03/11/2011

By Hatty Stafford Charles, AngelNews

It is becoming increasingly clear that the big new theme in 21st century enterprise is giving something back. Social entrepreneurship is a rapidly growing sector with businesses creating innovative, scalable solutions to tackle social problems. Take Housing Action, for example, which provides homes and support for homeless people; Blue Sky, which is an environmental waste management company that trains and employs ex-offenders; and Rackety’s, which aims to become the equivalent of Mothercare for children with disabilities. These social entrepreneurs are ambitious to scale up both their businesses and the impact that they deliver, providing Angels with a financial return as well as a social return on investment.

Investment Manager Gareth Zahir-Bill of UnLtd is quick to point out that these kinds of investments can leverage growth that is good for society at large, “There is a spectrum of risk and reward for Angels in this space and there is a growing pipeline of co-investment opportunities in the social venture sector. We have recently scouted across the country to find 25 of the most ambitious, scalable social entrepreneurs through the Big Venture Challenge. We will be providing them with intensive investment readiness support plus funding of £50K – £100K if matched by loan or equity from coinvestors. This could offer interesting opportunities for Angels to enter the social venture market.”

So how do Business Angels fit in?

Gareth points out that there is a gap or “missing middle” for social entrepreneurs looking to raise between £50k and £300k. At the earliest stage, there are a number of organisations providing seed funding; UnLtd itself gives an average of £2k - £20k to over 1,200 entrepreneurs every year and other organisations are also helping with funding at this level. Beyond £300k, there are investment funds such as Bridges Ventures, Big Issue Invest and Venturesome, which offer institutional social investment.

More established social ventures can also access debt finance from Charity Bank, Social Investment Business or Triodos Bank. However, in order to strengthen the pipeline of scalable social ventures, the gap in Angel finance needs filling.

As Gareth says, “The market goes from funding more than 1,500 start-ups to supporting very few at scale. While you could try to argue that the social venture sector gives light of day to too many start-ups, this is tempered by the stats that more than 235,000 people want to start a social venture in any given year (GEM 2008). Therefore, less than 1% of those motivated to start a social venture actually do so.”

And why should these kinds of ventures appeal to Business Angels?

UnLtd takes the view that there are several reasons why Angels should look at social ventures. Firstly, they are capable of providing a real financial return to investors. The investment timetable might be longer term and the yields not as high as those promised by purely commercial investment opportunities – but then as we all know, there are no guarantees with investing and any investor needs to look at the viability of a proposal in the round. A lower yield investment that actually provides a yield at all may be a better bet than a potentially stratospheric one which crashes and burns.

Secondly, many Angels are interested in social ventures in the same way that they are interested in charitable giving. It is a way to put something back and knowing that the money is being spent on something worthwhile. Social ventures operate in many fields such as health, employment, housing, disability, education, sports, youth, older people, and provide a range of areas that investors can become involved in. It is often the case that a social entrepreneur has discovered an innovative solution due to their own experience of a problem which means they bring the added dimensions of insight, commitment and perseverance to the venture.

This leads to the third reason for becoming involved; the experiences, knowledge and connections of Business Angels are already sought by growing commercial enterprises, but there is a similar need from social entrepreneurs who may not have a business background. The successes and failures that experienced investors have learned from are just as relevant in the social venture sector as anywhere else, as are experience in marketing, sales, operations and finance. Any Angel who wants to share their business skills can make a real impact here, not just on the company he or she is advising, but on those who benefit from the products or services.

But aren’t many social ventures over-reliant on diminishing public sector funding?

In a word, no. Many of them do have local authorities, schools, colleges and hospitals as clients, but increasingly they sell B2B and B2C to find diverse revenue streams that enable them to deliver their services. Grants are still a source of income when appropriate, and enable social ventures to create blended models. Take Phil Conway, founder of Cool2Care, who provides flexible, appropriate personal care for families with disabled children and has viable income streams from donations and grants as well as sales, and it would be a mistake to ignore the opportunity to raise philanthropic funds as part of his value proposition.

Others are tapping into new, growing markets for health and social care provision. The government is putting people in control of what care services they buy by allocating personal budgets. Social ventures such as the Coalition for Independent Living and Under the Stars are providing services for people with disabilities to spend their personal budgets on purchasing their own care.

Some are focusing purely on consumers. One example is Squease, which has developed an innovative garment to help people with autism to manage their anxiety levels; Moodscope has developed an online tool to help people self manage their depression, reaching a global audience; and London Early Years Foundation is developing a chain of high quality, affordable community nurseries for working parents in disadvantaged areas.

How big can these ventures get?

UnLtd used the Big Venture Challenge competition to carefully screen over 638 applicants to find 25 social entrepreneurs with the ambition and potential to scale. Although many social ventures are very locally focused, there is no reason to suppose that this is always the case. Many have national or even international potential, via franchising, licensing or joint ventures. There are already well known social ventures that are operating at scale including Jamie Oliver’s Fifteen and HCT Group, which has a turnover of over £20m and provides over 12 million passenger trips on their community buses every year.

Who else is getting involved?

Social entrepreneurship has become very popular in recent times and organisations like UnLtd are working hard to bring interested parties together. Coutts Bank is connecting clients to companies, with a view to encouraging mentoring, as well as investment. Merism Capital provides incubation and seed funding, whilst ClearlySo and Resonance both manage networks for Angels interested in social investments.

Individuals like James Caan and Doug Richards are getting involved and we can see that David Cameron’s Big Society, although much mocked in the media, clearly resonates with many and there is no reason for it to stop with volunteering. A significant number of High Net Worth individuals want to find ways to invest money responsibly and sustainably in projects which produce more than profits.

So what’s not to like?

There is no question that this area of investment is becoming more and more attractive. Investors want to get more out of their involvement than a return, and changing society is certainly a big achievement which will make anyone feel fulfilled as well as richer. Certainly some social ventures have more potential than others and the risks are the same as for any investment. There is an argument for better tax incentives to encourage the sector, but, at the end of the day, the simple question is: Do you want to make a difference?

As Gareth summarises, “We have a social investment marketplace where it is relatively easy to start up a social venture, and possible to grow it to scale once you’ve achieved a level of maturity. The only problem is the gap in funding businesses that need £50k-£300k. Our process of scouting and filtering the best social entrepreneurs, then providing investment readiness support plus match funding, is designed to stimulate interest for angel investors
in the social venture market
. We hope to see a number of co-investment deals take place over the next 6 – 12 months that will showcase the opportunities in this sector.


Don’t forget to book your ticket for one of Angel News' autumn events in your local city! Visit their events page for more information.


Join us on
Follow @freshbusiness