Social enterprises should consider pitching social investment as a luxury item to speed up the growth of the market, an expert in social enterprise finance suggested yesterday.
Paul Cheng, former acting head of social investment business Venturesome, said that the social investment market had moved on little in ten years and that more needed to be done to change the way social investment was viewed by the mainstream.
"Perhaps social enterprises have been thinking too rationally. You can't always count on real value to persuade people, it's about emotions. We need to use behavioural economics psychology more," said Cheng, speaking at the Skoll fringe event OxfordJam.
"There was a time when no one would eat potatoes until they were given royal status, then they were seen as desirable. People buy into a status. Can we make social investment a luxury item?" he asked a delegate group of about 130 people.
He added: "Social investors are secret venture capitalists. They want to be attached to the next big thing. Everyone is interested in investing in the next Mark Zuckerberg, we need to get investors excited about putting money in to the next big social enterprise," he said.
Cheng told participants in a session titled ''The state we're in: the social investment market in 2012' that while the UK was a world leader in social investment, with lots of people looking to the British market for ideas, there was still a sense that things aren't moving as fast as they should.
"The market remains very fragile, there are lots of gaps in activity, lots of problems and lots of challenges. So why aren't things moving faster?
"Yes, there are problems around how to measure impact and getting to investment ready stage, but maybe our rationality is getting in the way of developing the market. We're not really resonating with the mainstream – the 99.9% have never heard of social investment. We need to be smarter and use behavioural economics."
One participant, Bokhani Tshidzu from Vertigo Ventures, added that social enterprise still needs "heroes, celebs and poster children" for the movement to become more desirable to investors.
Another participant, consultant Suzanne Biegel, suggested that the sector could try to make it a 'social norm' to invest in social enterprise: "We need to position it as clever, not new and weird. We need to make it fun," she said.
Cheng also believes that marketing social enterprises as 'non-loss' companies might also help further investment.
Several companies who bring social investors to the sector told delegates that developing a social investment opportunity that is attractive takes time. A spokesperson from UnLtd Advantage, an investment readiness programme, said that the organisation spent two years trying to get high risk capital in. Finding investors for last year's Big Venture Challenge, which sought 25 social enterprises to receive investment to scale up, was much easier. She said that UnLtd sifted through 600 applicants to find the most attractive enterprises and asked the enterprises to get match funding. "This de-risked the opportunity enough and we've closed seven deals so far," she explained.
A spokesperson from Investing for Good added: "After five or six years in this space we realised there weren't that many investable products, so we created one." The company launched a £20 million bond for the disability charity Scope last year. "So far we've placed over half of the issue with foundations, high net worth individuals and, for the first time, institutional investors have come on board.
"But," she explained, "there are still barriers and a lot are still not biting. Private wealth managers say they face restrictions. The yield from the bonds is too low for them and they say there's not enough liquidity for their clients to invest."
The session was followed by a lively discussion on impact investment to a similarly packed room. The focus was on making social investment easier for the general public, or 'retail investors'.
Jonathan Jenkins, chief executive of the Social Investment Business, said: "The hardest place to hit is the retail investment space - that's the nuts. I think institutional funds will follow.
"There is a pressure now from consumers about where investment in pensions goes. There is an undercurrent out there. My dream is to make it really easy - for people to be able to make social investments on their mobile phone, for example."
There seemed to be an agreement that opportunities for the public to invest socially should be available "off the shelf". It was noted that Kiva the online microlending platform has now launched Kiva Zip to make it easier for people to invest directly in another project or idea, rather than through a microfinance institution.
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