i i i captain

For many years the UK has led the world in leading the world in impact investing. In November, this leadership continued with the launch of Impact Investing Institute: a merger of two our two our top impact investing committees.

I talked to the Institute‘s chief executive, Sarah Gordon, about her plans for the organisation:

Q. You’ve outlined the three key objectives of the Institute in terms of mobilising big pools of capital, making capital more accountable and empowering people to save and invest in line with their values: Why are you sure that doing these things will make the world a better place?

A: The Institute comes from two initiatives, the National Advisory Board on Impact Investment (NAB) and the taskforce on growing a culture of social impact investing in the UK.

They were doing complementary things, with the NAB having more of an international focus, and the taskforce having more of a domestic focus. What both of them did was valuable work around identifying: the barriers to greater understanding of impact investment and greater effectiveness of impact investment – and what was holding the market back from growing faster.

What I’ve been doing since I took on the role at the beginning of September is thinking about those different areas of need and then identifying projects which will specifically address some of those needs. 

The other thing that I’ve focussed on since September is looking at what else is happening. There are lots of competing initiatives in this field, both nationally and internationally.  I’ve tried to think carefully about where we add value.

We do have some very good links with institutional investors, particularly in the City. There is still a big gap between those institutional investors and the social sector. That’s why one of our main focusses is going to be pensions. Some of the pension schemes, particularly the local authority pension schemes, are thinking in really innovative and sophisticated ways about impact and how they should be allocating to impact.

Some pension schemes are not even at the start of that conversation. We want to help a range of actors in that space: pension scheme trustees, financial advisers, pension consultants, lawyers, get over some of the hurdles that they believe exist, which are stopping them investing in impact.

Buildings and they will come 

Q: Is the end-game of this that more pensions will be invested into charities and social enterprises?

A: One of the issues that they have is that there are not enough impact assets at scale to invest in. I think social housing is a good example of something that is a potentially investable asset where we feel the Institute has some advantage in talking to those larger pools of capital, like pensions.

You’ve got to have metrics that are relatively easy to measure. Some of the social impact metrics are a lot more complex and difficult, but housing is somewhere where we feel there’s really great potential for more institutional money to be directed to impact. 

Q: So this is really about large sums of money going on relatively low-risk activities but with a positive outcome?

A: We want to address a number of different market needs. We’re also looking at the measurement and reporting challenge because investors find it very difficult to compare impact products, there’s very little standardisation.

We want to support the work of the Impact Management Project. There are so many competing frameworks and metrics in this area that are working towards convergence. I think it’s highly unlikely we’ll get to convergence in the sense of impact being able to be measured by a number, or even several numbers.

Impact has to be measured by sector, it has to be investment-specific, but I think the more common language around impact is really going to help this process, with work on training and competency.

Financial advisers now have to talk to their clients about their ESG preferences. We believe that many financial advisers are not prepared for that conversation. We don’t want it to be a tick-box exercise. We don’t want them just to say, “Are you interested?”, and the client says, “I don’t know, not really. Can you tell me a bit more?” We’re developing a competency framework for financial advisers, which we hope to deliver in partnership with other trade bodies to raise competence and confidence in the financial advisory community around impact. 

There are a number of regulatory developments which financial advisers, lawyers and consultants, are going to need to respond to and we want to help them. We want to help them to have better conversations with individuals who want to put their money to work in a different way.

Prod the other one

Q: The Institute is moving into an existing ecosystem of actors within the world of social investment, obviously including wholesale vehicle, Big Society Capital. What’s your relationship going to be with them and where do you fit more broadly into that ecosystem? 

A: One of the things that I’ve been doing is to look at all the initiatives that are going on in this space and really make sure that we’re not duplicating or replicating work which other people are doing a lot better. That’s been a really important principle for thinking about what projects we should be taking on. 

The second thing is that we work, internally and externally, as a partnership. Internally we’re a partnership between a small team of paid staff (it’s going to be about six or seven people) and a much larger group of volunteers, so people who are giving up their time freely, and their expertise. The workstreams are going to be led by volunteers.

Externally, we’re also a partnership in the sense that the vast majority of our projects will be delivered in collaboration with other organisations and initiatives.

We’ve got four strategic partners:  Pensions for Purpose – we want to support Karen Shackleton’s work but also work in co-ordination to deliver a competence and confidence programme around pensions.

We’re going to be working with the Impact Management Project, which is designing a digital platform so that asset managers can report their impact in a way which ought to be more transparent to investors and investees. 

We’re working with the national advisory board in Ghana as it sets up. Finally, we’re working with the World Benchmarking Alliancea global initiative that ranks the top 40 companies globally in terms of their performance against the SDGs

In the world of institutional investors, which is not the world of social entrepreneurs, you have to have this mixture of prodding and pulling. Prodding is the regulatory and the policy work and then the pulling is the encouraging and the transparency and the conversations. These activities speak to both the prod and the pull.

On Big Society Capital… We are not providing capital, we are not investing directly. 

Q: No

A: We’re not a funding or an investing agency in any way at all. We will work with Big Society Capital, we will work with other actors in this field, working out where we can enhance the valuable work they’re doing, being at the table of conversations where policy and regulation is being discussed. 

I think one of the things that has been learned from the Big Society Capital experience is to not over-promise. In initiatives like ours, we must be very clear about what we can do and what we can’t do and where we’re going to try to shift behaviour or actually deliver results. We can have a long conversation about Big Society Capital, but I want to talk about the Institute.

I thought that I heard you leading 

Q: I would just like to ask you one specific thing about Big Society Capital. They have a, dual role as a wholesaler and the UK’s ‘market champion’. There’s a feeling for some that there’s a potential conflict of interest between these functions. 

Is there a sense that the Institute is going to fill some of the market champion role – and take some of that conflict away from Big Society Capital?

A: We will certainly be taking some of the activities from BSC which, as you know, hosted the UK NAB. For example, some of this work around supporting NABs or efforts outside the UK – people from Big Society Capital would go on being involved in that, but I think we’d expect the Institute to be leading.

I’m quite wary of words like champion. What I want the Institute to do is to address specific hurdles and specific problems. There have been an awful lot of reports… There are words I don’t like, like landscape and thought leadership.

What we’ve done, and what we want to do, is have specific projects which are addressing specific problems. We will have, for example, toolkits for financial advisers so that they can have much more informed and knowledgeable conversations about impact with their clients. We will have guides for pension funds, so that they can say, “Okay, this scheme has done this, this is the way they’ve overcome the hurdles around, for example, perceived hurdles on fiduciary duty. This is how you can do it.” 

Leading the world in knowledge exchange

Q: I’m aware one of the funders is the Department for International Development. Governments over the years have been extremely proud that we are leading the world in social investment. Is that something that the Institute is looking to build on? How do you see that wider, global role? 

A: I think that there are ways in which the UK really was a genuine pioneer maybe 10, 15 years ago. Some of the tools, some of the conversations, wouldn’t have happened without some of the people, Brits, who started some of this thinking.

Even then, there were really interesting conversations and initiatives going on outside the UK.

What I see us doing is, where we do useful things, we want to export those useful things. All our research, everything we do at the Institute, will be open source, so available to the public both here and outside the UK. I also want us to be importing best practice and innovations, whether it’s financial vehicles, whether it’s policy choices, regulatory choices, I want to be importing from elsewhere.

I was at the Global Steering Group meeting last week. The most interesting thing we did there was sit all the NABs around the table and they had to share two or three things that they’d done in the last year or that they saw as successes. It’s very clear to me that there are policy innovations, specific investment structures, specific coalitions, where we should be learning from innovations outside the UK and bringing them into the UK.

I see it very much as a knowledge exchange system. It’s really important for the UK to develop a financial services industry after Brexit that does have comparative advantages. 

The Singapore comparisons are always with us 

I would like those comparative advantages to be around our ability to deliver measurable impact in investment products, to talk about impact investment in a way that allows other people to learn from our experience and our knowledge.

I went to Birmingham two weeks ago to [a meeting of] the Coalition on the Future of Social Investing. Someone said: “The question is, what kind of Singapore do we want to be?”

We have an opportunity after Brexit to design a financial system that does have comparative advantage in some of these areas. That will differentiate the UK in the future, and its financial system, from the rest of the world. I hope we can do that.

Less gloss, more Matt 

Q: A couple of overlapping final questions: as someone leading a charity or social enterprise, why should I or they be interested in what you’re doing? What’s in it for us?

A: One of the things that I did as soon as I got offered the job is that I went to talk to a number of social investors and the enterprises that they invest in.

I went to Sheffield and talked to Matt Smith of the Key FundI went to visit some of the things the fund invests in. I said to him and I asked all those people, “Given this is where our expertise and our comparative advantage lies, how can we be useful?”

I have designed some of our projects specifically in response to those conversations. Matt, for example, said: If financial advisers understood this, not impact so much as the broader asset class, ESG, social investing, more broadly… If financial advisers understood this better, that would be really helpful.

I’m now a member of this coalition which brings together some of the social investors who I will learn from. I will learn from those conversations and I will take that learning back to the Institute.

Also, on our advisory council and our board, we do have representation from the social sector.  One of the main purposes of that is to be directed by the social investor sector so that our activities are in direct response to the express needs of the sector. 

The Institute is not, going to help directly the enterprises that Matt Smith is investing in but, if I can help Matt Smith, that is the mechanism.

We want to have a digital presence where, if you have a question about impact investment, you will be directed to the right source of information. 

I think we can play a really useful role in curating the information that is there, to make sure that these different audiences, whether it’s the public, whether a charity, whether it’s a pension fund, that they will get better information on impact investment. 

Growing, growing 

Q. Just finally, really, a broad concluding question, what does success look like for the Institute?

A. We’ve got our objectives, but all our projects speak to our objectives. What we will do is made up of projects with deliverables and deadlines and milestones.

What will success, in the biggest sense, look like? It will mean more capital allocated to impact, more accountable capital and individuals who are more aware of the importance of impact. 


Thanks to Sarah Gordon for doing this interview.

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If we believe journalism is important how are we are going to pay for it?

The government has just published a review into future of the UK news industry. Here’s my thoughts on how social enterprise can be (a big part of) that future.

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SITR: low uptake, poor design – but foundations worth building on?

You’ve got a great idea for a social venture. You don’t have lots of savings and your friends and family are not wealthy. You look for grant funding but social enterprise support providers are only offering £5,000 and your venture will cost a lot more than that to launch. If only the government was doing something to help…

my new post for Pioneers Post on SITR.

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What a relief!

Charities and social enterprises need risk finance but struggle to find it. Many individual investors are keen to invest into organisations that create positive change but are put off by the financial risk involved.

Both these statements are widely assumed to be true within the social investment sector so when the UK government launched Social Investment Tax Relief (SITR) in 2014 there were high expectations that it would have a significant impact…

Read my new report on SITR for Social Investment Business to find out what happened next. 

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Can’t get there from here

One of the most interesting developments in social sector funding in 2018 was Big Lottery Fund’s launch of its new £15 million Digital Fund. Unsurprisingly, the fund was very popular receiving 1210 applications (potentially requesting over £600 million in funding).

What’s unusual about the fund is that it offers grants that are (in grant fund terms) unusually large. While a decent-sized smattering of organisations do receive grants of £500,000+ over 3 years – for example, through the Arts Council’s National Portfolio or Big Lottery’s Reaching Communities – it’s extremely rare to see an open call for applications of this size for business development activity. In fact, I’m not aware of it ever happening at all.

Pointless farce

There are some fairly obvious reasons why there aren’t large numbers of state and philanthropic funder providing this kind of money but their collective failure to do so renders a significant chunk of social enterprise support activity farcical and essentially pointless (at least, in terms of achieving its stated aim).

There are numerous programmes with the stated aim of supporting social ventures to ‘scale up’, including some run by School for Social Entrepreneurs (SSE) and Unltd which have supported 100s of organisations over the past five years. But it’s hard to see any connection between support to ‘scale up’ and any social ventures* actually scaling up in the sense of becoming household names or significant players in the specific markets that they operate in. That’s not because ‘scale up’ support isn’t any good, it’s because the task is too difficult.

Building the future

There are large (in the sense of exceeding the ‘Small’ business turnover of €10 million per year ) and successful social enterprises in the UK but the vast majority of them are businesses either managing property and/or delivering outsourced public services or regulated former public services**.

They’ve either been literally given a start – housing associations being given property, spin-outs leaving the public sector with at least one large contract – or they’ve received a jumpstart to the business through winning their first large public or regulated contract.

This distinction is not intended to suggest that these social enterprises lack merit or that their success as businesses is not real or hard won. The ones in the latter category have succeeded in a market just as much as any private competitor seeking to operate in their sector. And many in the former category (such as NHS spin outs) have succeeded despite significant inherent disadvantages compared to private rivals.

So scaling up a social enterprise property-based, public or regulated markets is really difficult but, based on the current funding and investment landscape, scaling up a consumer-focused and/or product-based social enterprise is virtually impossible.

The Big Issue issue

The Big Issue is well known as a social enterprise success story. It is less well known as an organisation that, nine months after its launch in 1991, was losing £25,000 a month on the way to spending £500,000 of The Body Shop’s (soft investment) money over 3 years (over £1million today when adjusted for inflation).

The number of consumer-focused social enterprises that have had a similar impact (in the sense of the impression made on the public consciousness) to The Big Issue over past 27 years is eerily similar to the number who’ve received £1 million worth of philanthropic risk finance.

Some might suggest Cafedirect, founded (again in 1991) by four large established organisations including Oxfam and Traidcraft.

Those worrying that these ventures became successful by jumping through a magic window that was only open in 1991 might be slightly reassured by Divine Chocolate, who launched in 1998 but they did (of course) receive investment from The Body Shop.

This is not very complicated stuff. If you’re launching a business in a sector where there are significant upfront costs involved in getting your business to market or where significant short term losses are necessary to work out whether or not the business could be viable in the long term, you need to be able to spend lots of money. And if you’re operating this business in an explicitly social way, you’re unlikely to be able offer investors returns that come anywhere near justifying their risk. You need a grant or an investment that’s soft enough to almost be a grant.

Who wants to be a social entrepreneur (at scale)?

So, based on the UK’s current social venture funding landscape, your ability to have a chance of meaningfully scaling up a (trading) social venture that’s not focused on managing property or contracting with public or publicly regulated sectors can effectively be determined by this short questionnaire:

1. Are you a multi-millionaire? Yes/No

2. Do you know a multi-millionaire (or two) who will give you some money – and not worry about whether they get any of it back? Yes/No

Answering ‘No’ to both of these questions does not mean that your social venture will be a failure but it does mean there’s a low, hard ceiling to what it’s logically possible for you to achieve.

The 120 participants in Unltd’s Big Venture Challenge raised a combined £13 million of investment and grant funding between them, an average of £108,000 each. That’s serious money and may enable some of the ventures involved to scale up to a sustainable level but it’s highly unlikely to be enough to enable any that want to become really big to find out whether they’re able to.

This is terrible, what can we do? 

There’s three things that I’m definitely not saying here:

(i) ‘Scaling up’ should be the aim for all or most social ventures – it obviously shouldn’t: we need a funding landscape that supports social ventures to find the right level to achieve the most socially useful outcomes they can achieve

(ii) We need to give 100s of social ventures £500,000 grants every year – (while respecting everyone’s passion and good intentions) there are always going to be a relatively small number worth giving this kind of funding to

(iii) No one apart from me has spotted this – at different ends of philosophical spectrum, Profit-with-Purpose and Builder Capital, are (while also having wider relevance) responses to the same broad problem.

And three things that I am saying:

(a) It is possible and desirable for more social ventures operating in consumer markets to scale up – if we develop the funding landscape that gives them a genuine chance

(b) There are enough existing social enterprises (and other social ventures) that are good enough to give at least 20 an average of £500,000 in business development funding, every year for five years – and making this kind of funding available may encourage the development of more, better ones

(c) Spending £10 million a year for five years on funding 100 social ventures to have a genuine shot a scaling up would be a really good way for some combination of government and philanthropic funders to use some of their money (even if only one venture per year managed to scale up in sustainable way).

The Big Lottery Digital Fund is good news in the specific area of social tech but the wider social economy needs similar initiatives – whether that’s a general fund or some sector specific ones.

Based on our current set up, whether or not the next Big Issue is out there, we’re never going to find out.


*For the purposes of this post I’m using the term ‘social venture’ to refer to social enterprises, trading charities and companies with a ‘for profit’ structure whose social focuses means they are not able to offer early stage investors a risk-adjusted return

**Long established co-ops


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Keep going

Like many social entrepreneurs I like a good conference, so it was disappointing not to make it to last week’s Social Enterprise World Forum (SEWF2018) in Edinburgh.

Amongst the passionate discussions partially recorded on Twitter was a debate with the title: ‘The myth of sustainability is damaging the social enterprise sector’ with School for Social Entrepreneurs’ CEO Alistair Wilson amongst those drawing attention to the potential damage.

Whether or not it’s damaging in itself, the sustainability of the debate about social enterprise sustainability is unquestionable. Here I am in 2013 tackling the myth that ‘trading income is more sustainable than grants and donations’ with the aid of some llamas.

I haven’t substantially change my opinion on these issues since 2013 but – based on a model I learnt from some of the world’s most successful private sector businesses – I’ve decided to make one new argument and minor updates to the others and sell it to you again:

Sustainability is the means not the end. All organisations run the inherit risk of conflict between their desire to continue to exist and their desire to achieve an outcome.

For private sector businesses, the theory is easy. Is your restaurant losing money? Change your business model – increase prices, cut wages/staff, use cheaper ingredients, call in Gordon Ramsay to swear at you for a few hours.

After that, if you the combination of you and Gordon haven’t managed to stop your restaurant losing money you should close it.  There are plenty of good reasons why many people don’t do that but the theory isn’t complicated.

It is more complicated for social enterprises because they’re (hopefully) organisations that exist to do something other than keep going and make money. There’s two different spectrums:

Going bust – surviving – thriving

No social impact/Negative social impact – some positive social impact – as much social impact as possible

Ideally, we’d all like our social enterprises to be a thriving fully commercial operations achieving as much social impact as possible but, particular for those of us who have started businesses in situations of market failure, that doesn’t happen very often.

As a social entrepreneur you have to understand how your desire for sustainability interacts with your desire for social impact.

If you’re setting up a social enterprise to provide secure long-term housing, your social impact depends on finding a business model that enables you to continue to exist for decades rather than for a couple of really good years.

If you’re setting a social enterprise that raises awareness of problems in the fashion industry through film and drama you might be better off finding a model than enables you to be brilliant for 2 years (taking money from funders and supporters who agree with what you’re saying) rather than shit for 20 years (taking money from anyone who might pay you to make a film or put on a play about fashion).

Advocates of social enterprise (and charity) sustainability understandably make the argument that you can’t do any good if don’t exist but that isn’t – in itself – an argument for your continued existence.

Finding the right business model for your social enterprise is also about finding the right lifespan for it. (As long as you don’t leave big unpaid debts) shutting down after doing lots of good in a relatively short space of time might be less of a failure than keeping going while achieving nothing much.

Sustainability means finding the best way to generate income from the value you create. Tautologies are best preceded with an advance warning but one that is useful but underused is: the most sustainable business model is the one that you’re best able to sustain.

Susan Aktemel, speaking in last week’s SEWF2018 debate, made a good argument against using grant funding as a major part of long-term social enterprise (or charity) business plan.

Much of the UK’s current grant funding sector was shaped at a time when it might have been possible to scale up a social enterprise or charity (to the level of mid-large local organisation) by moving along a grant funding pipeline: Unltd/Award for All > Esmee Fairbairn/Comic Relief > Reaching Communities > Ongoing grant from local council/other local contracts.

I’m not sure how well (if at all) the grant funding world has dealt with the fact that (in most areas) the council’s pot of gold at the end of the rainbow is now just a pot of tears – but Aktemel and others are right to argue that no one starting a new social organisation now (particularly at a local level) can seriously hope to keep it going for 5 years+ (with a turnover of £100,000+) primarily using grant funding.

But, while the social entrepreneurs who warn you against trying to exist on grants alone are correct, this knowledge tells you nothing whatsoever about whether it will be possible to sustain your social enterprise through trading.

The universal principle of social enterprise sustainability (as with any other business) is that you have to create value and get someone to pay you for it – and keep on paying you for it.

The Llama example still works but if you prefer a shorter one – if you run a social enterprise cafe that creates two kinds of value: (a) some tea and cake that people want to buy and (b) training and support to help people get back into the job market: there’s no reason to assume that charging high prices to customers for (a) will be the most sustainable way of covering the cost of (b).

Whether it’s public sector agencies, grant funders or donors (or some combination of all them) if you want to provide (b), the most sustainable model will be a model that involves someone paying you something because you do (b).

The most sustainable proportion of income available from any given source depends mostly on the market you operate in and the gap you’re seeking to fill in that market.

We (Social Spider CIC) run two community newspapers, Waltham Forest Echo and Tottenham Community Press and we’re about to launch a third one, Enfield Dispatch.

News journalism is an industry where trading income (from print newspaper sales and advertising) is in sharp decline but what is effectively donation income, from membership schemes, is growing rapidly – with The Guardian now boasting over 500,000 paying supporters.

It’s unlikely that many local newspapers will be able generate as much of their income from supporter donations as The Guardian but the success of The Bristol Cable‘s membership model suggests there is a genuine ‘market’ of at least some people who value local news to the extent that they’re prepared to pay for it to exist.

The challenge is to find the mix of advertisers, members, supporters and potentially online subscribers that fits together to make both a commercially viable organisation and (for social entrepreneurs) a socially useful one.

There’s no one, single answer for all local social enterprise newspapers so it’s hardly surprising that, at the level of ‘the social enterprise sector’, none of the abstract answers to the (ongoing, important) questions about sustainability are particularly useful.

You need to work out what you’re trying to do, who might pay you to do it and how you’ll get them to pay you to do it (and keep paying you to do it).

Once you’ve got that sorted, all you have to do is do it.




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It’s a SIIN report

The Social Investment Intelligence Network (SIIN) is a new project that we (Social Spider CIC) are working on with our regular co-researcher, Dan Gregory.

It’s a new initiative funded by The Connect Fund that brings together a group of charity and social enterprise leaders from around the country – to provide their informed perspectives on the social investment market and discuss how the market could work better for their organisations and others in their regions and sectors.

Our first report (available online here) provides a general overview of panelists’ experiences of seeking social investment (and the funding formerly known as ‘investment readiness’ support) alongside other forms of finance.

Future reports will take a more in depth look at particular challenges or themes within the social investment market.  It would be great to know what you make of the first report and to hear any ideas you have about future topics.


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