Yearly Archives: 2015

High Impact Businesses, Impact Investing, Institutional Investors

Framework Housing and the point of it all

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The past few months have been busy at ClearlySo as we have had the best quarter in our history, closing 15 deals worth over £23 million. We thank our clients, pat ourselves on the back, and brag to our board and our shareholders as well as a number of friends in the marketplace.

In this way I guess we are not that different from other intermediaries. We talk about deal size, target IRRs, transactional complexities, the nature of the investors and the investees. Sadly, we speak too infrequently about impact. This is despite the fact that we are part of the impact investment market.

One investment transaction which brought this home for me was one involving Framework Housing, a housing association based in Nottingham which targets the homeless. As with many of the investment transactions closed this year, this £5.75 million transaction had its complexities.  But it was not the rates of return or the asset-backed nature of the vehicle which I will remember— it was a presentation given by one of their beneficiaries a couple of years ago.

We were asked by Coutts Bank to bring four impact investment opportunities to their High Net Worth clients in Nottingham for an evening of investment pitches, drinks and canapés. Although all the presentations were strong, that of Framework Housing definitely stood out. Chris Senior, who managed the transaction for Framework, gave a brief outline of what they were planning to do and then quickly sat down and introduced one of their tenants— I shall call him “Jimmy”.

Jimmy read from a prepared script about his experience as a homeless person. While his hands shook he told of his life before he came into contact with the people at Framework and how, through their attentions, his life had been transformed. For anybody in the audience, there could not have been a more powerful way to understand the true nature of what Framework does for its clients. It saves and transforms lives. When I came back to the office I related the story to colleagues. We agreed that, almost irrespective of whatever else we did, if we were able to succeed in helping Framework, the year will have been worthwhile.

Many organisations do an excellent job of estimating and reporting on the impact they generate. For intermediary organisations like ClearlySo there is less opportunity to directly engender impact. The social impact facilitated is via the charities and enterprises we help. Thus there is a tendency to capture the essence of the impact generated by talking about the deals done and money raised. The assumption is that there is some correlation between the impact investment secured and the positive social value generated. This may be the case and I believe it is the case, but there is a risk in breaking the connection between capital raised and impact generated.

Financial intermediation in the mainstream economy also began with noble ends. Banks raised funds for entrepreneurial organisations which endeavoured to build great companies. When it worked, the social value was measured in the jobs created and the prosperity achieved. As time went on, the purpose of enterprise became increasingly disconnected from the sums raised, and the sums raised became the purpose in and of themselves. Some of this purposeless and pointless financial market activity contributed to the crash of 2008. If we are to avoid this in the impact investment sector we must remain vigilantly attentive to strengthening and reinforcing the links between financial inputs and impact outputs.  Otherwise we miss the point of what we do and why we are doing it.

First Published in Third Sector in December 2015.

High Impact Businesses, Impact Investing, Institutional Investors, Social Economy

Landmark impact investment transaction for the HCT Group is disproportionately important

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Without intending to do so, I notice that my last three pieces for Third Sector (including this one) are about sector leading high-impact enterprises.  Two months ago, I wrote about the Ethical Property Company (EPC), which announced that they would be undertaking their ninth equity share issue.  Last month I discussed a different ClearlySo client, Justgiving, and how our firm was founded on the pledge to create 100 firms just like it (high-impact with good returns).  This month I am tempting fate a bit as at the time of writing the deal has not yet closed.  But by the beginning of December, HCT will have closed a financing of approximately £10m with a range of social investors including Big Issue Invest, Triodos, FSE Group, Social and Sustainable Capital, City Bridge Trust, Esmée Fairbairn Foundation, The Phone Coop, and HSBC, with ClearlySo as HCT’s financial adviser.  Notably the traditional impact investors and foundations were joined by a commercial bank and a Co-op.  We believe it is the largest growth capital investment in UK impact investment to date.

HCT is a giant in the impact investment sector.  A bus operator founded in 1982 (when Hackney’s local authority bus company was failing), the firm has grown rapidly, with circa 1000 employees, 500+ vehicles and turnover of £45m.  It has continued to grow at 10-20% per annum, even in a slowing UK bus company market, and has emerged as a leader outside of the “Big 6” behemoths.

We began working with the company in 2008 (they were keen to lessen their dependence on mainstream bank lenders – a shrewd move), and assisted them in their £4m+ transaction in 2010.  The 2015 deal is larger and even more complex.  The firm continued to use a mix of senior and junior debt, as well as the “revenue participation” (or quasi-equity) instrument pioneered in the 2010 deal.  The mix of investors was even greater (there were four in the 2010 transaction) and, of vital importance to the sector, investors were able to successfully exit the 2010 deal with strong returns.  The impact investment sector will not grow if the capital going in cannot find its way back to investors – possibly to be recycled into other impact deals.

Coordinating the efforts of about a dozen players is no easy feat, and the transaction was not without its challenges.  Each impact investor, with great intentions, has their own passionate view on what is absolutely essential – blending this into a single deal is not easy work.  Also, all of us in the impact space are learning as we go.  Mistakes are being made, new concepts are being developed live in the laboratory of the market, and this can be frustrating for all concerned.  But this is a necessary part of the market-building process.

Returning to my original point, the success of companies like HCT, EPC and Justgiving is absolutely essential.  We cannot solve social problems, or offset rapidly shrinking public services expenditure unless we access large mainstream pools of capital.  These pools have polite interest at best in the early stage ventures which get a great deal of attention (also from ClearlySo).  For impact investing to thrive we absolutely must scale those with the potential and desire to do so, and in this way attract the largest financial services firms into becoming substantial impact investors.  They will only invest in significant, established companies in any size.  In my view, there is no higher priority for the impact space and to address the public services deficit.

First published in Third Sector in November 2015.

3D Investing, High Impact Businesses, Impact Investing, Social Economy, Social Entrepreneurship

The aim was to create 100 Justgivings

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Recently I interviewed a candidate for a new role at ClearlySo. During the course of the interview she asked me why it was I came to found ClearlySo, or what was the thinking behind it. She seemed to find the story instructive. It goes a long way to explaining my own personal motivations and the ClearlySo approach, and I thought it would be relevant to share.

After leaving the City, I felt it was important to do something “socially impactful”. I probably spoke in terms of “putting something back” or simply doing something that perhaps my children would be proud of. Roles at UBS, Paribas and Lehman certainly didn’t register on this yardstick. After a few years in conventional VC, I took an early chance, together with some colleagues, to raise impact investment fund in partnership with The Big Issue. This was back in 2000/2001. Our efforts were not successful so I began to hunt around for other ways to make a difference.

In the 1990s I had been quite active in the Liberal Democrat party and even stood as a candidate in the 1997 general election. Fortunately I lost, and realised that party politics was not the best way for me to generate meaningful social impact. Many of my good friends urged me to stop being silly and carry on in the City.  If I felt excessively guilty I should give some/all of my money away. I briefly tried a part-time role at a leading investment bank and realised that was not the way forward for me.

In the mid-2000s I had the opportunity to simultaneously chair a large national charity and a small early stage start-up business. What I found was that the charity, which had only recently considered and then rejected a merger with another organisation, was not wholly to my liking. Although the organisation raises lots of money and had considerable visibility, it was not as focused as I would have liked it to be on the cost-effectiveness of its impact generated. Furthermore, I found myself unable to improve this and other situations despite being Chair. In the end, I resigned.

The early stage start-up business that I had the pleasure and privilege to engage with was Justgiving. With a mere £5-£6 million of angel capital it was able to build the world’s leading online charitable fundraising business and now dominates the sector.  From the start, the two leaders, Zarine Kharas and Anne-Marie Huby, were absolutely focused on making the business successful by controlling costs together with a razor like focus on customer satisfaction. Their theory was that if they could build a successful, well-run business it would generate far more social impact. This is something that is too often neglected in the impact investment and enterprise sector. Unless a business is able to be sustainable, it isn’t really a business. To achieve massive social impact it has to be really great – and Justgiving has facilitated about $3.5bn of flows into the charitable sector. The Body Shop is another excellent example of such a business.  Or to put it another way, social impact and financial success are positively correlated; this is a central tenet of ClearlySo’s worldview.

So in summary, I thought of how I could make a difference and realise that politics, charity and investment banking were not the path for me – Justgiving had shown me the path. ClearlySo was founded with one simple objective – to create 100 Justgivings.

First published in Third Sector in October 2015.

High Impact Businesses, Impact Investing, Social Entrepreneurship

The Ethical Property Company announces its 9th Equity Issue

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Recently, the Ethical Property Company (EPC) announced that they would be undertaking their ninth equity share issue.  This is an astonishing achievement for a firm in impact investment and seems almost unnoticed by the normal sector commentators.  Below I will explore why, but first it is worth discussing some of the things that are unusual about EPC.

Very few high-impact businesses  undertake share issues. EPC has completed four share issues since 2001 and has raised more than £12 million since its first issue. These have occurred in the UK where the company already has nearly 1,400 shareholders.  AIM-listed Good Energy Group PLC is another company that has been able to attract UK shareholders, as has Cafe Direct, they are still exceptions.

EPC has also expanded its model outside of the UK. Four share issues have been undertaken in Europe (in France and Belgium) and the company has explored expansion opportunities in Australia as well. Such international expansion by UK impact-oriented firms is also rare.

EPC’s activities are rather straightforward. The company purchases commercial office buildings and lets them to “social change tenants”. These tenants are charged levels of rent which are below the market and given more favourable and flexible terms. In addition, the firm runs the buildings in a more tenant-oriented fashion and endeavours to achieve high environmental standards.

Such premises are in particularly high demand  as charities and impact-oriented tenants are seeing grant income squeezed, prompting a search for cost-savings. As a result, demand for EPC’s services is rising.  Whilst gross rental yields on the firm’s properties may be slightly lower than commercial landlords, EPC is able to enjoy lower voids, thereby boosting income.

The model the company has developed has enabled it to be profitable every year since it was founded in 1998, and it has paid a dividend every year since 2001.  It has increased its net asset value and it just announced updated valuation figures as well as a potential unrealised gain it may achieve on one of its existing properties near the Old Street roundabout.

Of course, there are still obstacles EPC needs to overcome;  shareholders are able to trade their shares through Ethex, but liquidity is indeed limited;   as a property company it did suffer in the immediate aftermath of the financial crisis. Furthermore, its tenants face obvious levels of uncertainty due to government budget cuts.

None of this explains the point I alluded to right at the outset, which is why this has been relatively unnoticed and as a firm within the sector its activities are frequently unremarked upon, but there are three factors which may be important.

Firstly, the firm is based in Oxford. Although Oxford is not far from London, it is my contention that London-based firms receive a disproportionate share of the attention in the impact investment sector. Secondly, the firm has been around for 17 years and in my opinion there is a strong bias in the UK market towards businesses that are new and exciting.  A track record of 17 years may be interesting, but EPC is hardly new. Finally, EPC is a firm that has concentrated on providing services to clients rather than communicating what it hopes to achieve. Even in the impact investment arena we still live in a world where steak is less noticed than “sizzle”.

First published in Third Sector in September 2015.

Impact Investing, Institutional Investors, Social Economy

Ex-bankers in “social investment”: Disease or cure?

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Before we talk about a “cure”,   let us first be clear on the disease.  I assume it is the fact that the economy has been run to profit-maximise, without any interest in societal ramifications – financial markets have supported this.  The full cost of this narrow-minded approach has been realised through the financial crisis and its aftermath.  We can spread the blame about if we wish and include governments, regulators and all of us as shareholders and consumers, but the main blame lies with bankers – it their actions were primarily responsible for the pain and suffering on an enormous scale.

Impact investing is about using these same financial markets, without which modern society cannot function, and take into account risk, financial return, and a third dimension: the social, ethical and environmental impact (we use social impact to mean all three) of investments.  At ClearlySo we speak about “3D investing”, where investors make conscious decisions  about these three dimensions and how they relate to each other – and this is becoming more popular by the day.

Who can help investors make these decisions, and explain to entrepreneurs how to seek the most attractive capital with which to expand? I am afraid it is the bankers – at least in part.  We do not have to forgive them for their role in the crisis, but they do have expertise in the financial markets on which we depend to improve our world.  Scientists and politicians built and delivered the atomic bombs that killed tens of thousands of Japanese and have unlimited destructive potential.  Should we absent them from disarmament negotiations because of their complicity?

Bankers understand how financial instruments work.  They know when debt or equity is appropriate for an entrepreneur, or a combination of the two.  They know how to build financial models, how relevant legal documents are structured, or who the likely investors are, and they can advise in negotiations.  We find it substantially easier to raise capital for clients when finance professionals (yes, ex-bankers) are involved.  Ex-bankers not only possess expertise, but also useful contacts, market awareness and speak the language of finance.  To refuse to access these skills because of past misdeeds would be counter-productive and harmful to the entrepreneurs generating impact.

Do bankers deserve the historically outlandish rewards for their skills as intermediaries?  Probably not.  Should we have deified them as some did before the crash?  Certainly not!  However, demonising them is not the answer. In my experience, no sector has a monopoly on saints or scallywags.  I have encountered highly moral senior bankers and scandalously corrupt leaders of charities.

As a society we believe individuals can redeem themselves.  We give prisoners a second chance – why not bankers?  (Note: I have a strong personal interest in this being the case, as an ex-banker myself!)

In immunology, it is not uncommon to inject the body with a bit of a disease in order for the body to develop useful antibodies.  Too much of the disease would be harmful, but what caused the disease can help foster a cure.  I think the same is true in finance.

First Published in Pioneers Post in August 2015.

Angel Investors, High Impact Businesses, Impact Investing, Institutional Investors

Let’s start thinking about exits

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Barely a week goes by without the arrival of a new, innovative and exciting enterprise into the impacting investing world. At ClearlySo we mentor, advise and promote companies until they are ready to set sail across the sea and spread its impact far and wide. Occasionally the companies have to put into port to replenish their coffers, take on fresh supplies and even repair a few leaks. But our job is to do all we can to make sure these enterprises don’t sink along the way to achieving their goals and missions. Okay, enough of the nautical metaphors…

Most enterprises have a catalogue of goals, missions and impact KPIs, and achieving these is what makes them exceptional and impactful. But what is far too often overlooked is the financial destination for many of these companies once they have achieve scale and stability.

In July, we saw what we believe is the world’s first successful exit of a high impact business from equity crowdfunding, as Europcar bought E-Car Club (a car sharing club using electric cars). This acquisition was a hugely positive moment for the impact investment sector as it set a benchmark for future equity exits.

July also saw another impact investor success story in the form of Scope repaying the £2m that it borrowed from investors in 2012. As the first major charity to launch, utilise and repay a charity bond, Scope has proven the concept of charity bonds as a tool to raise additional capital and increase its impact.

Unfortunately, examples such as these have been very few. Let us not forget that impact investing is still in its infancy and most deals are medium- to long-term and so haven’t realised significant returns yet. Perhaps this explains why exits and building bridges to secondary markets have been consistently overlooked.

It was therefore unsurprising to read in the GIIN and JP Morgan survey earlier this year that investors placed ‘difficulty exiting investments’ as the 3rd biggest challenge to the growth of the impact investing industry today.

Admittedly, this barrier is still eclipsed by the top two challenges, a ‘lack of appropriate capital across the risk/return spectrum’, and ‘shortage of high quality investment opportunities’, both of which the impact investment industry is relentlessly trying to solve and overcome. However, I feel more attention and time is needed on discussing viable routes to exits for those companies and investments that are coming of age.

Is listing on Aim a viable option, given the heavy upfront and ongoing NOMAD and brokerage fees? Good Energy has shown that this can work, as they reach their three year anniversary on AIM next month with their share price doubled since listing.

Can secondary markets flourish and produce the sort of liquidity that investors crave? A new entrant last week on the Social Stock Exchange, Capital for Colleagues Plc, shows continued growth and demand from companies to achieve scale. But will such sector-specific platforms be able to entice the type of investors these businesses need in the long run?

Perhaps clearer thinking around exit strategy even before the investment is made is the missing ingredient to opening up liquidity, attracting appropriate capital, and eventually building deal flow. By plotting a distinct route from one port to another at the start of a company’s journey, we can go some way to solving an important challenge to investor confidence and sector growth.

First published in Third Sector in August 2015.

High Impact Businesses, Impact Investing, Innovation, Institutional Investors, Social Economy

Plums, lemons and measurement

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In recent weeks, a flurry of reports on the performance of impact investments has been posted to my inbox.  Following years of debate, we are finally moving from talk to deals – and from deals to exits — now we are seeing the first analyses of results.

All three recent reports should be commended for their honesty and effort.  With such data and the analysis that has accompanied each report, the work of impact investors has become a little easier.

The first report was entitled The Social Investment Market Through a Data Lens, which was produced for the Social Investment Research Council by EngagedX (an index for impact investments), which sought to consistently measure impact investment performance.  The report is a brave and ambitious attempt to combine into a common framework the results of different investors such as CAF Venturesome, Key Fund and the Social Investment Business. 426 investments had matured and could therefore have their performance measured; the report found that overall impact investors had made a loss of around 9%, while 10% of all these investments were totally written off.

There is an element of mixing apples and pears, as the objectives and approaches of these funds differ. Some of the individual investments made were more impact-orientated, and others less so – these are combined without accounting for this.  There is also nothing which takes time into account as a factor.  For example, if the average investment were held for five years, the average annual loss is only 1.9%; the report does not tell us much about the term over which these investments lost 9.2%, so we cannot make the calculations.  Additionally, the costs of managing the funds were ignored.  Finally, an old venture capitalist adage is that “lemons ripen faster than plums”, so perhaps the investments which had not yet matured will reduce the 9.2% negative figure (or improve the results).

It was a shame more funds did not participate.  Two pioneers, Esmee Fairbairn and Bridges Ventures have spoken informally about their returns, but to my knowledge, have not made such data publicly available. It would be particularly useful to see Bridges’ data; it is by far the sector leader, and its funds target market returns. I suspect the average returns in the study would have increased sharply; so we see that the mix of funds has an excessive impact on the average.  Despite this, it was an excellent first attempt at a tricky subject.

The second report was called Introducing the Impact of Investment Benchmark and was published by Cambridge Associates and the Global Impact Investing Network.  It concluded that 51 impact investment funds (IIFs) performed at nearly the same level (6.9% internal rate of return vs. 8.1%) as 705 comparable non-impact funds.  The report is excellent and the key points are easy to discern.  Most critically, more than half of the IIFs sampled were African and a third from the US – again, what is in the “fruit basket” can have enormous influence.  Interestingly, first-time funds performed well.

The third report, A Tale of Two Funds: The management and performance of the Futurebuilders-England Fund, is a detailed analysis of Futurebuilders, a fund that provided £145m of loan finance to third sector organisations.  The report is primarily intended to answer the question of how the fund performed and whether this changed in its two phases.  The document is very well written and highly transparent.

For all these reports, and for future ones, the lack of performance data relating to social impact makes sensible comparisons more challenging.  This should also be integrated in the future – as should data on risk. I believe that impact investment funds are lower risk than mainstream funds and that correlation to markets is quite low, and would love to know if this is correct.

On the whole, more impact investment funds need to participate in such exercises.  This is especially true for IIF managers like Bridges, Cheyne Capital and LGTVP, which have higher performance targets than those in the EngagedX study.  We might then all feel better about the outcome of the reports.

First published in Third Sector in

Angel Investors, High Impact Businesses, Impact Investing, Social Entrepreneurship

The Value of Superfruit, Brands and Social Media

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Of all the companies we have worked with, few are as colourful as Aduna, a firm that uses two West African superfruits and turns them into healthy beauty and snack products for the “North”.  The website is a glorious rainbow of hues and reinforces the valuable brand, which Aduna has created.  Brand value is extremely important—although starting with products with naturally astonishing properties is essential, (Aduna first focused on Baobab and has since added Moringa).  Unless you are able to create an attractive brand, the company will struggle to be sustainable, and the poor communities Aduna assists will be deprived of the revenues these amazing can generate.

A good friend of mine called Tony Piggott, who had spent 30 years in advertising, was well aware of this and started a project called Brandaid.  Clever name!  More than most, Tony (now CEO of JWT Ethos) appreciated the value of brands and how impoverished developing country communities would remain so, unless they could seize the power of brands for their own benefit.  Brandaid helps artisans in emerging countries gain western brand-value-creation expertise.

I first came across the Baobab fruit myself when my son returned from six months in Senegal and he encountered these fruits, grown on ancient community-owned trees, which possess amazing natural properties.  However, due to lack of meaningful markets, these fruits just tumble to the earth and rot.  I was staggered when just two years later I came across Andrew Hunt at the Global Social Venture Competition and his vision and drive impressed me massively.  Since then, ClearlySo has worked with Aduna on two angel investment rounds totalling £750k, and one of our angel investors has joined his Board.  This is the case in about 1/3 of all the businesses we support, and more like 3/5 when we consider only those who have pitched to our Clearly Social Angels network.

We do many of the things one might imagine a firm like ours does with regard to investor and investee preparation and investment facilitation.  In the case of Aduna, we were able to help in a very particular way.  At the time of writing this piece, Aduna is one of the nine finalists involved in the “Pitch to Rich” competition sponsored by Virgin (Rich, as you may have guessed, is Richard Branson—and I guess he is also quite “rich”, so it’s a double entendre).  If Aduna were to win, they would be showered with money, advice and some fame, as you can imagine.

Becoming a finalist was the result of a public vote and Aduna were in a fight with a few other enterprises, and trailing by a bit.  Under the whip of two of my colleagues, Clare Jones and Mike Mompi, we “took to the social media airwaves” to try to increase the vote for Aduna.  The result was that they came from behind to win by less than 20 votes—we were delighted to be a small part of that story.

Although this is not a core aspect of our normal business offering, Aduna is not a normal business.  From time to time, we are able to assist our clients this way but Aduna was uniquely suited for a social media assault.  Again, it does not work with all companies—there is something quite special about the mixture of West Africa, an appealing brand and superfruits when you are trying to attract social media attention.

We look forward to working with some more Aduna-like entrepreneurs in the future.  I can see a few in the pipeline already!

First published in Third Sector in June 2015.

High Impact Businesses, Innovation, Social Economy, Social Entrepreneurship

Impact-oriented finance utilises innovation on many levels—how about bribery?

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At ClearlySo we believe that the main difference between impact investing and the old way of thinking is that the old financial world existed in two dimensions (financial return and risk), whereas the new world exists in three.  Impact, measured from a social, ethical or environmental perspective is a third, often intentional, dimension to the prior two-dimensional world.

Frequently we consider the enterprises into which impact investment is being made and observe with utter amazement, how the entrepreneurs blend conventional enterprise models with beneficial societal outcomes doing well and doing good.  We are especially proud of organisations like Third Space Learning, which reduce the cost of maths tutoring while simultaneously helping educators in India receive decent wages, or Weedingtech, which sells a non-insecticide based device for weed control.

Business model innovation has also been a feature.  Consider the London Early Years Foundation, which runs high-quality nurseries where wealthier parents cross-subsidise those who are less wealthy.  Another illustration is the Ethical Property Company (EPC), which buys and lets commercial property to social change tenants, who receive far better terms than they would in more conventional premises.  EPC’s better terms means that void levels in its premises are substantially lower than in conventional office estates.

Impact-oriented finance has also seen innovation.  Consider the quasi-equity (QE) instrument we assisted HCT Group in raising in 2010.  As a charity, HCT could not offer shares, but required long term risk-oriented capital to finance growth. Impact investors took both conventional bonds and a QE instrument in a £4.2m fundraising.  Those taking the more risky QE instrument received returns that grew with the growth in HCT’s turnover (above a benchmark) – and generated 10+% returns.  Of course, it could have gone the other way and investors (including Bridges Ventures, Big Issue Invest, SIB Group and Rathbone Greenbank) might have received no interest, or even lost capital.

Of course the best known and most celebrated financial innovation concerns the much discussed Social Impact Bond (SIB).  SIBs link payments received by investors to the social outcomes made possible by the underlying investments.  They have initially received substantial subsidies to gain traction but are now taking off globally.  Their genius is not in the structures, which are costly, but in the notion that government should pay for cost-savings which stem from social innovation.  Payment-by-results contracts will certainly become a mainstay of government commissioning.

It is these types of innovation that must now come to the fore.  In such fiscally constrained times, the rule of “what works?” must predominate.  Ideological opposition is melting away and there should be no limit to what is now possible; blue sky thinking is essential.  It can involve enterprises, business models, financial instruments and even the very way we think about societal problems.

Consider one such thought experiment:

What if we had bribed Iraqi citizens or its leaders to depose Saddam Hussein instead of using weaponry to defeat him?  The estimated official cost to the US of the war is around $815 billion (subsequent estimates by the Congressional Budget Office and the Nobel Laureate Joseph Stiglitz suggest the full impact was between $2-3 trillion).  This amounts to $24k for every single Iraqi (or $120k at $3 trillion!), in comparison with GDP per person of $6,863 per annum. This excludes the military cost to other nations and does not consider the extraordinary damage and suffering of the Iraqi people. One might argue that the cost of war is never known until after the fact, which is true; however, on 16 March 2003 Dick Cheney was asked on national television about the approaching war and he estimated that it would cost $100 billion.  Just this was equivalent to $3,852 per person at the time when GDP per person was $1,373 in Iraq. By using that money to persuade Iraqis, war could have been averted and costs in a purely economic sense (not even taking into account the damage, destruction and death caused) would have been sharply reduced.

If just the UK had used its far lower cost for the Afghan War of £37 billion to bribe Afghanis, or even their leaders, to do the things we wanted, this would have amounted to £1,600 per person, well above the current level of GDP per person of £436. Again this does not take into account the military costs to other combatants, including the USA ($686bn), or the devastation of Afghanistan.  When the figures are so compelling there must be a strong moral argument to consider such an innovation even if one might be a bit queasy about some of the underlying issues and despite the obvious technical and tactical issues involved.

The above is not to argue for Western imperialism or our right to impose “our” geopolitical preferences on others.  But from our own (selfish) perspective, we might have: a) had a better chance of achieving our goals, and b) saved a fortune, with this approach.  Furthermore, not to have gone to war would have avoided unspeakable suffering on the part of Iraqis and saved thousands of lives.

There are precedents for bringing behavioural persuasion into the public realm.  The “nudge” unit, established by the Coalition Government, did precisely this.  Here too, there was concern about the “nanny state”, but again in these times it is unwise to disregard any aspect of innovation.

We see cases of “bribes” being used to achieve social outcomes every day.  On 8 June 2015 the Independent reported on the Peacemaker Fellowship, which could also be described as targeted bribes to those most likely to commit offences not to shoot people.  This programme, operating in Richmond, California, follows on from similar programmes in Boston and Chicago.

I accept that there have to be limits, and important moral issues need addressing, but these are incredibly challenging times, and our failure to face up to these questions involves an active moral choice as well, even if we pretend to ignore it.  Opting to go to war because one finds bribery morally dubious is a very tricky argument to make.

We are just at the beginning of what we can do when we use financial innovation for positive outcomes.  I intend only to challenge a few shibboleths and get some creative juices flowing – as always, I look forward to further discussions.

First published by Pioneers Post in June 2015.

Angel Investors, High Impact Businesses, Social Entrepreneurship

Joining the Crowd

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At ClearlySo, we have helped over 50 organisations to raise about £60m in capital since the beginning of 2013.  This has not been easy, and even though more than half has come from institutional investors, it is angel investors and high-net-worth individuals (HNWIs) that have proved an extremely reliable mainstay of our business, funding the bulk of the high-impact organisations we assist.  ClearlySo launched Clearly Social Angels in March 2012, and it forms a small but vitally important element of our individual investor network of over 600 angels.

However, we are limited, due to regulation, to market these high-impact opportunities only to HNWIs and institutions.  As a result, retail investors are unable to play a part in the Impact Investment Revolution.  This was a point made in a recent report by Triodos as part of the G8 Social Investment Task Force, entitled Impact Investing for Everyone.

Crowdfunding is a cost-effective mechanism to gain access to retail investors; we have begun to engage with the sector to provide this access as part of our service to the companies we serve. This source helps to complement the funds our HNWIs can provide and should broaden the market for impact investment.  It is worth noting that crowdfunding platforms have been pursuing us for a few years; the sorts of companies we assist are often the type of company that touch people deeply, and can therefore be more successful on crowdfunding platforms.  We suspect that the crowdfunders also are comforted by the fact that our angels have already priced the deal, made significant commitments and undertaken due diligence.

Our first foray into working with a crowdfunding platform has been with Extremis Technology, which designs a range of revolutionary new shelters specifically for disaster relief.  In this first test case, we are working with the CrowdCube platform.  The entrepreneur, Julia Glenn, has written of her experiences in crowdfunding in a blog.  She notes that crowdfunding is not a replacement for active publicity generation, but rather demands even more of it.  In addition, she makes it clear that having a commitment up front is critical for success – crowdfunders seek to follow the crowd, not initiate.

Although one hesitates to extrapolate too much from a first test, there are a few points to highlight. Joining a crowdfunding platform means two diligence exercises, rather than one.  As this becomes more common, perhaps these processes can be merged.

Whereas we seek to prepare companies for presentations to investors, the wide-ranging questions, which come with a crowdfunding exercise are of a different magnitude.  Crowdfunders ask very detailed, incisive questions through the online forum on the various platforms. In a similar vein, media interest is greatly increased.  Our fundraisings are intentionally discreet; only by exception is publicity generated.  Crowdfunding is exactly the opposite and requires serious attention to keeping the flow of media interest going.  Progress also  takes place in a fishbowl.  If momentum is positive, this can be helpful, but otherwise this transparency can make success less likely.

Nonetheless, for companies that have a “public appeal” (including charities and those calling themselves “social enteprises”), crowdfunding can bring the company to a new audience and forge interesting new connections.

We expect to work more with crowdfunding networks over time, and believe it offers a useful add-on to the services we can provide.  For impact investing to scale, crowdfunding is essential.

First published in Third Sector in May 2015.