Securing Finance for a New and Developing Social Enterprise

Discussion

Some Background The New Economy and

What it Holds for Social Enterprise and Social Firms in Particular

Input from: Rodney Schwartz Chief Executive, ClearlySo

Danielle Carruthers, The Sedge.org

Roger L. Martin and Sally Osberg, Stanford Social Innovation Review

Key Elements

• Light touch analysis of the current economic and financial situation

• Recent developments and issues in social investment

• The case for the emergence of a new Social Economy

• What a Social Economy might look like?

• How Social Enterprise in general and Social Firms in particular might feature in this Social Economy?

• Possible constraints

Light touch Analysis of the Current Economic and Financial Situation

• A complete meltdown of the financial system

• Crisis deferred at an estimated cost of $3 trillion—some say could be much more

• The full impact will be realised over the next 20 years—seems unlikely to be paid for by the banks/financial institutions

• The economic financial choices we will need to make in the coming decades will be profound, painful and unavoidable

• The current economic slowdown is not cyclical, but represents a discontinuity—really fixing it requires systemic changes

• The financial market place has irrevocably changed

Developments in Social Investment: The UK Picture

• The attraction, growth and futility of Socially Responsible Investment (SRI)

• Microfinance and Cleantech (and selected themes) have boomed and become part of the investment mainstream

• Impact/social Investment (II) has entered the glossary, as have “ethical shares”

• Government sponsored/backed II funds and companies have reached a sort of maturity (Bridges, Unltd, NESTA, Venturesome, Futurebuilders)

• Independent firms are attempting to gain traction (WHEB Ventures, Impax, Catalyst)

Developments in Social Investment: Emerging Issues in the UK

• Measurement of social “impact”

• Sources of funding—Government; hopefully transitioning to foundations, financial institutions, HNWIs or even individual investors

• “Crowdfunding”

• Liquidity

• CDFI’s

Developments in Social Investment: Some Interesting International Cases

• Global Federation of Social Stock Exchanges

• Rockefeller’s Global Impact Investment Network 2007

• Renewal Partners’ (Canada)

• Developments spreading across the globe—much more on the continent than we realise (e.g. the Global Economic Symposium in Germany)

• Surging interest in the sector (the press, business schools, other graduates, conferences, the wealthy, politicians)

A Case for a “Social Economy”

• Consumer preferences have profoundly shifted, as:

• Product and service purchasers • Voters (who are incredibly frustrated) • Employees (existing and prospective) • Investors

• The mainstream investment area has been…disappointing • The early phase of the impact of social networking

• UK Localism agenda

• Emerging devolution debate

• There’s something inherently interesting and appealing about social entrepreneurs

Whose who!

• Successful UK social/high impact businesses emerging

The Body Shop Justgiving.com Organix The Ethical Property Company John Lewis Welsh Water Cafédirect The Eden Project Divine Chocolate The Big Issue Co-operative Group HCT Group Duchy Originals London Symphony Orchestra

What Could be the Role for Social Enterprises in this New Social Economy?

• Source of products and services for an increasingly social consumer body

• As a new investment possibility for a growing body of more socially-minded investors

• Beneficiaries of a tax code which may become more tilted

• Laboratories for experimentation given their greater latitude on funding

• More interesting and rewarding places to work

How Social Firms Might Feature: Social Firms’ Market Position (and the SFUK)

• Robust growth since the late 1990s; up to 274 members and more than doubling in the last five years

• A strong history therefore, in a newish sector, with European (ISFA, CEFEC) and international links

• A considerable profile, built over years , that could be further developed

• A diverse sector meeting a range of vital client needs • Broadly spread across the UK • Offering vital services:

– For the disabled (jobs, training and empowerment) – For society – For the economy (especially now)

How Social Firms Might Feature: Some Strategic Issues for the Sector

• Still a small sector with relatively small players

• Funding uncertainty stemming from the current fiscal predicament (for those receiving Government and Foundation funds)

• Some confusion due to social enterprise “buzzwordism”

• Mixed attitudes from those dealing with Social Firms specifically

• Lack of understanding of the sector

• Concerns over sustainability

• ‘are you for real’

How Social Firms Might Feature: Some Modest Suggestions from an Outsider

• Consider mergers to achieve scale

• Reduce your dependence on Government sources of funding and increase those which come from trading with individuals and the corporate sector

• Embarrass Government for favouring big over smaller firms, businesses over people and the advantaged over the disadvantaged

• Focus on tapping into a broader array of sources of capital—explore crowdfunding and other means

• Leverage your social orientation—its now fashionable

• Increase your profile, by leveraging modern media platforms—its called social networking for a reason

Discussion

Are you finance and investment ready?

Clear idea

• Is it obvious what you do?

• Is it obvious how you do what you do?

• Is there a market for your product/service?

• Have you a track record?

• Who are the key ‘players’ in the business?

• Is the business sustainable?

• Is the business well connected?

• Is the governance in place?

• Have you case studies?

Do you know what you want the funds for?

Evidence

• Why do you need it ? (working capital, development capital, etc.)

• How much do you need ?

• When do you need it ?

• What type of finance do you need ?(grant, loan, investment)

• How will you access it ?

• Who will make the application ?

• What if you are not successful in securing funding?

• Keeping on track

One of the secrets of successful funding is to be prepared. There are two key elements to your Crowdcube pitch that you’ll need to ensure are in place to be successful – business plan and financial forecast. Business plan The quality of your business case will be crucial to the success of your pitch. Good business ideas need to be underpinned by a well-presented, well-thought-out plan. This is especially important for start-ups and early stage businesses without a proven trading

track record.

292 funded businesses 206,202 registered investors £101,334,125 successfully funded

No serious investor will invest a significant sum of money without first having a good understanding of your business. You may only get one chance, so first impressions do count. Financial forecasting Our investors regularly tell us that good financials that add up are a must. The purpose of your financial forecasts is to set out a clear picture of your financial position in a way that allows an investor to understand your business model and make their own judgement about your potential. Without this your pitch could be doomed before it gets started. To make sure that investors get everything they need we require three years’ profit and loss, cash flow and balance sheet forecasts before you can list on Crowdcube.

Sources of Finance

Sources

What type?

• Personal Investment

• Friends and Family

• Banks

• Grants

• Crowd funding or HNWI

• Outside investors

• Trading

• Loans

Making an application for funds

Facing rejection from funders

Reporting and acknowledging to stakeholders

Understanding match funders

Discussion

Thank You

Patricia Marks