterprises are in a strong enough position to take on repayable finance.

•

Referrals and partnership working to ensure charities and social enterprises have access to the wider ecosystem of support available to them.

•

Financing and engaged investment so that charities and social enterprises receive the finance they need and are supported to manage repayments appropriately.

Fig 5: The Local Impact Fund framework Evaluation

SOURCE

SUPPORT

Learning

FUND

The model on the previous page shows the different components of the offer and below is outlined some of the different partners needed to help ensure the approach succeeds. For a Local Impact Fund to work over the long term, a model of support and finance needs to be designed that helps source investable charities and social enterprises, identify potential future investees, and assess their support needs; that can support charities and social enterprises on their journey towards growth and sustainability, drawing on existing support, and designing new support structures where relevant; and that can fund them in a way that is flexible and responsive to their needs, not the needs of investors.

Source The first stage of establishing a fund starts with an understanding of the context and environment we want to work in. Some of the key requirements and indicators that should be considered before engaging with a local area include:

Requirement

Key Indicator

Evidence of social enterprise demand for social investment

Local research Investee data from social investment finance intermediaries

Evidence of substantial demand for social change

Multiple Deprivation Index (MDI) data Other local data

Evidence of infrastructure support for social enterprises

Representative organisations in the area Business support funds / initiatives

Evidence of an investment culture in the area

Public / private investment in similar initiatives Other social investment finance intermediaries

Evidence of public service innovation

Payment by results activity, spin outs, use of the Localism Bill, involvement in Whole Place Community Budgets, etc.

Fig 6: Key requirements when engaging with a local area

If a local area meets these requirements, the next stage is to analyse the local context, including:

•

Demand for social investment from charities and social enterprises.

•

Social issues in the area.

•

Ability of charities and social enterprises to act in new public services markets.

Supply of social investment for a potential Local Impact Fund.

•

Support to charities and social enterprises to access social investment.

•

Sustainability of charities and social enterprises through diversified income sources.

ACEVO Solutions and SIB have agreed to work together to analyse local needs and map the demand for Local Impact Funds.

The Vine Trust

and the Investment and Contract Readiness Fund (ICRF):

Building a local social economy for the long term

•

VT received a total of £1.9 million (£1.26 million loan and £0.63 million grant) from CB in 2008 for the purpose of funding the purchase of land and buildings to create the Goldmine.

•

VT received a total of £215,500 (£141,000 loan and £74,500 grant) from FB in 2009 to cover the cost of the stamp duty and legal / professional fees for the Goldmine.

•

VT won a £97,280 award from the ICRF in early 2013 to procure specialist support to help them raise over £1 million of new investment to acquire and re-fit new buildings in the area.

The Vine Trust (VT) is a faith inspired Social Enterprise working to improve the lives of hard to reach young people in Walsall. Since it was established in 1989, its perseverance in driving local social change was recognised with a SEUK nomination for best Social Enterprise town in 2013. The longer term aim for VT is to create a Social Enterprise Hub town model for other areas to replicate. VT originally came to SIB for investment in 2007 to develop a new community hub some 30 metres from its existing main building in central Walsall. Included in the hub is a new building, Goldmine, which was completed in late 2012 and which has become VT’s flagship education centre expanding on the work of their existing successful Pupil Referral Unit. Over the last six years VT has received investment and support from Communitybuilders (CB), Futurebuilders (FB)

VT has supported the establishment of four social enterprise zones in the West Midlands, and has put the Black Country LEP and the West of England LEP at the forefront of engagement with social enterprise.

Support Local Impact Funds will work with the whole range of charities and social enterprises in a local community, from start-ups to established businesses. In order for potential investees to be made aware of the opportunity, and given adequate information, it is critical to engage with the right local representative bodies.

Big Lottery Fund and SIB have agreed to improve signposting and joint working on their respective pipeline development funds to simplify the customer journey for charities and social enterprises.

Social Enterprise UK and SIB have agreed to link Local Impact Funds into the broader ‘Social Enterprise Zones’ campaign, as part of a ‘wrapper’ of local social economy activity.

Impetus – The Private Equity Foundation is pleased to be working with the Social Investment Business to support more charities and social enterprises across the country. With traditional sources of public funding diminishing, a joined-up approach from organisations supporting the social sector is an essential component of allowing social investment to make a real impact on communities and society.

A Local Impact Fund should start with the Social Enterprise Network, local VCSE representative organisation, CDFI or other local champion for charities and social enterprises seeking social

investment. These bodies are likely to have the closest and most personal, or ‘on the ground’, relationships with potential investees, and their support is critical if a Local Impact Fund is to work in a local community. The following stakeholders will also, no doubt, have aligned interests around place based social investment, and may be counted on to support the establishment of a Local Impact Fund: • Local commissioners: such as the Local Authority, the CCG and the LEP. • Local business community: such as the local Chambers of Commerce, Enterprise Agencies, Business in the Community. • Local lending institutions such as CDFIs, SIFIs, some local authorities and credit unions. •

National social enterprise support: such as UnLtd, the School for Social Entrepreneurs, the Plunkett Foundation, the Community Development Finance Association, and the Big Lottery Fund.

• National representative bodies: such as Social Enterprise UK, Co-operatives UK, NCVO, ACEVO and the CDFA. Some areas will already have established programmes and networks of local support. For a Local Impact Fund to make best use of existing local and national resources, a joined up programme of pipeline development activity should be drawn up, with new resources directed at filling in the gaps identified in a local area. Combining existing local resources, best practice, knowledge and experience can build up a local programme of support from start up through to investment readiness.

It also enables the local key anchors (Universities, colleges, Housing Associations, SME’s, corporates) and others in localities to join up with national offers such as SIB, UnLtd, and others for spotting talent, investing resources and supporting charities and social enterprises on their journey from starting up to growth and sustainability. Formalisation of this network approach provides the leadership to encourage the sharing of best practices and intellectual capital. It also creates a more navigable and efficient resource for charities and social enterprises. There is power in numbers: by creating a place based ecosystem the community’s need is met holistically, but also it can help demonstrate the power and needs of the sector.

Fund Chapter 5 covers in greater detail how Local Impact Funds will be structured and set up.

Where relevant, Social Finance and SIB will work together to make sure that Local Impact Funds and Social Impact Bonds are mutually supportive, and help deliver local public services through charity and social enterprise activity.

The three key questions however that need to be taken into account include: •

Who are the investors and what are their motivations?

•

What is the level and nature of investee demand for social investment?

•

What is the state of the local economy, in particular, of public sector markets?

Other important questions include: •

What should be the geographical boundary of the fund?

•

Which partnerships will help deliver the most effective Fund?

•

What will be the level of post investment support, especially for ‘distress’ situations?

•

What does ‘affordable’ or ‘appropriate’ finance mean in a local context (i.e. is there security? Will this impact on price for investees? How will contract margins impact on the cost of finance? Can different investors take different risk-return positions?)?

These questions should have been asked during the design stage of the Fund.

Learning and evaluation Learning and evaluation will need to be built in from the start to ensure that the source – support – fund framework has the flexibility to adapt to external changes and improve as the product becomes more established. Local Impact Fund practitioners should be encouraged to share their learning and experience so that the greatest number of communities can benefit from this product.

UnLtd and SIB have agreed to work together to help design an ‘ecosystem of support’ for any Local Impact Funds they might establish. This pipeline will be supported through 3 approaches: •

Direct delivery by UnLtd: place-based start-up, development and growth support including investment readiness through Big Venture Challenge to create a ready market for investors, national support providers and corporate CSR programmes. One thousand entrepreneurs secure financial and non-financial support from UnLtd each year. In addition to its own core programmes, ESF and ERDF targets have been delivered in local initiatives and UnLtd currently works with Big Local Trust to deliver to 150 local areas across England.

•

Direct / co-delivery by local partners: working with local support delivery agencies to share knowledge, tools and networks to combine local knowledge and trust with a national resource pool to expand local delivery capabilities and leave a useful legacy. UnLtd has this experience; for example, the Big Local Trust

programme is engaging local communities to deliver support and the Santander Spark initiative is encouraging viral and peer to peer support activity. •

Mobilisation of local and regional anchors: over 40% (56) of English universities and 30 Further Education (FE) Colleges are working with UnLtd to provide support to their students who wish to establish a social venture, recognising the leadership skills and employability benefits that this brings. In addition to Universities and FE Colleges, there is strong potential to lever in a range of local assets though involving other anchors such as housing associations, corporates and charities all of which increases the development activity in the local area, and develops sustainable support to help social entrepreneurs to start up and grow beyond EU programme funding.

UnLtd has a series of well-developed proposals it will publish shortly. UnLtd recognises that each LEP area has its own individual opportunities and needs, and UnLtd welcomes discussions with LEPs to create a specific activity proposal.

5. LOCAL IMPACT FUNDS What is the structure of a Local Impact Fund? The diagram below shows the template structure for Local Impact Funds:

Fig 7: Local Impact Fund model LEP* (STRUCTURAL FUNDS)

BIG SOCIETY CAPITAL*

NATIONAL INVESTORS

LOCAL INVESTORS

Equity/debt

Key

GRANT MAKERS Grant

Grant

PIPELINE SUPPORT

LOCAL IMPACT FUND

Equity /debt

CHARITIES AND SOCIAL ENTERPRISES

Money

Investor

Expertise

Intervention

Close link

Beneficiary

(*) Please note: Sources of potential funds have been included for illustrative purposes only. Each Local Impact Fund will be agreed by investors on a case by case basis. Each Local Impact Fund will be composed of different investors, possibly with different risk-return profiles.

European money Local Impact Funds can enable LEPs to deliver positive change and achieve the desired social and economic outcomes within a deprived area using EU monies. We expect EU funding, where it is available, to contribute up to 50% of the total of a Local Impact Fund.

Communities Investment Fund, Wales Using European funds to create local impact

•

The Fund provides loans of £20k - £250k.

•

Loans can be up to 25 years, and can include repayment holidays.

Patient capital loans to charities and social enterprises in Wales.

•

The Fund has a flat 6% fixed interest on loans.

Some grants to make charities and social enterprises investment ready.

•

There are no additional fees or penalties.

•

The Fund works closely with support providers to provide wrap around support.

The Wales Council for Voluntary Action (WCVA) created a Communities Investment Fund (CIF) in 2006 to provide: •

•

The CIF has approved over £4 million of investments since 2006, and received repayment of c. £1.5 million to date. Fund characteristics include:

Support for job creation and delivery of social impact.

The CIF is active in the West Wales and the Valleys area, covering areas of both rural and urban deprivation, and investing in isolated communities with poor infrastructure. It receives European Regional Development Fund (ERDF) Convergence Funding as investment, allowing the Fund to recycle funds into further investments.

The CIF is managed by WCVA and has an independent credit committee reviewing all applications into the Fund. WCVA works closely with the Welsh Government to ensure the provision of support and finance for charities and social enterprises in West Wales and the Valleys is joined up. WCVA is currently discussing with the Welsh Government a successor fund for post 2014.

This meets the European Commission’s vision for a more balanced single market with a greater focus on social entrepreneurship, inclusive growth and the wider social economy. It also meets the objectives of EU structural funding, whose purpose is to support economic growth and employment in the most deprived areas of Europe. EU money is not totally critical however for this model to work, and where there is no EU money available, a Local Impact Fund can seek investment from other sources.

National investors National social investors, such as Trusts and Foundations, could be approached to invest in the Local Impact Fund product. Other institutional investors that have not yet entered the social investment market may be interested in this product as a means of supporting community development. Local Impact Funds could even provide a mechanism for a kind of community reinvestment and for that reason may be attractive to high street banks.

SIBâ&#x20AC;&#x2122;s parent charity, the Adventure Capital Fund (ACF), has committed to investing ÂŁ2 million through the Communitybuilders Fund in 2013-14 in two pilot Local Impact Funds27. This investment will seed the pilot funds and leverage investment several times over from other investors.

Local investors Local trusts and foundations, such as Community Foundations, may be interested in Local Impact Funds as a way of recycling philanthropic money, investing funds into more charities and social enterprises than they can currently support through grant making.27 Larger charities and social enterprises with a specific regional or local coverage may want to invest some of their money into Local Impact Funds in their areas.

27 NB: ACFâ&#x20AC;&#x2122;s investment focus is on developing community enterprise and operating in areas of high social need.

Over time (and to some extent depending on the outcomes of the HM Treasury consultation in 2013 on a social investment tax relief) Local Impact Funds may provide a platform for individuals and community groups to invest small amounts locally into their communities, perhaps to turn around a community pub, or support the purchase of a local playground. As the Local Impact Fund will provide multiple benefits to a local area, in particular through stimulating innovation, efficiency and improvements in public service delivery, it may be of interest to local public commissioning bodies for some element of investment. Once track record has been established, Local Impact Funds should attract other institutional investors like Local Authority pension funds.

Local Impact Funds Though each fund will differ according to local factors, each should represent the following, common characteristics:

Characteristic

Description

Fund principles

Provide simple, affordable finance to charities and social enterprises. Act as an engaged investor. Signpost to appropriate business and investment support services. Co-design with partners. Capture learning and feed into continuous evaluation.

Fund model

Target size: £10 million. Fund maturity, interest rates and management fee TBC.

Governance and reporting

Governance to include an appropriate mix of local and national partners. Governance to represent the requirement of investors, grant makers and local representatives with an interest in social economic regeneration. Reporting arrangements to include social impact measurement.

Fig 8: Common features of all Local Impact Funds

Kent Big Society Fund A Local Authority building more sustainable charities and social enterprises

by sharing template governance, policy and process documents during set up, and provides on going due diligence support on applications. Fund characteristics include: •

£350k invested to date.

Kent County Council (KCC) established a Big Society Fund (BSF) in January 2012 to provide:

•

£1.7 million worth of specific interest.

•

Support to transition grant dependent social enterprises towards sustainability.

•

£3 million investment (as soft loan and grant support) over 3 years.

Provision of soft loans of £10,000£100,000, for up to 5 years with repayment holidays.

•

Support for job creation and the generation of social value in the area.

Up to 10% of the £3 million can be provided as grants for business support.

•

Flat 5% fixed interest on all loans.

•

The Kent Community Foundation takes a 4% management fee immediately on all loans and an overall 4% fund management fee from KCC.

•

The BSF does not have a close date, though it has been profiled on a 5 year scenario (to 2017) based on current experience.

•

Kent is a large and diverse county with both urban and rural communities, pockets of deprivation, and a limited social enterprise presence. KCC wanted to build a bigger and more sustainable social enterprise sector, and developed the BSF as part of a broader support for enterprise programme. It is expected that many social enterprises going through the BSF will be able to progress onto funds for SMEs. The BSF is managed by the local Community Foundation. The Key Fund supported the BSF

Pipeline support As mentioned in Chapter 4, an appropriate and tailored programme of pipeline support should be put in place for every Local Impact Fund. It should seek to produce start-ups as well as supporting established charities and social enterprises, so that the Fund has investable propositions during its lifetime beyond initial launch. It should also seek to fit around and enhance existing local and national interventions, avoiding duplication or overlap. European money in the form of grants, and national grant making bodies could be approached to help finance this, and the programme should seek to cover the following activity areas:

Start up

Incubation

Capacity Building

Investment Readiness

Grant range

<£5k

<£25k

£10k - £75k

£50k - £150k

Average grant size

£3k

£17.5k

£50k

£100k

Grant purpose

To get a project or idea started

To turn a project or idea into a business proposition

To improve the systems and expertise of an existing organisation

To build an investment proposition for an organisation seeking to raise investment

Fig 9: Proposed programme of subsidy and early stage financial support

The development of the support infrastructure, including the target volumes of organisations being supported, the amounts of grant support available and the make-up of the support provision should be assessed and constructed according to local need. UnLtd is looking to design and deliver a model for a tailored ‘ecosystem of support’ at this local level. For more details about UnLtd see Annex B.

Local charities and social enterprises Social enterprises surveyed in SEUK’s State of the Social Enterprise Survey 201328 indicated that: •

The most frequent amount of finance sought (25%) ranged between £10,000 and £50,000.

•

The median amount sought by all social enterprises was £58,000 and the median amount received in 2013 was £30,000.

28 The People’s Business, SEUK, July 2013

•

The majority (52%) of social enterprises were seeking development capital, to fund growth or new services and products.

•

Almost a third (31%) of social enterprises are seeking working capital to manage cash flow.

These responses also reflect SIB’s own 10 years of experience as a social investor: there is a great demand for soft capital (patient, riskier, often unsecured investment) in this sector. Target volumes of charities and social enterprises that will need to be supported through the pipeline support programme and the Local Impact Fund, should be agreed in advance, and will be contingent on the make-up of the sector in each local area, and the sector’s requirements for support and finance. Some areas will be richer in start-ups, other areas in long established organisations. All elements of the Local Impact Fund and attendant pipeline support programme will need to take these particularities into account, and be sure to respond appropriately to need. Investment into a pipeline support programme and a sustainable Local Impact Fund could result in: •

Increase in jobs created.

•

Increase in businesses (charities and social enterprises) created.

•

Increase in turnover of existing businesses.

•

Safeguarding of existing jobs.

•

Increase to local GVA (Gross Value Added), indicating local economic growth.

•

Investments in businesses that deliver positive social and environmental impact.

•

Improvements to local communities, local assets and local services.

Annex A - Support Capacity building initiatives for charities and social enterprises There are several programmes managed by and for central Government Departments and the Big Lottery Fund that have been established to support charities and social enterprises:

Fund

Size

Fund manager

Investment and Contract Readiness Fund (ICRF), which supports high growth potential social ventures that are looking to access social investment or bid for new contracts in order to scale up their operations and impact.

£10 million

Social Investment Business (on behalf of the Cabinet Office)

Community Assets and Services Grants (CASG) programme which supports communities to buy local buildings and assets and deliver local services rather than the Local Authority.

£26 million

Social Investment Business and locality (on behalf of the DCLG)

Social Incubator Fund aims to help drive a robust pipeline of start-up social ventures into the social investment market, by increasing focus on incubation support, and attracting new incubators into the market.

£10 million

Big Lottery Fund (on behalf of the Cabinet Office)

Social Outcomes Fund is intended to deal with the main problems holding up the growth of social impact bonds (SIBs): the difficulty of aggregating benefits and savings which accrue across multiple public sector spending ‘silos’ in central and local government. The fund provides a ‘top-up’ contribution to outcomes-based commissions (PbR or SIBs) that are designed to deal with complex and expensive social issues.

£20 million

Cabinet Office

Mutuals Support Programme (MSP), which was set up to provide professional support to new and developing mutuals so they can overcome barriers to growth.

£10 million

Cabinet Office

The Commissioning Academy is a development programme for senior commissioners from all parts of the public sector. It is ‘virtual’, meaning there is no fixed location and the programme is run at venues across the UK. The Commissioning Academy programme uses practical, peer-led learning, covering key commissioning issues.

£0

Cabinet Office

Big Potential will support charities, voluntary organisations and social enterprises to move towards investment readiness, in order to improve their sustainability, capacity and scale to deliver greater social impact.

£10 million

TBC (on behalf of the Big Lottery Fund)

Commissioning Better Outcomes will help to grow the market in social impact bonds and other outcomes based investment instruments so that more people can lead fulfilling lives, in enriching places, as part of successful communities.

£40 million

Big Lottery Fund

Community Finance Fund for CDFIs is a loan fund (supported by the Regional Growth Fund) targeted at non-profit and for profit enterprises across England that are regenerating local economies. Individual loans are typically around £25,000, but can reach up to £100,000, or can be increased by whatever the matched element offers.

£72 million

CDFA (on behalf of BIS, Unity Trust Bank and the Co-operative Bank)

StartUp Loans scheme through CDFIs is a BIS loan fund targeted at early stage and start up business (both non-profit and for profit). Loans are disbursed through CDFIs and are typically in the £2,000 - £10,000 band.

£10 million

CDFA (on behalf of BIS)

Annex B - UnLtd support Providing an ‘UnLtd’ ecosystem of support UnLtd is the Foundation for Social Entrepreneurs, and the leading provider of support to social entrepreneurs in the UK. UnLtd provides individuals aged 16+ and informal groups with cash awards and practical support which includes coaching, training and networking opportunities to help them develop entrepreneurial solutions to social problems. UnLtd supports them from start up to investment readiness. Since 2003, UnLtd has supported 20,000 social entrepreneurs through core and partner programs. This is an investment of over £70 million of financial and non-financial support to social entrepreneurs across the UK. This is the largest social entrepreneurship support program anywhere in the world. This work continues to foster a positive environment for social entrepreneurship in the UK and UnLtd’s surveys show that: •

76% are still running their venture 3 years after getting an award from UnLtd.

•

97% said access to cash, support and networks was important to get started and grow.

•

63% generate some or all of their income through trading.

•

95% create social capital.

•

60% of their award winners support other social entrepreneurs to start up.

•

33% of all UnLtd awards have been made in the 20% most deprived areas of the UK.

•

Nearly 1 in 3 awards going to people from minority ethnic backgrounds.

UnLtd has developed its model over 10 years using the experience and learning:

UnLtd UK core model Backing people first, projects second Seed funds, confidence building, development support, skill building, contacts and networks Four stages - the first four stages into becoming a social entrepreneur Thousands of micro ventures, dozens of national scale ventures Building an ecosystem of start up support: getting mainstream agencies to adpot the model

STEP 01

STEP 02

Taster experience to build confidence

Someone with an idea

STEP 03

Making a start, trying it for real

STEP 04

Social venture getting to sustainability, entrpreneur going full time

Try it award:

Do it award:

Build it award:

£500, confidence, support

£5k, confidence, connections

£15k Grant, skills, connections, mentors

Incubation to get ready to scale up and become investment ready

Big Venture Challenge:

Social venture getting to national impact

Brokerage: to social investors

£25k-100k match funding, skills, connections Wayra UnLtd: digital and mobile tech incubator

Fast Growth Awards: £20k, intensive support, mentors

Desired outcomes

STEP 05

People often come in and step off this journey at any point, though many stay networked. Most people become local / sole traders, a minority scale up

More social entrepreneurs get help to start up and scale up Skills and confidence to lead Supportive environment Social captial Social impact Social innovation

Business model 40% Core endowed foundation from National Lottery

60% External funders using the model to deliver their priority areas eg uni’s, youth, poor communities.

Economic impact Raised aspiration in disadvantaged communities

Pro bono mentoring and peer to peer support Amplifying model: Inspire and train mainstream agencies to resource and deliver support in their sectors eg unversities

It should also seek to fit around and enhance existing local and national interventions, avoiding duplication or overlap.

Annex C - References 1. The First Billion, BCG, September 2012 2. Annual Report 2012/13, Big Society Capital, May 2013 3. Social enterprise: market trends, based upon BIS Small Business Survey 2012, BMG research, Cabinet Office, May 2013 4. Mind the Finance Gap, CDFA, January 2013 5. Local Authority Revenue Expenditure and Financing England: 2012-13 Budget, DCLG, July 2012 6. Evaluation of Community Development Finance Institutions (CDFIs), GHK, March 2010 7. Growing the social investment market: the landscape and economic impact, ICF GHK in association with BMG Research, July 2013 8. Funding outlook for councils from 2010/11 to 2019/20: Preliminary modelling, Local Government Association, June 2012 9. UK Civil Society Almanac, NCVO, 2012 10. Fightback Britain, Social Enterprise UK (SEUK), November 2011 11. The Peopleâ&#x20AC;&#x2122;s Business, Social Enterprise UK, July 2013 12. Why all LEPs should have social enterprise at the top of their agenda, Social Enterprise University Enterprise Network, July 2013 13. Annual Review 2011/12, UnLtd, 2012

Further reading There are many other documents on the state and shape of charities, social enterprise and social investment, including: 1. A resource library of reports and research available on the Big Society Capital (BSC) website: http://www.bigsocietycapital.com/research 2. A resource library of reports and research available on Social Enterprise UKâ&#x20AC;&#x2122;s (SEUK) website: http://www.socialenterprise.org.uk/advice-support/resources 3. A reading list of research documents on the social sector available on the National Council for Voluntary Organisations (NCVO): http://www.ncvo-vol.org.uk/policy-research/what-voluntary-sector/reading-list

4. The UK Government’s vision and strategy for growing a social investment market: https://www.gov.uk/government/publications/growing-the-social-investment-market-a-visionand-strategy 5. The Big Lottery Fund commissioned some research into the investment readiness needs of the social sector (Growing the social investment market: investment readiness in the UK, BIG, September 2012): http://www.biglotteryfund.org.uk/research/better-funding/investment-readiness

Annex D - Glossary Asset: a financial benefit recorded on a balance sheet. Assets include all properties, both tangible and intangible, and any claims for money owed by others. Assets can include cash, inventories, and property rights. Tangible assets are those that have a physical form such as buildings, equipment and vehicles. Business support: refers to support provided to establish a business or enable an existing business to improve. It can include financial support, mentoring and other kinds of peer support, and consultancy and advisory support services. [cf. ‘ecosystem of support ’, ‘investment readiness, and ‘pipeline support’] Capital: capital usually refers to financial capital or money, and in particular the amount of cash and other assets held by an organisation. City Deals: a Government policy to put cities in control of the economic opportunities and challenges they face as a city, working across local enterprise and local authority boundaries, sectors, and professions, bringing together governments, cities, neighbouring authorities and local business leaders to create economic wealth. Clinical Commissioning Groups (CCGs): NHS organisations set up by the Health and Social Care Act 2012 to organise the delivery of NHS services in England. CCGs are clinically led groups that include all of the GP groups in their geographical area. Co-investment: investment in a project or fund alongside and often on the same terms as other investors. Community development finance institution (CDFI): an organisation that provides affordable loans and support to businesses, social enterprises and individuals who struggle to get finance from high street banks and loan companies. Debt finance: investment with the expectation of repayment. Debt finance usually takes the form of loans, both secured and unsecured, as well as overdrafts and standby facilities. Generally these require a borrower to repay the amount borrowed along with some form of interest, and sometimes an arrangement fee. Development capital: enables organisations to invest to build capacity, for example by purchasing property or other assets, or developing new products and services. Ecosystem of support: refers to the full range of support provided within an area to achieve positive social and economic impacts. It includes business support, investment readiness support and pipeline support. [cf. ‘business support’, ‘investment readiness’, ‘pipeline support’]

Equity investment: investment in exchange for a stake in an organisation, usually in the form of shares. Each share represents ownership of a proportion of the value of the company. Equity finance is permanently invested in the organisation which has no legal obligation to repay the amount invested or to pay interest. Equity investors expect to receive dividends paid out of the organisation’s earnings and/or capital gain on the sale of the organisation or on selling their shares to other investors. Fund: a collective investment scheme that provides a way of investing money alongside other investors with similar objectives. This provides individual investors with access to a wider range of investments than they would be able to access alone and also reduces the costs of investing through economies of scale. Funds are managed by fund managers for a management fee on behalf of investors. Grant: a conditional or unconditional gift of money with no expectation of a financial return. Investment readiness: the state a business reaches when an investor is willing to make an investment into it. Investment readiness support refers to a kind of business support provided to businesses to reach this state of investment readiness. [cf. ‘business support’, ‘ecosystem of support’, ‘pipeline support’] Loan: a sum of money which is borrowed and has to be paid back, usually with interest. Local Enterprise Partnerships (LEPs): a voluntary partnership between local authorities and businesses formed in 2011 by the BIS to help determine local economic priorities and lead economic growth and job creation within its local area. They carry out some of the functions previously carried out by the regional development agencies which were abolished in March 2012. As of September 2012 there are 39 local enterprise partnerships in operation. Localism Act: an Act of Parliament that changes the powers of local government in England. Multiple Deprivation Index (MDI): a UK government qualitative study of deprived areas in UK local councils. Mutuals: an organisation (which is often, but not always, a company or business) based on the principle of mutuality. Patient capital: loans or equity investments offered on a long-term basis (typically 5 years or longer) and on soft terms (e.g. capital/interest repayment holidays and at zero or sub-market interest rates). Payment by results (PbR): type of public policy instruments where payments are contingent on the independent verification of results. PbR instruments have three key features: (i) payments for pre-agreed results; (ii) recipient discretion over how the results are achieved; and (iii) independent verification as the trigger for disbursement. Pipeline support: refers to the support provided to ensure that an investor has an availability of businesses to invest in. [cf. ‘business support’, ‘ecosystem of support’, ‘investment readiness’] Quasi-equity investment: a hybrid of equity and debt investment. Equity investment may not be possible if an organisation is not structured to issue shares. A quasi-equity investment allows an investor to benefit from the future revenues of an organisation through a royalty payment which is a fixed percentage of revenue. This is similar to a conventional equity investment, but does not require an organisation to issue shares.

Social capital: the expected collective or economic benefits derived from the preferential treatment and cooperation between individuals and groups. Social economy: a term that spans economic activity in the community, voluntary and social enterprise sectors. The economic activity, like any other economic sector, includes: employment, financial transactions, the occupation of property, pensions, trading, etc. It is therefore inclusive of terms such as social investment, social enterprise, social business and social impact. Social enterprise: a social enterprise is a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners. Social Impact: There is no one definition of the term or concept, but social impact can be defined as the effect on people that happens as a result of an action or inaction, activity, project, programme or policy. The ‘impact’ can be positive or negative, and can be intended or unintended, or a combination of all of these. Social innovation: new strategies, concepts, ideas and organisations that meet social needs of all kinds, from working conditions and education to community development and health, that extend and strengthen the social economy. Social investment: is the provision and use of repayable finance to generate social as well as financial returns. Social investment may occur in a variety of forms (or products) such as loans, equity and bonds. Social Investment Finance Intermediaries (SIFIs): predominantly attract money from social investors and use it to make direct investments into front-line social ventures. Many SIFIs also offer a range of other business support services. Social sector organisation: an organisation that exists primarily to deliver social impact; that reinvests the majority of surpluses to further its social mission; and that is independent of government. The social sector includes voluntary and community organisations, charities, social enterprises, cooperatives and mutuals. The social sector is also referred to as the third sector. The (Public Services) Social Value Act: a new law, calling for all public service commissioning to factor in social value. The Act received Royal Assent on 8 March 2012 and commenced implementation in January 2013. Unsecured loan: a loan that does not take security over an organisation’s assets. Because the risk for the lender is greater, interest rates are usually higher than for secured loans. Whole place community budgets: in common with the general principles of integration in public service delivery, ‘Whole Place Community Budgets’ are attempting to redesign an affordable local public sector and rewiring public services around people and places rather than organisations, to reduce cost, improve outcomes and focus on customers. Working capital: finance used to manage the timing differences between spending money and receiving it (income and expenditure).

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The Social Investment Business Group is made up of the charity, Adventure Capital Fund, and its social enterprise, The Social Investment Business. We are one of the UK’s leading social investors and have made over 1,200 investments in charities and social enterprises ranging from under £5,000 to almost £7 million. We specialise in both community based investment and in providing simple debt products to social purpose organisations operating at both a local and national level.

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