Carol Botten, VONNE‘s CEO, explains why it’s worth finding out if social investment could work for you. This blog first appeared on the Good Finance website. Below the full version of the blog which expands on the journey of their Connect Fund project.
Social investment is still a very new concept for many organisations and not just at the smaller-sized end of the sector as you might expect. Many organisations haven’t taken the time to consider it or really understand it. Why would you spend time considering taking a loan if you could get a grant or a contract to deliver your work?
This perception of social investment being about loans replacing grants or contracts is a misnomer and one that needs to be addressed head on. It is the development of diverse income streams that we want to encourage – earned income to sit alongside grants, contracts and other sources of funding. We want organisations to ultimately have better financial resilience, as they gain greater control over a larger proportion of their income.
The issue for many organisations wanting to develop earned income streams, is they haven’t got the capital, capacity or capability to do so, which is where social investment could be a tool they could use.
Case studies and stories are a powerful tool to change people’s mind set and to enable them to see how social investment can be used to help them to grow and become more resilient. On that note, here’s a story from me…
I was having lunch with a CEO of a £500K turnover youth charity recently who said to me, I must pick your brains on social investment. I think I’ve ignored it for too long, I think I should learn more…”
I said to him, “Imagine a future when every year you are earning 50% of your own income through a reliable income stream. What would that mean for you? Less grants to apply for and less contracts to bid for; less time spend managing and reporting back to funders and commissioners. Imagine being able to decide how you use that money to deliver your organisations’ mission rather than trying to achieve that mission whilst juggling the constraints of a number of grants and contracts.”
He was sold on the idea, obviously. “But what has that got to do with social investment”, he asked?
So I continued, using the example of how other charities have used housing to develop an earned income stream, whilst at the same time fulfilling their mission. The organisation uses some of their reserves to buy a house, you work with a local training provider to support five young people to help with the refurbishment of the house and then you rent it out to three young people offering them a secure home with a ‘good’ landlord. Their rent payments or benefits go back into the organisation to ‘pay back’ the investment from the organisation’s reserves and over time the initial investment will be repaid and you will start to generate a surplus.
You can see the model works so you want to buy five more houses but this time you don’t have enough in reserves to cover the costs, but at least you do have an asset as some security. You talk to a social investor, you share your ambitions and your business plan and they too can see it working. They support you to apply for investment and make sure that you have the necessary financial management and governance structures in place. Then you get your social investment, you buy 5 more houses, do them up, skilling up 25 more young people in the process and providing housing for another 15 young people, and then you go again and again. As you have more assets you can borrow more money at better rates and before you know it you have 50 houses, you have skilled up 250 young people and you are providing good secure housing for 150 young people. You are also generating enough income to pay back the social investment and generate a surplus.
The surplus is unrestricted income for your organisation that you are in control of.
Obviously it’s a simplified example, but I just wanted to demonstrate what might be possible and how social investment can help to unlock that potential.
While engagement events and information on websites or leaflets are very useful in raising awareness, often it is one-to one conversations with organisations about what might be possible for them that can really make a difference.
Social investors don’t have enough boots on the ground or staff time to do this on their own. This is why, through our Connect Fund project, we are working with local infrastructure organisations (LIOs), grants funders and organisations who have already used social investment to enable them to have confident and informed conversations with groups about enterprise development and how social investment might help their organisations’ long-term survival. Conversations such as these between VCSE organisations, or with funders, or LIOs that they know and trust, are needed to get more organisations to think about enterprise development.
Finally, my thoughts on risk. There is a lot of talk amongst organisations about how taking out a loan is too risky. Yes of course – it is risky trying something new, but sometimes the risk of not trying could be more of a threat to the long-term survival of your organisation. As securing grants and contract income becomes ever-more challenging, it is worth investing time in finding out more about social investment.
Social investment means you are sharing the risk with the investors, making it less risky for your organisation, not more. They won’t make an investment if you don’t have a sound business plan. They will work with you over the long-term as their business model depends on it. They want you to succeed, they want you to have more social impact and they want their money back – so they can use it again to support other organisations.
That’s what is brilliant about social investment, it can work its magic and then because it is repaid, it can be used again and again to support more organisations to do more good. In these times where there is less and less money to go round, surely using social investment to sure-up an organisation’s financial sustainability and then repeating again and again to help more organisations is a no-brainer!?
VONNE, is the the regional umbrella and support organisation for the VCSE (voluntary, community and social enterprise) sector in the North East region. For a number of years, Carol has been working to encourage organisations to diversify their income streams and consider using social investment to sustain and grow. She works in partnership with a number of local, regional and national partners.
You can find out more about the ‘Hear from a Peer: Growth and Resilience’ events, which were supported by the Connect Fund and invited organisations who had experience with social investment to share their stories with peers, on this blog.