The social investment sector appears to be growing rapidly and holds considerable promise. This is especially important at the current time, as severe cuts in central and local government spending are having serious consequences for the level of public services. The advent of Big Society Capital (BSC) and a host of governmental actions made it very likely that the social economy will grow rapidly over the next few years. According to a widely read report done for BSC by Boston Consulting Group, the social investment market will grow to approximately £1 billion in 2016, and will expand by 40% per annum in getting there.
What is also true is that despite the rapid pace in fund commitments made by BSC, it will take years for these funds to find their way into the market. This is because the commitments are done on a matched-basis and each of the fund managers needs to raise other funds elsewhere—and this process often takes a long time. Thereafter, each of the fund managers, if they are doing their job properly, will take years to invest the funds. Thus it will take quite some time for the institutional side of the impact investment market to form and function effectively.
In the interim, angel investment is essential. As delayed as the institutional market may be, the retail investment market is years behind that. Financial promotion regulations make it very difficult to offer social investments to individuals. What remains are thousands of High Net Worth Individuals (HNWIs) and sophisticated investors who are able, and increasingly ready and willing to back social entrepreneurs. Not only is the capital these HNWIs absolutely critical, but the expertise, contacts and networks they possess make them extremely valuable particularly to early-stage social entrepreneurs.
Next week ClearlySo expects to close its seventh deal this year, raising over £1.5 million for a wide range of social entrepreneurs. Without this capital and the advice of these angel investors, the entrepreneurial hopes and dreams would remain just that—only hopes and dreams. Much of this capital has come via our social business angel network called Clearly Social Angels, although of course as these deals were getting done we have also been able to reach out to our broader individual investor network and other contacts from other networks—a social angel ecosystem is emerging.
We look solid to the development of the institutional social impact investment marketplace, and in time the retail one as well, but in the interim and for the coming years we are grateful for the difference these angel investors can make and are making.
First Published in Third Sector in July 2013.