Social enterprises must move to ‘investment readiness’, says report

Social enterprises must commit to becoming investment-ready if they are to attract greater capital, scale up and meet current demand for their services, warns social enterprise support organisation, CAN.

Research findings, released by CAN, found that of 15 different industries where social enterprises operate, grant represents between 94% - 96% of funds available.

It found significant need for a hybrid of grant/loan alongside management intervention to help growth and stimulate more investment opportunities.

“There is a gaping hole between investors’ requirements and the reality of where most social enterprises are, but the opportunities are massive,” said Andrew Croft, chief executive of CAN.

“Social enterprises must become more finance-savvy and see investment as the route to growth. Equally the grant funding community must create more innovative ways to invest that move social enterprises towards investment and financial independence.”

He added: “Investment-readiness is the single biggest barrier to growth for social enterprise, where it is not present. It restricts both a confidence in, and a greater flow of capital into, the market.

"It also perpetuates a culture of grant dependency. Becoming investment ready can be a long and difficult journey but social enterprises face unprecedented opportunity for growth. The journey towards investment must start now.”

The CAN research analysed UK industries where social enterprises operate, including healthcare (notably services supporting people with physical disabilities, services for elderly people and mental health support), education, transport, retail and employment.

The study used 20 different metrics to gauge growth potential in each area including competition, government support and potential for management capacity-building.

CAN found that:

· Many of the industries where social enterprises operate are ill-defined

· Social enterprises struggle to understand investors’ needs

· Sound and robust reporting on social, environmental and economic benefit (to attract investment) is a challenge.

Croft added: “UK social enterprise is a world leader. Harnessing that talent whilst supporting social enterprise towards debt will reap massive rewards, but it won’t happen overnight.

"Funders must focus on innovation and scale alongside financial and mission performance – whilst boards and management teams in social enterprises must commit to reducing reliance on grant.

"That means sound business and financial planning, managing performance, measuring and reporting on impact, understanding the market and also the needs of the investor community.”