This picture shows that Social Enterprises and the Social investment market has been around since early 2001.  In fact I can remember back then receiving a first edition of a magazine called 'Social Enterprise'.  It came as a free trial with my NewStart Magazine when I worked as an Employment and Training Manager for Groundwork  Birmingham.  Back then, no-one had a definitive name for a Social Enterprise.  Groundwork Birmingham - a registered charity - had what we called then a 'trading arm' which carried out Environmental Business Services and Consultancy.  By today's standards that is a  Social Enterprise or probably more correctly it should have been a CIC because the "profits" went to support the charity.  

[NOTE: if you click on the images they will appear in a new tab in a much larger and easily readable format)

Anyway - this isn't getting Chapter 3 underway.  It starts with this diagram and it admits that the idea for Social Investment is not new (and as we all know, just because there is a pretty diagram showing it can be tracked back to 2001, it has actually been around for many years before that.

The development of the market is reflected in:

Increasing investor interest

There has been rapid growth in the Sustainable and Responsible Investment (SRI) £900B or 28% of ALL assets under management in the UK suggesting that investors are concerned that money they invest is done in a ethical way.
Some investors go one step further and many charities on invest in social investment (my own Church made this decision about 10 years ago!)
Britain has the potential to be at the forefront of a global phenomenon and the report states that "the establishment of a deeper social investment market globally could mobilise sustainable private sector capital for developing countries across multiple sectors, helping to create jobs and increase access to affordable products and services for the poor."

The emergence of social venture intermediaries

Social ventures can need specialist support to innovate themselves and bid for contracts
There are two types of intermediaries - those providing finance and those providing expertise (GiveUsTheFish - provides expertise in the funding arena)

The development of new types of financial products

The report does flag up some issues though because the market remains embryonic and inefficient caused by a:

  • small market size
  • lack of investment readiness among social enterprises
  • fragmented deal flow (social investment tend to focus on 'scale up' rather than 'start up' and there are often no exit strategies provided
  • lack of standardised deal types
  • high transaction cost
  • lack of information about deal flow (the market lacks transparency and there is only limited data about the social investment market today - which in itself is a symptom of market dysfunction)

 

The embryonic market symptoms are caused by underlying market failures.

  • Imperfect information (difficulty investors have in confidently assessing investees claims for financial risk and return, calculating social return, use of different 'language', unproven or unstable policy
  • Imperfect competition (scarcity of specialist expertise and advice
  • Externalities (insofar that social value almost always accrues to third parties and not the investor)
  • Absence of public goods 
  • Cultural and behavourial barriers (including the value placed on a business, risk aversion from both parties)

 

Chapters 4 and 5 tackle these market failures and will be posted soon.

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