What social enterprises tell us they want: shift in power dynamics between investors and investees

In the third of four blogs responding to challenges raised by social enterprises, Big Society Capital’s Head of Strategy Stephen Muers explores the power dynamics between investees and investors. He also shares what we’re doing around this.

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Stephen Muers, Chief Executive Officer

Raising money is hard. This is a consistent message from charity leaders and social entrepreneurs of all types. It feels as if power sits with the funder rather than the recipient. Many grant funders are trying to streamline the fundraising process and give more core and unrestricted grants (see Esmée Fairbairn Foundation’s Insights on Core Funding report). Can we make similar changes in social investment?

Here’s what one social entrepreneur told us:

"The first time I borrowed money was very different to my second loan. The first time back in 2015 I definitely felt at a disadvantage a bit outsmarted and feeling I had to bluff my way through, the relationship and conversation with potential investors then felt unequal."

But more hopefully, they added:

"I think just the fact that there is so much more choice of investor means you don’t need to be grateful that someone will consider giving you a loan. Of course you also learn from experience and I felt much more confident and in control this time around."

Potential borrowers have more power than they might think. There is increasing choice. As Big Issue Invest share in a great blog: borrowers are customers. Investors want and need to get their money to the front line – so what can they offer you, if you help them achieve that objective?

What we are doing

Using our influence as an investor

  • We’re working on developing investment funds in specific places, together with other funders. Making decisions locally about where the money goes will hopefully help to overcome distance and the potential power imbalance between investor & investee
  • We are embedding the voice of the organisations who will ultimately receive the money when we create new funds: for example we have consulted 70 women’s organisations for a proposed new property fund providing housing for vulnerable women.
  • We look for the teams that run the funds we invest in and the committees that make investment decisions to have understanding and experience of social enterprise. We believe such experience will change the dynamic between investor and investee

Building a strong and effective social investment market

  • We’ll be exploring a “reverse market” as part of Good Finance’s longer term development. This would allow social enterprises to showcase their proposals to investors who would then have to line up to invest!
  • Taking our Good Finance Live format out around the country, the Midlands is up next and then hopefully to Scotland and the South West in 2020. This event brings the investors to local social enterprises and charities who are looking for investment. Having 15-20 investors in the room puts the potential investees in the driving seat.

The social investment marketplace at Good Finance Live where social enterprises and charities can speak to multiple investors about their plans.

Listening and Learning

  • Keeping our team connected to social enterprises and charities: through visits, volunteering as board members or mentors as part of GET INFORMED Social Investment for Boards support, listening to our Hear from a Peer podcasts and more Nothing is more powerful than hearing it first-hand.
  • Involving staff who focus on working with the social sector in our investment process, to ensure we bring in different perspectives.
  • Lastly, we are exploring more ways that we can bring the voice and views of social enterprises and charities to all the actors in the social investment market. This is a core part of BSC’s market development role.

It’s early days but do get in touch if you have ideas/views about how we should do this most effectively.