Amir Rizwan

CAF Venturesome webinar

Understanding Social Investment

What social investment is

How social investment works

How social investment can

help your organisation

Amir Rizwan

Investment Executive

CAF Venturesome

What is Social Investment?

“The use of repayable finance to achieve

a social as well as a financial return.”

It comes in many shapes and sizes.

Misconception 1

Social investment is a form of income for charities.

Not so. It has to be repaid.

Can’t be used to ....

fund otherwise unfunded charitable activities

offset losses

Why do charities take out repayable finance?

52%

15%

2% 3%0%

12%

2% 1%

7%

1% 1% 0%

41%

30%

21%19% 18%

16% 15%12% 11% 10%

7%

2%

0%

10%

20%

30%

40%

50%

60%Reasons for past use of repayable finance

Reasons for seeking repayable finance in future

Source: In Demand: The changing need for repayable finance in the

charitable sector (CAF 2014)

Base: All current finance agreements answered on (126); all likely to/might seek finance in the future (183)

So what can social investment be used for?

Cashflow

supportTransition to new

business modelRescue

Refurbishment Asset acquisition

What social investment can be used for

Cashflow support

(Working capital)

Seasonal cashflow

Contracts paid in arrears

Example:

Street League, a charity

that works with NEETs

What social investment can be used for

Transition to a new

business model

Expansion to new

geographical area

Grow capacity by hiring

more delivery staff

Example:

Book Aid International

What social investment can be used for

Asset acquisition

Need a mortgage for

new property

Need a new minibus/

website/equipment

Example:

Warwickshire Rural

Community Council

What social investment can be used for

Refurbishment

Refurbishing empty office

space to make it more

appealing to rental market

Example:

Plaza Community Cinema

Refurbishment of Grade II

listed cinema

What social investment can be used for

Rescue

Backing a convincing

business plan and SMT

to turn around a failing

organisation

Misconception 2

Loans are risky for charities.

They are only risky if the loan is unsuitable.

Most elements of risk can be managed by doing

your homework.

How do you tell apart bad loans from good loans?

Bad loans

X Not knowing how much to borrow

X Based on optimistic forecast

X Weak business model

X No communication with the lender

X Poor financial controls

X No Plan B

Good loans

Robust cashflow forecast

Scenario analysis

Strong governance

Organisational buy-in

Effective financial management

Source of repayment identified

Misconception 3

Social investment is rigid and inflexible.

Find the financial vehicle and provider that best

meets your need.

The range of social investment products and

providers is increasing.

Social investment products and providers

Type of product Examples of providers

Unsecured loan CAF Venturesome

Big Issue Invest

Key Fund

Secured loan CAF Bank

Triodos

Unity Trust

Equity Bridges Ventures

ClearlySo

Bond Allia

Social Impact Bond Social Finance

Numbers4Good

How social investment can be flexible

An example: Motivation, a disability charity

Restructure of core

activities into social

enterprise model

£200k of financing

Tailored investment:

part loan, part quasi-

equity

Misconception 4

Loan finance is unaffordable.

There are a variety of providers.

Providers all have a different cost of capital and as

a result will charge differently to one another

Do your homework and find the provider that’s

right for you

Level of involvement and nature of desired returns vary between providers

Esmee Fairbairn,

Tudor

Who provides social investment?

IMPACT-FIRST FINANCE-FIRST

LOW INVOLVEMENT

HIGH INVOLVEMENT

Impetus -PEF

Bridges

Ventures

VENTURE

PHILANTHROPY

VENTURE

CAPITAL

CAF

Venturesome

CDFIs, local

investment funds

Angel

investors

Big Society

Capital

BANKS

GRANT

MAKERS

Big Issue

Invest

NESTA

SIB, Key Fund

Triodos

Bank

CAF Bank High street

banks

LGT

S&SCFSE

Charity

Bank

Misconception 5

It is complex and difficult to understand.

It’s not all about SIBs* and RPAs**.

Most of what you need to know is straightforward.

* SIB: Social Impact Bond

** RPA: Revenue Participation Agreement (aka Quasi-Equity)

The important bits

The bulk of social investment is unsecured loans

Interest rates typically vary between 0% and 10%

You will be asked to prove charitable objectives and

social impact

You will need to show a viable cashflow forecast

Misconception 6

The social investment sector is new.

Social investment is not a new phenomenon.

Lending for social purposes represents a tradition

that dates back centuries.

Social investment timeline

{Quakers}

1700’s 1800’s 1900’s 2000’s

{Methodist Church}

{Credit unions}

{Social investment funds}

{Social Impact Bonds}

Misconception 7

It’s only suited to large organisations.

Smaller organisations are borrowing money to

further their cause too.

A couple of examples

Educational charity that works with schools and has been trading for a year

Low levels of resources, but with big ambitions to grow

Borrowed £25k to be able to invest in its internal capacity

Social enterprise PR agency that works with disadvantaged people

Experienced slowdown in revenue

Wanted to borrow money to help secure more business

Borrowed £25k to hire staff and invest in developing its website

Misconception 8

The investment process is burdensome.

Not if your organisation is investment-ready.

Articulate what your organisation does and how it

helps people effectively

The financial data required are standard elements

of an effective financial management process

Support available, eg. Big Potential, Stepping

Stones

How to show you are investment-ready

Clear financial model

Clear strategy

Purpose of borrowing

Source of repayment

Good governance

Misconception 9

The market is focused on London.

The scope of CAF Venturesome’s clients’

charitable activities is widely spread.

Many funders and providers are based in London,

but most are active nationwide

There are also many dedicated regional providers,

eg. Key Fund (North of England), SIS (Scotland),

Social Investment Fund – NI (Northern Ireland)

Geographic scope of CAF Venturesome’s investees

National 25%

International 18%

London 12%

South West 10%

South East 8%

North West 6%

East Midlands 4%

Scotland 4%

West Midlands 4%

East of England 3%

North East 2%

Wales 2%

Yorks and Humber 2%

Northern Ireland 0%

0%

4%

6%

2%

2%

4%

3%

12%

8%

10%

2%

4%

Summary

1 Social investment can be useful for your organisation

2 The sector is made up of a host of different providers

3 Do your homework and find out what is out there

4 Use the resources that are available

If you would like to find out more, call us on 03000 123 300.

A short glossaryQuasi-equity: A hybrid of equity and debt investment. It can

sometimes be referred to as a Revenue Participation Agreement (RPA).

Social Impact Bond (SIB): A form of outcomes-based contract in

which payments are linked to social outcomes.

Social investment finance intermediary (SIFI): An organisation that

provides, facilitates or structures financial investments for social sector

organisations.

Standby facility: A loan that can be drawn down over a certain period

of time, rather than as one lump sum.

Working capital: Finance used to manage the timing differences

between spending money and receiving it.

Handy sources of further information

Big Lottery Fund

Big Potential – ‘Social Investment Explained’ guide

Big Society Capital

CAF Venturesome’s Blog

City of London – Brief handbook on social impact investment

New Philanthropy Capital

Social Enterprise UK

School of Social Entrepreneurs

Thank you

CAF Venturesome

cafonline.org/socialinvestment

03000 123 300

venturesome@cafonline.org

@CAFVenturesome

bit.ly/caf-company-page