Social investment: Not just for Christmas

By Dan Corry 23 November 2011

We all love new things—especially if they seem to offer something for nothing. Social investment sounds like it might be that shiny new toy we have all been dreaming of. It is a new source of funding at a time when other sources have become extremely tight. It is bringing exciting new people with new vocabularies and new agendas into the social sector. And it is going to have ‘loads of money’ as Big Society Capital hits the streets next year with a rumoured £600m.

I don’t like being a party pooper—it is after all nearly Christmas. And I too am excited by social investment. But it is not a straightforward new toy. It is complex, it places demands on the people who lend it and on those who want to use it. And there is a great danger of us all going too far, too fast in our excitement, which could mean it all ends in tears.

One thing we can do at NPC is help charities understand exactly what is in play here and guide them through the steps they need to think through before deciding if social investment is for them. Our new report does that and we hope everyone finds it useful. We are working with individual charities and foundations to think about all these issues, where social investment can work for them, and how they can best use it to meet their goals.

But some believe that this thinking is all too incremental. Let’s imagine a world where social investment has gone ‘large’. Where social impact bonds are the main way of funding and payment by results has become the only game in town. I don’t think we are ever going to get to that world but it is worth taking a moment to think it through.

Imagine there are no up front grants, only loans you have to pay back with the revenues you earn (from a new charity shop for instance) or from payments you get from a commissioner because you are achieving the outcomes they want. (In a Social Impact Bond it is partly the investors taking that risk—but that means they will be breathing down your neck since their financial health depends on you delivering).

In this social investment-focused world there is much more risk working its way down towards charities, which is a problem if they are not the best people to handle that risk and are not used to the ups and downs that it involves.

But perhaps more interesting is that charities may want to reorganise themselves so that they can use social investment. For instance, instead of getting grants that you use to buy space for the homeless maybe you will want to own accommodation yourself and get paid for the number of homeless people who you get into jobs.

That is just one example but it illustrates two things. First, if you want to access social investment you may need to change your model completely—which is not necessarily a bad thing but is certainly disruptive. Second, if social investment does take off a lot of charities will be forced to restructure, whether they like it or not. And those who are not up for it may, over the decades, fall by the wayside.

All of this is crystal ball gazing and speculation, at least at present. But it helps us to understand why some people feel that if the sector is ready to embrace it and lenders behave sensibly from the start, social investment could be more than just a marginal new funding tool: it has the potential to be the start of a revolutionary new approach to service delivery and organisation. With the right approach, social investment could be the Christmas toy that transforms your life, rather than the one that you’re fed up with by Boxing Day.