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Overcoming Barriers to Social Investment: Achieving the Highest Social and Financial

Gains—Investigating Current Policy Developments and the Future Policy Horizon

Rodney SchwartzCEO

Westminster Briefing24 February, 2010

Overcoming Barriers to Social Investment: Achieving the Highest Social and Financial

Gains—Investigating Current Policy Developments and the Future Policy Horizon

=What can Government do to accelerate the

Social Economy?

My background: A “financial guy” seeking redemption (and fun) in social investment

financial sector and investment

social investment

2008

1999

1980

2008

1999

1980

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ClearlySo: A social business & enterprise, commerce and investment marketplace

Suppliers Investors

Social Enterprises

Social businesses and enterprises on the site

17% of businesses on site are non-UK based (as of Jan 2010)

ClearlySo is expanding outside of the UK

Catalyst Fund Management & Research

• Raising £40 million from institutional investors in Europe to back high-quality social businesses focused on four sectors: Health & Wellness, Education & Training, Ethical Consumerism and Energy Efficiency

• Clear measurement of “social impact”

• Managed by team of professionals (not me, but I founded the business in 1997)

Catalyst Strategy Advisors

So let’s look ahead at the outlook for social enterprise funding

Changes to social enterprise funding: A Strategic View

• sources of funding

• types of instruments

• delivery mechanisms

• conditions

What is the background at present for

social enterprises?

• 62,000 SEs in the United Kingdom; growing fast as a sector in size and importance

• Very much the “flavour of the month”; popular with politicians across the political spectrum

• Largely government-backed; although foundations are increasingly involved

• Levels of funding have been microscopic to date

1. Future sources of social enterprise funding

• The Government is in a very tricky position:– It is in bad financial circumstances and in denial – However, it wants to and needs to shift

expenditure towards the social enterprise sector

• Financial institutions are unlikely to fund SEs:– Partly because they cannot and partly because

they will not– “Ethical” institutions may make up a small part of

the gap, but these are often Government funded

• Individual investors will be “the answer”

What do we mean by individual investors?

individuals

government

social businessesfinancial

institutions

2. What sorts of instruments will predominate?

• Grants — probably will decline in importance:– Govt problems and issues for foundations– The grant process is structurally challenged

• Loans — also an awkward form for SEs:– Many lack repayment or servicing ability– Traditional lenders are belatedly “gun-shy”

• Equity — an essential role to play• Hybrids — also will feature due to

increasingly complex needs and desires

The Case of HCT Group

• Background: HCT is a large and successful social enterprise operating community transport services in Hackney, Yorkshire and elsewhere. It was seeking to broaden its funding sources from sole reliance on lease finance

• We have been advising the company and in mid-February will close a round of debt and hybrids (quasi-equity) of £3-5 million, backed largely by ethical investors who see this as an emerging “benchmark” transaction

An aside on this issue of complexity

And let’s not pretend we understand what we mean when we discuss social impact

Risk

Return

Risk

Return

SocialImpact

3. How will the funds be delivered?

• Traditional intermediaries — I doubt it• Ethical financial institutions — Yes, but limited• Advisers — Absolutely; especially for HNWIs• Direct via introduction — most certainly

– Angel investment clubs– ClearlySo “Social Sector Speed Dating” (Epona)

• Direct via the internet — Absolutely!!

• Ethical financial institutions — Yes, but limited• Advisers — Absolutely; especially for HNWIs• Direct via introduction — most certainly

– Angel investment clubs– ClearlySo “Social Sector Speed Dating”

• Direct via the internet — Absolutely!!

Applying the lessons of Zopa.com and Justgiving.com to social investment

• Zopa does peer to peer lending and has enjoyed rapid growth since its inception

• Justgiving has facilitated over £500 million in charitable giving; over £189 million in 2009

• Many businesses are seeking to copy this success in social investing:– ClearlySo– MyC4– Mission investing

4. What sorts of conditions will pertain?

• Governance

• Transparency

• Clarity

• Professionalism

• “Pitching” ability

My personal journey: What can I do to make social entrepreneurs more successful?

• Be aware of limitations:– Environmental– Resources– Time– Talents (we all have some)

• Get started• Regular checks on how things are going

Thank you.Please feel free to get in touch!

Rodney Schwartz (rod@clearlyso.com)

Twitter: @rodneyschwartz

The Social Business Blog (www.clearlyso.com/sbblog)