Addressing the Supply and Demand Imbalance in Social Entrepreneurship

Many of us aspire to bring about a “Social Economy”, where BOTH the financial and social returns on investment are considered and we seek to do so as fast as possible.  Assuming that we had the resources to do so (like the UK Government once did!), the question still needs to be asked, what to do?

Much of the focus of UK Government policy seems to have been to use cash to foster and develop social enterprises and social entrepreneurship generally.  Money has been allocated to all sorts of bodies, some charities, and even some which are now privately held companies.  Bridges, NESTA, Unltd, Futurebuilders, The Adventure Capital Fund and a host of others have been recipients of taxpayer funds to accelerate the process.

It is simply impossible to judge whether or not this effort has accelerated the development of the sector—I suspect such a study will never be undertaken.  This is not to imply a reluctance to find out.  Key civil service personnel with whom I have met have a genuine interest in the question—and my own belief is that they sincerely wish to “get it right”, but one simply cannot know what would have happened otherwise, how much private capital has stayed on the sidelines as a result, or felt encouraged to get involved?  We can also never know how many businesses were enticed into starting up as a result of the increased capital available.

We do, however, know a few things.  First, it takes much longer to build a successful business or enterprise than to set up a fund.  Second, that the lack of available, sizable and commercially viable firms does discourage social investment (this recently confirmed by my conversations with many buy-side thought leaders).  And third, that much less has been invested in creating companies than in getting funds off the ground.

I was therefore very encouraged by a meeting convened by NESTA to look at the issue of “investor readiness” (IR, or in laymen’s terms, getting businesses ready to secure investment).  This is not merely about writing a beautiful business plan, which money can easily solve, but making sure the team managing the business is solid and that the plan not only looks nice but is sensible and based upon sound assumptions, etc.  This sort of work takes time and is a highly professional skill—drawing on years of experience.  Also, IR professionals need to know how to “pitch” the new business and whom to approach for capital.  This latter challenge of course has been made easier by the funding mentioned above.  IR is a key building block (but only one block) in the process of building a great firm.

Assembled at the NESTA meeting were a range of publicly financed and publicly supported firms as well as some private players in the field.  For UK social entrepreneurs looking to secure these services, the range was encouraging.  To someone like me with an interest in the longer term development of the sector there was still a nagging question.  Would the cash coming available for investor readiness actually help the sector?  Or would the incremental assistance squeeze out private sector players forced to compete with a subsidised/free service?  Lastly, would the subsidised/free services match the quality of the private sector providers or exceed it?

First Published in Third Sector in June 2009.