When Big Society Capital launched in April this year, it was with some fanfare. This was the venture that would turbo-charge the social investment market with £600m in funds (£400m from dormant bank accounts and £200m from the big four UK high street banks)t. But four months on, its impact appears minimal. So are any social enterprises benefiting, or is BSC more interested in financial returns than social ones?
"The launch of BSC has certainly stimulated increased interest, and brought a positive focus on what is a growing sector", asserts Antony Ross, partner and head of the social entrepreneurs fund at Bridges Ventures. The fund launched a couple of years ago as part of a small social investment market that includes Big Issue Invest, CAF Venturesome and The Social Investment Business.
Ross presides over the £11.7m fund and can invest up to £1.5m in a single social enterprise. "What BSC has done is flag to social enterprises that there is going to be pools of capital available," he says.
However, an early misconception was that BSC would lend directly to social enterprises. It doesn't. Instead, as a wholesaler it invests into social investment finance intermediaries (Sifis) of Bridges, Big Issue Invest and others.
That was fundamental to its design, says Nick Temple, director of business and enterprise at Social Enterprise UK. "Everyone said what we didn't need one big player completely distorting the market for all the others. That was the reasoning behind it being a wholesaler, there was the sense that if it started making investments directly it would be extremely difficult for any of the other fledgling intermediaries to survive."
No intermediaries yet report having accessed BSC funding, but most admit to having "had discussions". That very little money has flowed so far is perhaps to be expected only four months down the line. But BSC has already stated that it expects to invest £40-50m in its first year, and will announce its first investments in September.
BSC's cash is certainly welcome. "Clearly a much improved supply of capital will help to get the market place moving", says Jonathan Jenkins, chief executive of The Social Investment Business. "The market desperately needs investment into its intermediaries and infrastructure and over time I expect that the market will grow exponentially with the additional capital BSC is able to leverage."
But some question the premise that more capital for social investment funds will equal more and better deals. Jenkins adds a caveat to his enthusiasm for BSC: "For the number of deals to grow we also need to continue to work on getting more organisations in the sector investment ready."
Ed Siegel, director of investments at Big Issue Invest, goes further: "Additional wholesale funding does not necessarily make social enterprises more investable. While we do hope to be able to increase our own investment volumes because of access to capital via BSC and others, it doesn't mean that we will necessarily do deals that we wouldn't have done last year. The businesses themselves still need to be viable.
Siegel continues: "I'm not quite sure that the lack of capital has been the big issue, so to speak. There is a lot of demand [for funding from the social enterprise sector], but it's not all the best quality demand ... We are looking for investable opportunities that will pay us back with a decent return. There is no lack of un-investable deals out there, let's say."
It is the market-readiness of many social enterprises that Siegel and others believe needs to mature, and at least at the same rate as the social investment market. Ross agrees that a slow but sure approach by BSC is best. "I think £40-50m [in its first year] is a sensible target. We're still in the phase of the sector evolving and you don't want to flood the market – there are lots of social enterprises delivering great impact, but the constraint that we have seen to date is [finding] those that have a genuinely sustainable business model.
"Certainly we would not and should not put investment capital into enterprises that don't have a long-term sustainable model."
The returns that BSC says it will seek – in the region of "mid to low single digits" – could be called ambitious in a market yet to find its feet. But returns are central to the ideology of social investment. "They want a reasonable certainty of getting their capital back with a return", says Ross. "We have to wait until the market settles to ascertain where the right figure is, but I'm sure BSC will flex accordingly."
Asked whether he is concerned that demanding too high a return will cause a loss of focus on social purpose, Ross responds: "We start all of our investor reviews with what the social impact has been.
[Investors] have already made that transition from not wanting a purely commercial return, they want to invest where it will have a high social impact. I don't think any of us will lose sight of that fact".
BSC also says it will stress the importance of social impact reporting.
Meanwhile, the biggest impact BSC has had so far is to underline the fact that social investment is no flash in the pan. "When we launched the social entrepreneur's fund two and a half years ago it was very much a pilot fund and the investors that came in were doing it as much to try and prove the principle", says Ross. "For them the arrival of BSC is to some extent a validation of their efforts. We as a fund manager want to promote it as a scalable model, and the availability of capital from BSC makes that all the more doable".
Whether this in turn causes a boom in the social enterprises sector, remains to be seen.
Tim Smedley is a freelance writer for national newspapers and magazines
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