insights
Unlocking More Philanthropic Capital for Social Investment
Unlocking More Philanthropic Capital for Social Investment
Written by
David Bartram
Director of Delivery and Investment
UnLtd define people as social entrepreneurs by the impact they generate, and their business model for delivering it, not necessarily by their enterprise’s legal identity.
As a result, we support entrepreneurs who set up as charities and community interest companies, but also non-asset locked ventures. We also support private limited companies, as we believe that there are instances where this may be the right legal structure for future social impact to be delivered and scaled.
These purpose-driven organisations are often in need of capital in order to expand their business and in turn their social impact.
In 2017, the top 300 UK charitable foundations made grants totalling £3.2bn. There is huge opportunity for this philanthropic capital to be being used to support and invest in non-traditional models for delivering impact. Capital that has the potential to generate returns that can be recycled to then deliver further impact.
UnLtd ran the Big Venture Challenge (BVC) where, alongside 12 months of support, we used a mix of grant and repayable funding to leverage external investment into various social purpose organisations, including those that were not asset locked. The grant funding was there to offset the relative high cost and risk of early stage social investment. We used £4.4m our funding to leverage in over £8.6m of external investment over a 4-year period.
On average, each of the 120 organisations who took part in BVC supported 114 beneficiaries before the programme. That rose to 284 by the end of the programme, and to 798 twelve months later.
This is just one example in the sector where we have seen the use of what might traditionally have been seen as philanthropic funding, being used for social investment.
However, the lack of clarity as to how existing UK regulations should be interpreted is potentially restricting the flow of future capital from philanthropic investors. The potential generation of private benefit from charitable activity, and specifically whether it meets the test of being “incidental and necessary”, is making charitable foundations nervous about embracing more innovative models of funding.
We need to ensure this isn’t the case so that philanthropic capital, and how it is deployed, can evolve to better support social purpose organisations to unlock their full potential.
Together with CAF Venturesome and Shift, we have published a paper to explore some of these issues. A number of leading charitable foundations are developing interesting and innovative approaches to using philanthropic capital to support all kinds of social entrepreneur’s businesses. They are building robust and defendable models for making social investments, despite the ongoing regulatory uncertainty. These foundations share their insight into best practice in the paper.
As social investment becomes more mainstream, there is an increasing need to identify the regulatory challenges and highlight examples of how funders are addressing them. We are leading a broader conversation on what can be done to encourage more social investments using philanthropic capital.
The paper can be found here.