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PM6: Social investment for trustees: what do I need to know

Geetha Rabindrakumar, Big Society Capital

Tim Willis, Chair, London Early Years Foundation

Edward Baker, Chair, Furnistore

Social Investment:A brief introduction

Geetha RabindrakumarBig Society Capital Social Sector Leader

grabindrakumar@bigsocietycapital.com

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Youth unemployment

Homelessness Reoffending

Adoption

Ageing population

Financial exclusion

Social isolation

Fragmented communities

Educational attainmentObesity

The Social Challenge

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Charities & social enterprises are dealing with some of the most challenging issues in the UK

DonationsContracts Bank finance

A growing number of social sector organisations are now looking at a more diverse funding model including repayable finance. 

BUT

Innovation and growth

Payment by Results contracts

Developing sustainability

TO SUPPORT

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Finance for Dealing with Social Issues

Traditionally their income has come from:

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What is social investment?

• Financial returnInvestment

• Financial return&

• Social return

Social investment

• Social returnPhilanthropy

Early considerations

Organisation Activities Outputs Outcomes Impact

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• What do you need investment for?o Purchasing/refurbishing assetso Working capital (e.g. to support payments by results

contract)o Bridging finance (e.g. confirmed grant)o Expand existing activities/ deliver new services

• Is there an income stream?

• What social impact are you seeking to create?

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Big Society Capital has been set-up to accelerate the social

investment market in the UKHSBC

Barclays Lloyds

TSB RBS

Dormant Accounts

Social Finance

Providers (‘intermediaries’)

Other investors seeking investments that create a positive social impact and

financial return

Social sector organisations requiring

capital to allow the organisation to grow to

scale

£600m capital

Why Social Investment?

For your charity, investment can:

• Be more flexible than grants

• Enable charity to direct donation income to where most needed

• Bring business discipline (effectiveness)

• Bring wider support and engagement with your cause

• Bring involvement/expertise from motivated investors

For the sector:• Recycle money available

• Attract additional funding

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• Navigating the social investment landscape – where to start?

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Challenges

• Process to secure investment will take management time (eg due diligence)

• Managing different funding relationships

• Capacity to manage investment

• Demonstrating impact

• Early discussion with management team around pros and cons and Board concerns

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Considerations for Trustees

• Risk – appetite, identification, management

• Governing documents – can your charity borrow?

• Board responsibility and decision making processes

• Taking advice (eg loan documentation)

• Additional money becoming available to charities?

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How Effective is Social Investment?

• Sustainability and financial returns?

• Social impact created?

Appendix – Slides for Further Information

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Social investment to create positive impact for vulnerable groups

General Public / All

Long-term unemployed

Homeless

Addiction issues

Long-term health

issues, life threatening or terminal

illness

Living in poverty/are financially excluded

Learning disabilities or mental

health needs

Physical disabilities or sensory

impairment

Vulnerable young

people and NEETs

Vulnerable parents

Vulnerable children

Voluntary carers

Elderly (including those with dementia)

Ex-offenders

Experienced crime or

abuse

Employment, training and education

Housing and local facilities

Income and financial inclusion

Physical health

Mental health and well-being

Family, friends and relationships

Citizenship and community

Arts, heritage, sport and faith

Conservation of the natural environment

Outcome AreasBeneficiary

groups

Eg Social investment into CPCE programmes:

Social Funds

Social Lenders

Investment Readiness

Advisers

Social Impact Bonds

General funds

Specialised funds

Social Investment Finance Intermediaries

Other Things to Consider

• Risk understanding and appetite?

• Profile and predictability of payments?

• What level of interest cost could the activity reasonably support?

• Could social investment work alongside bank finance & donations?

• If investing into fundraising/retail – what impact will be created?

• Could the investment be taken on by the trading subsidiary?

• Could your charity offer security?

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Social Impact Bonds Financial risk transfer to investors

Lead delivery charity

Eg: Social Finance - Investment in services to reduce loneliness – benefits of reduced service use and improved health outcomes

• Pressing social need

• Engaged commissioner

• Complex social outcome to evidence

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SIB SPV

Investment into SIB programme

Payments represent a % of

cost savingsInvestors

Commissioner (e.g. LA)

Delivery programme (could include peer support, group

activity, CBT for most isolated)

Payment metric:Reduction in loneliness

Reduced loneliness

Support to prepare for investment

• For social ventures seeking to raise over £0.5m investment

• Grant (£50k-£150k) to cover cost of capacity building support (application joint with advisory firm – over 35 approved providers)

http://www.beinvestmentready.org.uk/social-ventures/

Big Potential (new - first half 2014)

• £10m fund over 3 years• For VCSE organisations seeking to

raise up to £500k investment (or contracts)

• Diagnostic tool assessment to check whether social investment is a realistic possibility

• Advisory support (apply jointly with an approved provider):

- Preliminary grants to build organisational capability (c£25k)

- Investment plan grants (c£45k)

For Reference

• Submit online queries to BSC investment team

http://www.bigsocietycapital.com/ask-us-question• Grant support to prepare for investment:

Big Potential http://www.sibgroup.org.uk/bigpotential/

ICRF - http://www.beinvestmentready.org.uk/social-ventures/• Sources of funding currently open:

http://www.bigsocietycapital.com/sources-investment• Directory of social finance providers and advisers (can filter for specific

requirements):

http://www.bigsocietycapital.com/finding-the-right-investment• NCVO guide and tool

http://www.fundingcentral.org.uk/Page.aspx?SP=6059• Big Lottery Guide to social investment

http://www.bigpotential.org.uk/resource/social-investment-guide– Charities Finance Group event on social investment – 27 November 2014

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Social investment for trustees: case study

London Early Years Foundation (LEYF)

Tim Willis

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LEYF’s Social Mission

LEYF’s social mission is to provide high

quality childcare to children from disadvantaged

boroughs across London

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LEYF has become the leading childcare social enterprise in London

• In 2012 LEYF won the O2 National Business Transformation Award for its change programme

• Over the last few years, LEYF’s performance has been exceptional in key metrics

• LEYF secured funding to develop its core and grow the business

• LEYF aims to increase its social impact and reach at least 5,000 children, their families and communities by 2017

• MBE for CEO in 2013

• LEYF won the Nursery World Nursery Chain of the Year in 2014

Growth so far

Average 12% a year growth over the last 6 years

Nursery revenue (£000)

Number of children

• Strong reputation• Growing capacity• Reserves, assets• Incremental/organic

growth?• Franchising?• Opportunities available• Growth is good!• Full review with help from

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Options explored: SWOT

The investment

• Advice from ClearlySo• Loan from Big Issue Invest

and Bridges Ventures• Bespoke negotiated

repayment arrangements• Linked to performance

indicators for growth, revenue and social impact

• Investor board member

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What for?

• Capacity at HQ• Working capital• Nursery buildings

Leads to• More nurseries• More children• Greater social impact

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Issues for trustees

• The stewardship role, exposure to liabilities• Working with investment bankers• No assets, so based on projected future

surpluses (and social impact)• Very few benchmarks: are the bankers ripping

us off? Can we trust the expertise of our staff?• Composition of the board• Philosophical discussions

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Language

2011 we spoke of:• Sustaining the charity

model• Quality/SROI• Breaking even• Building reserves• Safeguarding• Occupancy• Reputation

By 2013 we added:• Debt servicing• Profitability• Exploiting market

opportunities• A repeatable model• Brand• Start-ups/BAU

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• Casualties• Floundering about• Trying to keep attention on BAU• Stretched relationships to the limit

– Between trustees– Between trustees and staff

• Is it still our strategy?

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Experience: negatives

• Capacity for growth• Deliver more social impact• Stimulating, challenging• Improved the quality of information coming to

the board• Hastened the reshaping of the board and

executive team• Raised the standard of board discussion• A sympathetic partner (we hope!)

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Experience: positives

Overall …

• We began the journey in 2008

• Retained talented and committed key staff

• Partners helped a great deal

• Very challenging for trustees – risk, stewardship, our personal contribution

• Outlook is very bright for LEYF

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Ed Baker

Chair of FURNISTORE

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The Issues

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Debentures

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Is Buying Cheaper than Renting?

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Our Stockholders

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Planning for the Future

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“Isolation is being by yourself

Loneliness is not liking it”

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Ed Baker

ed@edwardbaker.orguk

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NCVO/BWB Trustee Conference 2014Developing exceptional governance