This article on social investment is the third in a series of themed blog posts where we unpick the often complex areas around fundraising and getting investment in your business, and spotlight a few of the organisations who offer guidance and support in this area.
You can find the previous posts on angel investment and venture capital investment on our resources page here.
What is Social Investment?
Social investment is a form of finance that seeks to have a positive impact on society. Investors actively seek out businesses and charities that are achieving social good to invest their money in. This means that as well as repaying the investment, recipients will need to be able to demonstrate impact.
If you are considering this funding route you may have questions like:
- Does my business qualify for social investment?
- How do I find the right investor?
- Do I need to be measuring impact already?
These questions, along with considerations on the main types of social investment routes, will help to inform your fundraising strategy.
We’re here to guide you and help you answer those questions, so that you can make the right decision for you and your business.
Where to Find Social Investment Funds
You will need to do some research into which social investment funds are live, and are a good match for your business, so we’ve compiled some resources to help you on your journey.
A great place to start when preparing for social investment and finding investors and advisors is Good Finance.
We’ve previously partnered with Good Finance on the Addressing Imbalance programme, supporting minority-led social enterprises to benefit from learning and resources around accessing social investment, and share a vision of reducing the barriers that so many face in the entrepreneurship sphere.
You can get social investment from two broad groups:
1. Through an Organisation
This is most likely to be from one of the following:
- Specialist social investment firms
- Social banks
- Trusts and foundations
Social investors will often have a particular focus market sector (such as education), or be focused in a specific location, while some work with organisations at a particular stage of development. They may also only provide a certain type of social investment.
Each organisation will have different eligibility criteria. It’s important you know the basics first and are confident that social investment is right for your organisation before contacting any providers.
Once you’re sure, you can find a growing directory of the providers of social investment on this investors and advisors page.
2. Direct from an individual
Taking on investment from an individual or group of individuals. This includes:
- Angel Investment (see our recent article on angel investment advice and resources).
- Crowdfunding – There are a number of peer-to-peer lending and crowdfunding platforms that you could use. Two platforms that focus on social investment opportunities for charities and social enterprises are Crowdfunder and Ethex.
- Community Shares – If your legal model allows it and you think it’s right for your organisation, the Community Shares Unit & Community Shares Scotland offer guidance on how to set up a community share offer.
- Social Investment Tax Relief – Remember, SITR can often be used as an additional tool to angel investment, crowdfunding and community shares.
Social Impact Bonds
One area of social investing that is perhaps less known is Social Impact Bonds. These bonds create partnerships between the public, private and voluntary sectors to help solve social problems through a clear focus on delivering the outcomes and real-world impact.
In a nutshell, Social Impact Bonds are outcome-based contracts that use private funding from social investors to cover the upfront capital required for a provider to set up and deliver a service. For example, payments would be made if a young person has entered a job or if a person who is homeless has been supported into sustainable accommodation.
The UK Government website walks us through the benefits and challenges and outlines whether a Social Impact Bond is appropriate for you and your business.
The social investor is typically a social investment fund seeking social as well as financial returns, and the service provider is often a social enterprise or charity organisation, like yours, which works with the target group to deliver the outcomes defined by the outcome payer (usually the government). In this case, you’d receive payments from investors based on the achievement of specified outcomes.
The Importance of Impact to Social Investment
Because social investment funds are interested in how organisations are doing good and having a positive impact on society rather than just achieving financial growth, this impact needs to be measurable and demonstrable.
If you are making a difference through your organisation, you need to have mechanisms in place to be able to report on this and tell the story of your impact. Considerations should include short-term versus long-term impact as well as how you collect different forms of feedback, whether that be through data, surveys, focus groups, case studies and more.
Remember that you are not alone on this journey. Everything touched on in this article is covered in more depth on each of our cohort-based programmes, and you can access a 1:1 Consultation to talk through any specific challenges you are facing at any point during the year.
You can also sign up to our upcoming events, whether you’re already part of the Hatch community or not, to get more of a deep-dive into a range of important topics, and join our newsletter to make sure you’re kept in the loop.
Business Funding: The Venture Capital Route
Advice and resources on raising venture capital investment for your small business as an underrepresented founder in the UK.
Business Funding: The Angel Investment Route
Advice and resources on raising angel investment for your small business as an underrepresented founder in the UK.
How to Register a Community Interest Company (CIC)
Simple steps on how to register your business as a CIC along with personal experiences of the process from the Hatch community.