What is the future for social investment finance intermediaries?

16 October 2015

Jonathan Jenkins, then Chief Executive of Social Investment Business, discusses how the results of ICRF demonstrated the value of social investment intermediaries and the questionmarks over their future.

I consistently urge those of us at Social Investment Business, and in the wider social investment market, to develop financing solutions that are relevant and useful for the majority of charities and social enterprises, not just niche products that work for the minority.

This first social investment “elephant in the room” is out, proud and increasingly recognised. Admittedly, it is yet to be completely vanquished.

However, our successful work with ICRF, Big Potential and other “readiness programmes” has surfaced another…

Last week we released the final figures for the Cabinet Office’s Investment and Contract Readiness Fund (ICRF). We also published a second evaluation into the fund; Ecorys’ In Pursuit of Readiness followed up the Boston Consulting Group’s interim evaluation Ready, Willing and Able.

So why are we making such a fuss about, in the grand scheme of government funds, a relatively small £13.2million programme? Primarily, the numbers are staggering - £233m in private investments and competitive contracts from £13.2m grants – but that’s covered in the press release and the large amounts of retweets I’ve been swamping your Twitter feeds with.

There are, in fact, other valuable points to take from ICRF other than the absolute numbers.

And this is where the second elephant is revealed.

First, ICRF was an innovative and pioneering fund that worked. 

ICRF demonstrated that, despite the nascent state of the sector in some parts of the UK, specialist investment and/or contract readiness support can help charities and social enterprises improve their performance and maximise their social impact. The fund model brought together a broad spectrum of investment readiness providers and built a pipeline of support. It’s a model that can, and has already started to, be replicated and repackaged. 

Second, the ICRF was a collective effort.

Twelve social investors made up the decision panel, devoting A LOT of their time to ensuring we were making grants to the right organisations. Advice providers then worked with the ventures from application stage to the final investment proposal and/or tender, often under demanding timetables and policy constraints. Goodwill on all sides was probably exhausted pretty early on, but what remained was a steely determination from all players to make this work.

Whilst there is a clear divide amongst social investment finance intermediaries (SIFIs – the rather clumsy collective term that includes both investors and advice providers) as to what constitutes investment readiness in terms of quantum and quality, I know we will collectively work though that, with some uncomfortable discussions ahead of us. At SIB we were privileged to be at the centre of the ICRF and we feel it is our duty to share the learning in order to help develop the intermediary market in the UK and beyond.

Finally, ICRF has demonstrated what a positive impact advisory SIFIs can have on the growth of social enterprises and charities.

Advisory SIFIs have helped turn £13m into £233m, and you’ve got to admit that’s an impressive effort. I’m proud of what they’ve achieved.

But whilst I could easily advise most charity or social enterprises where to turn for help and support and access to capacity building support, that support and finance is not available for my SIFI peers, despite demonstrable evidence of the value they generated through the ICRF.

The truth is most SIFIs need support, especially those who provide advice as opposed to being investors. Like other social businesses they need patient capital or even plain old grants. Business models built on transactional flows, in this nascent market, are vulnerable and unproven.

Having said that, I recognise that many SIFIs certainly need to get far better at how they engage with charities and social enterprises, especially when it comes to demonstrating the value of that professional support, which is all too easily dismissed as directing money away from frontline delivery.

As a CEO of a SIFI myself I am all too aware how a call for increased support for SIFIs may well be seen. At best, a further distraction and delay from getting money to the frontline organisations SIFIs are created to serve. At worst, self-serving and irrelevant. However, this doesn’t make the problem go away. Either our much vaunted “world leading ecosystem” needs more cash going to the SIFI infrastructure, as unpopular as that may be, or we need to consider a fundamental review and redesign of how to make money flow quicker to those that need it.

This is Elephant #2. Who can help?

One of the key original objectives of Big Society Capital (BSC) was to invest in intermediaries that are developing viable, innovative products and mechanisms that can attract investment and meet a financing need in the social sector – the SIFIs.  That simply hasn’t happened – understandably - as BSC have rightly concentrated on ensuring those funds were targeted at frontline organisations.

Perhaps SIFI models don’t fit their criteria or style of funds? Or maybe we SIFIs just don’t sell what we do very well? We have started addressing the latter through commissioning reports like the Ecorys and Boston Consulting Group’s but this is just the start and we have a duty to do more with the data we hold. Whatever it is, a principle challenge for the new CEO of BSC will be to decide how they can meaningfully develop and strengthen the SIFIs.

But maybe I shouldn’t be looking to BSC.

Could this be a role for Access? Digging out a chunk of their £60m “readiness” money endowed to them by the Cabinet Office to support SIFIs directly?

Maybe this is a role for Big Lottery Fund, to build on their (much missed) “Next Steps” programme which remains the only programme focussed on development of SIFIs?

Some will argue this is an area for the Foundations, although I think they’ve done their pioneering bit already with great aplomb (and less recognition than they deserve).

So do we want our SIFIs to thrive or just about survive?

I think they’ve given us a sharp reminder of their value, in some style, so it’s time we all stopped avoiding this debate. 

Jonathan Jenkins was Chief Executive of Social Investment Business from September 2011 - March 2017.

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The Social Investment Business is the trading name for the Social Investment Business Foundation, Registered Company No. 05777484 (England), Registered Charity No. 1117185 (England & Wales), The Social Investment Business Limited, Registered in England No. 06490609, VAT No. 927456693, Futurebuilders-England Limited, Registered in England No. 05066676 and Forward Enterprise FM Ltd, Registered in England No.11238102. Registered Office: CAN Mezzanine, Borough, 7-14 Great Dover Street, London, SE1 4YR.

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