Social investment

Social investment is the use of repayable finance to help an organisation achieve its social mission. It sits alongside grants, donations and other forms of funding as a tool in your financial toolkit.

Unlike a grant or donation, it's paid back, often with interest.  What makes this different from other investments is that investors are dedicated to supporting the organisations they invest in, to accomplish positive social outcomes.

For more information, read the guide by Big Potential and SEUK, social investment explained.

There are two main categories of social investment:

• Borrowing (debt): When an organisation takes out a loan and agrees to pay this back over an agreed period. Most debt investments are paid back with interest (a fee you pay to the investor to use their money)
• Shares (equity): When an investor buys shares in an organisation. Equity investors are entitled to a portion of any profits and have a say in how the organisation is run.

Explore different types of social investment funding on the Good Finance website.

Social investment can be an option for voluntary organisations when they:

• have already tried other traditional fundraising methods
• need to kick start their organisation or project
• need cash upfront to maintain cash flow and cover core costs
• need support to innovate and/or grow
• need to buy an asset – like a building or equipment – to improve long-term financial stability.

The voluntary sector is changing. Social investment is no longer just available for large organisations to benefit from. When considered carefully and with appropriate advice taken, it can be a useful option for small charities too.

Here are seven key questions to ask before you consider taking on social investment:

1. How much money do you need?

Have you figured out your budget for this proposal? Who do you need to involve in the planning and decision-making? Read our guidance on planning your finances and setting budgets.

2. Can you create an income stream to allow you to repay investors (and create a surplus to contribute towards sustainability)?

Do you have a reliable source of unrestricted income? Take a look at our guidance on funding and income for practical tips on finding the money you need for your organisation. NCVO members can download our funding and income planner to get started.

3. Do you have a clear and robust business model and plan?

Investing is a risk. You must have a clear business model that potential investors can easily understand. Further guidance on business plans including templates, resources and support is available from: Social Enterprise UK, The Princes Trust, School for Social, Entrepreneurs, UnLtd and The Social Business.

4. Can you effectively measure and demonstrate your organisation’s social impact?

You should be able to communicate your social impact effectively. Read about how to effectively measure and demonstrate your impact. NCVO’s consultancy service can support you with evaluation.

5. Are you compliant with your governing document and charity law?

Your governing document should be the first document you review. Does it allow investment? It’s also essential to consider whether your organisation’s legal structure restricts the types of social investment you can access. See further information on legal structures and investment:

• Anthony Collins - Legal structures for social enterprise at a glance
• UnLtd - Legal structuring considerations when seeking external investment
• Bates Wells Braithwaite - Social Finance

6. Do you have the right resources and people to do this?

Do you need to consider recruiting new staff? Do you have the right trustees? Learn about the process of recruiting and inducting trustees from NCVO.

7. Do you have support and oversight from the board?

It’s essential to maintain good governance in your charity. Trustees have ultimate legal responsibility for safeguarding the charity’s finances and securing support and oversight of the board from the start is key. Some charities choose to create a role for a ‘social investment champion’ trustee. You may need to carry out a trustee skills audit to highlight skills gaps on your board.

• Visit Is it right for us? from Good Finance: This diagnostic tool will help you to decide whether social investment is right for your organisation, and will determine the best types of investment based on your current legal structure and financial needs.

Social investment can feel like a daunting prospect, but it has the potential to address complex and consistent issues that small charities face.

You can learn more about social investment by:

• visiting the Good Finance website
• signing up to the Good Finance social investment training
• reading the Charity Commission’s guidance on the requirements and responsibilities of a charity trustee
• finding out about the get Informed campaign from Big Society Capital — offers practical support, guidance and information for board members of charities and social enterprises.