2014: Little has changed in Social Finance and now we have Profit With Purpose Vehicles – let’s hope 2015 turns out better…

For a long time now we have been campaigning about the lack of available finance for enterprises like us who have the ideas and business model to expand and create more jobs as we do. This latest blog is written by Robbie Davison (our Director) discussing what has not happened in the social finance market in 2014 and why little is likely to change in 2015.

We look forward to your views…

Social Enterprise 2014: Another year gone – wonder what 2015 will bring?

Since the introduction of the Coalition and its love of austerity, social ills that were thought to be eradicated by modern capitalism are recrudescing. The number of people reliant on food banks to avoid hunger has reached more than a million. There are 60,000 households living in temporary accommodation because of homelessness. And for the first time, the number of working families living in poverty has outstripped the number of workless and retired ones doing so. In this ‘working’ group there are over 1.3m people working part time because they cannot find full time work, with many of the 4.3m self-employed also lacking the hours the need.[i]

A while back someone prominent in the social enterprise movement told me, “We should stop all this talk of Social Investment (or the lack of it) and spend our time market building.” I thought this to be a strange observation at that time and it seems to be no less strange now. If there is no money to find those markets, where you end up is with fewer markets. At a time when there is increasing need, then it is glaringly obvious there needs to be more markets. But let’s take this Markets commentary at face-value and set out in context how a few of these markets are shaping up as social need increases.

Social Enterprise is rooted in the Third Sector. In the Third Sector the key drivers for any market building are Care and Quality – any compromise of either should not feature. Yet what 2014 has shown us, is that parts of the sector and some of the sector agents (of which, some should know better) are more than willing to compromise upon both care and quality in order to stay in, or worse still, reshape the game.

As noted in the first paragraph, there is so much growth in the market of need that the sector should be building from a position of strength. However, for all kinds of reasons, on the frontline, 2014 saw the opposite occurring.

2014

Social Finance (Investment):

Amongst a plethora of issues hindering social enterprise and their access to social finance, two remain quite topical.

  1. Social Finance remains a strange world administered almost entirely by people who have never set foot inside the running of a Social Enterprise and appear almost entirely from some sort of financial mould – a mould almost devoid of thinking about the social perspective. This has been a constant across the last 10 years or so and with another year gone social finance has done little or nothing to change this and dispel current thinking amongst social enterprises that it is all about the money. No wonder most are looking elsewhere for development funds. The joy of a due-diligence session with these financial types should be filmed! For many practitioners involved in the social enterprise sector, viewing would become a certain YouTube success.
  2. Then there are now the appointed and so-called successful social entrepreneurs, put on a pedestal and lauded. A few are now advising the Social Finance sector, or are part of committees / panels of existing social finance products, pushing and selling them to largely unsuspecting enterprises led by people also wanting to be successful. However, what is wrong with this is that the successful are now part of denying the current crop of entrepreneur’s access to the kind of money that facilitated their success in the first place – notably, swathes of grant and patient capital – not one of them made their name using short term debt finance and neither would they. The hypocrisy of this group stands out for all to see.

I mention these two conflicts at the start of this note because unless part of what is broken is fixed little or nothing will change.

Now to 2014. This bit of commentary starts with the best quote I have heard so far about the none-market that is social finance. This quote is all the more interesting because it was said by someone senior in the social finance movement. The quote was delivered as we (He, I and a colleague) held talks about the state of social finance…and he said…

“The problem is you want fish and I am a butcher.”

Now given I lead a social enterprise that has managed debt finance very well for 5 years, paid everyone back, grown its turnover, staff numbers, profit, is a living wage employer, has the public sector as partner, is achieving significant social impact and now with some considerable market research and planning is predicting very strong growth that can scale – this declaration is quite a startling admission.

He is saying that social finance is ultimately in the wrong place for community-based social enterprise (about 90% of the marketplace). He is also saying that this mini-industry of debt money is now so wrapped up in saying ‘no’ that no has become the default stance. Social financiers have created an environment where their default is no place for real funder/enterprise negotiation… Just more of the same-old-same-old… shaped by the love of deadlines and competition presided over by the same organisations that created the bottleneck in the first place.

In his latest blog David Floyd described the 2014 Social Investment year as ‘Pretty Good’ explaining the so-called progress that social financiers like BSC et al have made with trying to make this social finance stuff add up.

I don’t often disagree with David but unless the money lands somewhere useful (which currently it is not) then their currency is of no use whatsoever. David points to BSC getting more money out of the door but we must remember that BSC are a wholesaler and those they push the money out to are a particular ilk, thinking only of their minimum risk, maximum return model. To these intermediaries the term ‘social’ seems nothing more than a cool label to play with.

So, whilst 2014 may have been a “pretty good” year for social financiers, for community based social enterprises, not one jot of difference has been made.

Anyway… back to markets…

Social financiers continue to confound the first principle of good market building – that there is a market in the first place. This past year we have seen ‘new products’ launched into the same space where existing products struggle to find any sort of market grab. These products are often released by the same social finance organisations as if they have got something new to say, as if all their previous work has ‘cracked it’- achieving all kinds of good things, and making money too! This is just not true and this market remains a none-market.

The whole social finance space is predicated on how much money can be brought in – rather than how much money is required to do the correct job. There is a real glory in talking up the size the market will become. For example, we are all familiar with the commentary that there will be a £billion available sometime soon but this is nothing more than noise made by those with a vested interest in making sure there is a noisy game for them to play – more of this later. Let’s concentrate on the current so-called market.

Speak to any social financier and ask them for their own market research (a question they insist on asking any of their own fund applicants) and they cannot provide any evidence of this…the research simply does not exist. Instead, they deliver glib answers such as, “We are providing what the market wants,”. But with zero, none, zilch proof of where that market is. Then, when this is questioned, they of course, go on to blaming social enterprise for not being investment ready… We have heard the same responses for years and financiers are still in the same blame game. This is not true – it is simple, the money that they are gatekeeping is wrong money.

This is a made up game being played out by those who are being paid considerably well to talk up and push out nothing more than money that largely has no place in the sector. This money is the enemy of poverty solutions and its associated ills. To be very clear, short-term debt finance has no place in tackling poverty and issues such as rehabilitation (of all kinds) and other big health issues such as obesity.

Solutions here require patient capital that is, by nature and design, requesting lower returns and lower growth rates, yet the exact opposite applies.

Complicated social ills are long-term problems that require long-term solutions and they will never change for the better by pushing organisations to the edge of choosing something (short-term debt finance) over nothing at all.

This short-termism, does nothing other than ‘babysit’ problems, cast as if care is the true motive.

Now I am sure there will be a commentator or two who will say ‘change is on its way’ and we should look to the pending arrangement between BSC and the Lottery as a potential new way forward, probably offering grant in their new equation. Got to be a step forward eh? However this will be grant offered only to those who intend to take on short-term debt finance making it little more than all of those Social Investment Business – Investment Readiness – type products.

Trying to make sure social enterprise is once again squeezed down the gullet of all those baying social financiers sat in wait playing their part in some ‘social’ Foie Gras experiment. If you squeeze enough in and down, sooner or later something good may pop out, no matter the cost.

Danyal Satar, Development Director of Big Society Capital, stated in his blog ….”And do you know what? Big Society Capital is…ordinary people’s money.  It is not government money.  It is the bank accounts of ordinary people for whom the “know your customer” truly failed.  People who have died, and their bank accounts were not found by their inheritors.  People who had no one to leave their funds to.  It is that money that we are applying to social and environmental purposes through social investment today.  It is not city money.  It is not high net worth individual money.  It is not the rich and the famous.  It is not government.  It is not big business.  It is ordinary people.”

Yet who would think so?

Taking Danyal on his word, you do wonder what the ‘people’ would say if they knew that the main benefit of their money so far was to create lots of well-paid intermediaries, who are so far unable/unwilling to create the market for which the money was intended – to tackle social need? Money which in its current shape is irrelevant for most good, hardworking, community-based social enterprises.

Most good, hardworking, community based social enterprises I know have given up on this experiment and are no longer looking towards any of the current crop of social financiers with any hope. And no amount of pathetic competitions, new-for-old products or glib blog commentary about ‘jam tomorrow’ will suffice. Millions of people are struggling through no fault of their own and the only people getting fatter are those sitting in their social finance nest eggs praying that social enterprises will all give up and give in sometime soon.

For any social financiers who are actually interested in change, Christopher Houghton Budd in his book The Right On Corporation has a bit of advice…It’s the act of behaving differently that is important.

Anyway, enough said about Social Finance for the time being. Here’s the new chestnut…!

Profit With Purpose Vehicles:

I have been involved in the Social Enterprise sector for 25 years and I have never seen such a virulent attack on its integrity that ideas such as this contain. This is nothing more than ideology at play.

In his book, “When Corporations Rule The World” David Korten asked that we replace the Suicide Economy with the Living Economy, the difference being that we undertake business that is there for the Love of Life not for the Love of Money.[ii] I can’t help thinking that the chestnut Profit With Purpose Vehicles are all about the money and leading social enterprise towards unwitting suicide.

In trying to justify this new think-piece, Cliff Prior of UNLTD said…”However good charities and social enterprises are, there is a big gap between the available solutions and the scale of problems in society” – No kidding?.. So let’s just make every little scrap of everything seem social and the world will be a better place…? This smacks of some organisations having too much money and time to play with.

Trust Engines… remember them? Dreamed up to try and legitimise the expansion of the ‘social’ market from one dealing in Care and Quality to any sort of deal that could be linked to anything social – in other words – how do we get everyone involved no matter where their starting point and let’s make sure we water down this social need thing until it is almost irrelevant.

So it appears that those Trust Engines have now gone and some of the same group who were also previously responsible for splitting the term Social Entrepreneur from Social Enterprise, have now dreamed up the PWPVsmore of the same-old-same-old, only…. different… if you know what I mean?!

So what could be the reasons for dreaming up this latest think-piece?

Is it…

  1. We dream of a world where all business is social and if we create another legal structure type thing a bit better than those CIC things (more about the money and less ‘just’) then change will surely come?

Or is it about and linked to;

  1. Making sure more private business can access the money available in social finance and therefore (at last) legitimising the current non-market?

Likely… but what if it is really about;

  1. Getting rid of the word social altogether?

… Now, for some, that would be progress!

There is probably some truth in all three. All three together mean that those around the table dreaming this stuff up are wholly dangerous for the sector, diluting for their own aims, contributing nothing to Care or Quality.

They’re funny these London creations (no wonder Scotland said enough to some of this). They keep a lot of people busy ruminating about some sort of utopia where every business is a social business. Which, if we stretch this PWP stuff out, means pretty much every business is already a PWPV; creating jobs, a bit of training and distributing profits here there and nowhere socially important and hey presto… everything is a PWPV.

As I have said, all this smacks of some organisations having too much money to play with and being more concerned with dreaming up new because what is their doorstep – developing real social enterprise, responding to poverty – has now become too hard/ not profitable. Therefore, it may not be too long before the real decision makers take notice. Before that happens let’s try and make everything social. What a scam.

To finish off, there are people (quite a few current ‘thinkers’ seem to be based in UNLTD and Nesta) who are trying ever so hard to ‘gerrymander’ the word Social – separate it from the word enterprise, better still kill it off altogether.

Social is a word so hard for them to fathom as for most involved in their Think Tank games, they just don’t get need or struggle – they seem to have never been there, or if they have, forgot what it is to be like to be involved in tackling poverty of any sort. And without doubt these initiatives have little to do with care or quality – it’s all volume and financial return.

For this group producing report after report with recommendations to try and fit their own motive to reshape the market, it’s a case of let’s not stop until the word Social disappears for good and Profit is front and centre of everything.

It is ideological pure and simple and anyone involved in social enterprise supporting this is complicit in moving the social enterprise movement towards its own suicide moment.

2015

Looking forward…. what can we look forward to?

Much more of the same Social Finance… and maybe some Social Investment:

As a friend of mine said, 2015 should be about connecting the money to the solutions to social need not “developing the social investment market.” We can only hope so but let’s put the smart money on the following:

Real social enterprise will continue to operate in the hardest markets to try and offer care and quality and if they are ‘lucky’ enough to raise finance they will suffer the highest interest rates and shortest repayment terms on offer to any business sector.

The direction of the current thinking will not change other than the introduction of one or two more competition-based ‘new products’ still pushing enterprises via a small amount of grant into the jaws of short-term debt finance. This will therefore continue to remain meaningless money for all except a few – who will typically be the same few that can access what is on offer now. Most of the thinking about how to shape the market and meaningless money will stay London-centric – pushed out through their limited liability with all the risk on the enterprise models – they won’t move because they don’t have to – want does not even come into the equation.

Interestingly, people – not organisations – make policy, they make it and they always make it in their own interests and they can change it when they think it is necessary. Yet few of the current crop want any sort of change. The arrogance of this position is boundless.

Some Social Financiers may change but only a few. Most will stay fixed to their current game-plan and stay solid with it’s-the-fault-of-all-those-poor-social-enterprises-just-not-able-to-be-business-like – meaning that lots of good social enterprises will go out of business whilst need grows. Let’s be very clear here, there is no market for this money and no matter how hard they try, things will remain the same.

Money that offers support to risk and innovation will remain in the hands of the larger trusts and foundations and they should be applauded for how they are taking the strain for the non-market of social finance.

Alongside, some will create alternative routes to investment such as the work I am involved in (Builder Capital)- This is work is ongoing outside of the current London based social finance marketplace and Up North in a number of locations – wonder why that is?

Profit With Purpose Vehicles will come and go:

Not credible to anyone other than those ‘Gerrymanderers’ with a vested interest in keeping the social marketplace all mixed up, leading their ideological charge. Let’s bet this will be ‘stuff’ that will come and go and as it goes, keeps a few very well paid people busy hypothesising about a world where something as menial as opening a car door becomes a meaningful social act. Trust me that’s how this PWPV stuff seems to many who are involved in dealing with real poverty issues.

But as with many of these ‘Think Tanky’ things – maybe we just don’t understand?

————————————————————————————————————————————-

Good social enterprise is predicated on campaigning, I hope 2015 is the year people with the skill, knowledge, experience, influence and intellect choose to campaign and stand up on the real issues that are starving social enterprise and the Third Sector in general. Those issues are all centred on making sure that need is addressed as priority and Care and Quality remain front and centre not Profit.

January 2015

Robbie Davison

Can Cook CiC

 


[i] New Statesman 2015

[ii] Source: The Right on Corporation – 2004

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2 thoughts on “2014: Little has changed in Social Finance and now we have Profit With Purpose Vehicles – let’s hope 2015 turns out better…

  1. Pingback: BSSEC » “Gerrymandering social enterprise”
  2. BSSEC…Thanks for taking the time to read and promote. The social enterprise sector is at a critical crossroads and the next year or so will determine whether ‘social’ stays central to the cause or whether the money or lack of it buys people off towards the sort of delivery that has little or nothing to do with tackling need. We hope the sector is strong enough to choose social. Lets stay in touch..

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