Third sector minister Phil Hope at the Good Deals 2008 conference
Social investment under the spotlight: full report from the Good Deals conference
‘In the current financial markets risk can be seen as a four-letter word but we need risk,' said third sector minister Phil Hope in his opening speech of the Good Deals social investment conference.
The conference, presented by the Office of the Third Sector with NESTA and the Royal Bank of Scotland, and organised by Social Enterprise, was the first national conference on social investment and Hope said he had come to the day looking for answers.
‘Where should we focus our energy? These are questions I'm asking you to answer for me,' said Hope.
‘I think there's a strong current out there for encouraging social capital with financial nous. I certainly want to hear how my excitement meets the reality of what you experience.'
CEO of UK business banking for RBS Steve Pateman also talked about risk and the current financial crisis.
‘In simple terms investors lost sight of where their investment led,' said Pateman.
‘I could talk at length at the whys and wherefores of the problem but what is relevant is the availability of finance for social enterprises in the current environment.'
The banking relationship between the Royal Bank of Scotland and social enterprise Wigmore Hall was put under the spotlight for the benefit of others at Good Deals.
Head of community banking at the Royal Bank of Scotland and NatWest Duncan Sloan said his unit had actively tried to win the business of chamber concert venue Wigmore Hall.
‘We had our eyes on it for some time,' said Sloan.
The many and varied needs of the social economy were put under the spotlight in this session, with a range of questions around issues such as supply and demand, tax incentives and putting a price on ‘social return'.
There was a difference of opinion as to the relative importance of social measurement with NESTA's Rowena Young arguing that ‘being reductive about numbers isn't always that useful' in getting people inspired about social enterprise investment.
The Community Interest Company (CIC) form was also debated with Big Issue Invest CEO Nigel Kershaw arguing that the asset lock on a CIC was useful but not the dividend lock, which he said put social enterprise in the dangerous position where ‘it's not a charity and it's not a business'.
Social Enterprise Coalition CEO Jonathan Bland said there was a danger that social enterprise was being put in ‘too small a box'.
Kershaw received a round of spontaneous applause when he called for more business orientated tax breaks for social enterprises - arguing that there was ‘no incentive for people to take risk in us as long as we're just somewhere in the middle between business and charity'.
Social entrepreneurs braved the 290 strong Good Deals conference crowd, and some pretty scary introductory music - the theme tune of TV's The Apprentice no less - to throw their investment pitch to panels of experts, all in the name of shared learning.
Divine Chocolate CEO Sophi Tranchell, Fair Finance CEO Faisel Rahman and MOTIV CIC director Rose Marley all sat in the hot seat at different times of the day and received feedback good and not so good - ranging from investors being unconvinced that the amount of funding sought was actually the amount required to ideas about how to structure a more attractive offer.
Social entrepreneurs are creating a new asset class through innovative work with remittances, money sent from wealthy countries to relatives in poorer countries, said Ben Metz, UK director of Ashoka.
Investors looking after the wealth of private families are discovering that social investment is important to their clients said Investing for Good CEO Geoff Burnand. However he also said that the old ‘binary view' of making money with one hand and giving it away with the other was still prevalent.
A Parkinson style conversation took place between minister for the cabinet office Ed Miliband and NESTA CEO Jonathan Kestenbaum on the Good Deals stage with both talking openly about the political challenges that must be overcome in social investment.
Kestenbaum said the role of public finance is to ‘play a leveraged and catalytic role that private finance can't play because it can afford to take a different attitude'. Kestenbaum said the catalytic effect of public finance can't be under-estimated and that government finance was ‘most effective when absolutely clear what it wants to achieve'.
However, at the same time he acknowledged the short-term political views of politicians acted as a constraint on the use of public finance acting with a long-term view.
Miliband addressed the need for more understanding of what social enterprise is.
‘I think one in four people knowing what social enterprise is, is more than I would have expected,' said Miliband.
‘And the real issue is not just knowing what it is but communicating this new idea of a different kind of business. That is what's going to unleash the kids in my constituency (Doncaster North) to go into social enterprise.'
He said it was a buzz to hear stories from the various people at the conference and the role of government is to help ‘capitalise this market'.
‘We just want to play a brokerage role to fill [some] gaps in the market,' said Miliband.
Two minutes can seem a lifetime or the blink of an eye and it seems the latter feeling was predominant at a rather hectic lunchtime speed networking session for investors and investees.
Rathbone Greenbank Investment investor Mark Mansley said he found his first speed networking experience 'positive but frantic' although some people were obviously better prepared than others.
Mansley also said he was surprised by the range of products - especially in the health and education sector. He said these products would be a harder sell to investors. He said most people would consider them the responsibility of the state and his investors showed more of an interest in renewables and fair trade.
'For us as investors it gave us insight into slightly earlier stage enterprises - we've tended to invest in more established businesses,' said Mansley.
'It's really encouraging to see the energy and enthusiasm and the range of different things out there but the sector as a whole is still at an early stage and has a lot of growing up to do fast.'
Almost ten years to the day since Sir Tom Hunter received a cheque making him a very wealthy man, he stood in front of delegates at the Good Deals conference and inspired them to do good with their money.
'I have to pinch myself every morning,' he told the crowd on the same day he celebrated his 47th birthday.
'My business was all I had ever known and I knew that whatever I took on, I would have to treat it like another business.'
At 37, he set up The Hunter Foundation to ensure children in Scotland have their basic needs met - education, health and a future full of opportunity.
Sir Tom himself admitted that setting up a charity was just as much to do with tax breaks and remaining in Scotland than wanting to do good.
'We had always done our bit for charity - the local church and the local football team, but it was always pretty unfulfilling,' he said.
Third sector minister Phil Hope had a story to tell about dragons and social investment…
‘The first time a social enterprise appeared on the BBC TV show Dragons' Den was several years ago,' said Hope.
'They said it was, and I'm quoting now: "a dangerous mix of charity and business" so I'm really glad that Amanda and James are here today from Red Button who recently managed to get all five dragons to invest in their social enterprise.'
Social investment wholesaler
Office of the Third Sector deputy director Hilary Norman explained exactly what a social investment wholesaler could do for social investment.
The project was then called a 'once in a lifetime opportunity' by Community Development Finance Association CEO Bernie Morgan.
However, she said some things still needed to be thought through. In particular she asked: 'should a social investment wholesaler have a lobbying role?'
Social infrastructure
John Laing plc CEO Adrian Ewer explained that most of his company's work was in providing social infrastructure - hospitals, police stations, schools and the like.
‘We think a significant part of our service could be delivered by the third sector,' said Ewer.
‘I think we can magnify the impact of what we're doing,' he said. However, he also added: ‘Establishing a clear basis of reporting is so important.'
Ewer's proposition received support from head of public services at Partnerships UK David Harrison who said it was 'interesting to reflect on the collision between public-private partnerships'.
'I do think its an intriguing idea - I don't think it's daft at all,' said Harrison.
The audience was asked to vote on the likelihood of both these ideas taking off in the social investment marketplace by holding up placards. A placard with a yellow rocket in space denoted that it was a good idea, a black placard with a flying pig denoted that it was a bad idea. In both cases the yellow rockets won the day.
Innovation in social investment products
'Financial products that can cope with varied and interesting organisation structures' are what is needed for social investment according to Social Finance development director Toby Eccles.
He proposed two solutions: revenue participation and social impact bonds.
Examples of revenue participation include a social enterprise that is given £200,000 in exchange for four per cent of the revenue of the organisation for the next 20 years. Or a business that is given money for an advertising campaign and then the financier takes a percentage of the extra revenue brought in by the advertising.
Eccles said this sort of financing was attractive to financiers as it could be repackaged as debt and used on the capital markets.
However, issues include the fact that this financing would be viewed as a liability on balance sheets and the complicated structure could lead to others not wanting to invest.
The second solution proposed, the social impact bond, is based on the agreed value of a future outcome being negotiated with a government commissioner. That agreement is then used to raise money in the present through a social investment intermediary.
'This would be a key tool in building social investment into an asset class,' said Eccles.
Founding Director of Venturesome John Kingston responded by pointing out the importance of keeping financial agreements simple, especially on the supply side but commended both ideas to the audience.
His commendation was eagerly followed up on. The sea of positive yellow rockets was such that it inspired conference chair Liam Black to mimic a rocket himself with the words ‘va, va, va, voom!'
Social stock exchange
Social stock exchange proponent Mark Campanale started his argument in favour of the exchange by asking a very simple question.
'How many people here manage publicly listed companies?' asked the associate director of London Bridge Capital. No hands went up.
'There is a parallel world with parallel conferences on social investment taking place,' said Campanale. 'But from a different perspective - they're buying and selling companies listed on the markets.
'These two worlds are converging,' said Campanale who argued that the social stock exchange would be a vehicle for raising growth capital.
Investing for Good operations manager Caroline Mason responded to the idea by saying 'every market needs an efficient trading mechanism but I think we need to know the beast we're dealing with a lot more than we do'.
'It gives you liquidity but it also gives you volatility and speculation. If the price is going down people will sell without any thought of what happens to that business,' said Mason.
'What makes us very different should drive the exchange and, at the end of the day, when we take over the world and everyone is like us, what makes us different is what we have to compete with.'
The yellow rockets again won the day with the crowd voicing their support for the idea but there were also quite a few black placards with pigs flying through the air.
...as Susan Boyle might have sung. On SocialEnterpriselive.com this week:
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