An idea whose time has come
Janice Warman says ventures that address social problems rather than chasing profits can thrive in a recession On my walk from Charing Cross station each morning I see Steven outside Boots, rain or shine, his outstretched arm holding the latest Big Issue at eye level for passing commuters. He’s part vendor, part performance artist. Many, like me, stop to buy; others look down and hurry on.
Though passers-by might pretend he’s invisible, the company that helps to get him and other homeless people back on track by selling magazines is part of a quiet revolution whose impact is only just beginning to be felt. The social enterprise sector — run for social or environmental purposes (or both) rather than for shareholders’ profit — is a tiny part of business in Britain. Its 55,000 companies have a combined turnover of £27 billion a year and employ 5 per cent of the workforce. With its green tinge, its social conscience, and its ability to make consumers feel virtuous, this sector would seem an unlikely candidate for success in a recession.
Yet parts of the sector have shown resilience thus far. People Tree, a ‘Fair Trade’ fashion company, has racked up 10 per cent growth against plummeting high-street sales. Research from YouGov shows the majority of people believe that social and environmental issues are more important than ever before; 42 per cent say having more social enterprises would help ensure a sustainable economy, ahead of government institutions and traditional businesses.
And now the sector has received a welcome fillip. Tucked in amongst all the bad financial news comes the launch of the Bridges Social Entrepreneurs Fund, backed by city stars including Harvey McGrath, former chairman of the Man hedge fund group, and Nigel Doughty, co-founder of the private equity firm Doughty Hanson. Other investors include 3i, Deutsche Bank and former US vice-president Al Gore’s Generation Foundation.
Also backed by NESTA — the National Endowment for Science, Technology and the Arts — and Bridges Ventures, a social entrepreneurs’ fund launched in 2002, the new scheme has raised £4.25 million to provide long-term funding for ventures like Cafédirect, the Fair Trade coffee producer; Women Like Us, which gets women back to work after bringing up their children; and Fifteen, the restaurant chain founded by Liam Black with Jamie Oliver, which offers disadvantaged youngsters the chance to train as chefs. The fund will be the first to invest in businesses whose principal goal is to have a social or environmental impact, rather than to generate commercial returns. It will make up to ten investments ranging between £500,000 and £1 million. Profits will be ploughed back into the fund to bankroll other ventures.
‘As we enter a serious recession, it is crucial that the social sector is put in a position to play a major role in helping those who will suffer most,’ says Sir Ronald Cohen, founder of Europe’s largest private equity firm, Apax Partners, chairman of Bridges Ventures and himself an investor in the fund.
For Fifteen co-founder Liam Black it’s a welcome development. The new fund, he says, addresses a particular problem faced by these businesses — the need for long-term funding in order to expand. ‘The way to get the big money is through equity investment, which isn’t available to most social entrepreneurs. So this new funding has taken some of the characteristics of traditional private sector equity investment, but brings in people who understand the particular challenges of social enterprises.’ Yes, but isn’t the timing a bit off? He disagrees. ‘Unemployment’s going to increase, social problems are likely to increase, so those who have ideas for generating ways of doing business that address social issues are probably more needed now than ever.’ He tells the story of Lloyd Hayes: ‘He was involved in gangs, involved in selling lots of drugs in Brixton, and decided to give that up after pressure from his mother. He’s now a chef at Fifteen, a terrific mentor for young people coming up... What Fifteen offered was the way into a new gang, the gang of chefs, the hospitality industry, which is a lot less damaging to you than hanging around on the street corners of London.’ It’s a view shared by John Bird, the founder (with The Body Shop’s Gordon Roddick) of the Big Issue, editions of which are now sold in 17 countries around the world by more than 150,000 volunteers. ‘I met Gordon when I was 21, on the run from the police, and living rough.’ Like Hayes, Bird was given a chance to transform his life, and he took it.
Does he think there will be a more important role for social enterprise with tough times upon us? ‘If you look at the enormous social security budget, what we should be looking for is value for money. We should be saying, why is it that we spend about £60,000 a year on some unemployed people but we’re not getting any value for it. All we’re doing is maintaining them in poverty.’ By contrast, the Big Issue allows the homeless ‘to earn their own money legitimately, without begging’, he says. ‘What we do is reduce the social impact of poverty on the community; we do it in an entrepreneurial way, we don’t do it by giving them money. We do it by giving them responsibility for themselves. Which is actually unique — very, very few social endeavours do that because when people see people with problems, what they do is give them money. What we do is give them opportunity, and that opportunity gives them responsibility.’ There’s another social-enterprise investor on the horizon. Nigel Kershaw, chairman of the Big Issue, is also chief executive of Big Issue Invest, which is busy creating what is essentially a social merchant bank. Its Social Enterprise Investment Fund, which will provide risk capital financing, aims to raise £10 million and offer net returns to investors of 3 to 5 per cent. ‘We want to come back to investors and say we have created social transformation and, by the way, here is a dividend as well — challenging 19th-century notions of charity,’ says Kershaw.
Big Issue Invest has an impressive record: it has already dispersed £5.5 million in loans over three years and had no late payments, he points out. ‘The key is knowing the people you lend to.’ Like the Trees Group, which trains the long-term unemployed from deprived estates in the Midlands to provide gas installation and construction on the same estates, creating new role models and tackling generations of welfare dependency.
Fund providers such as Bridges and Big Issue Invest are pioneers who will change the landscape of social enterprise, in terms of availability of capital — and mentoring to go with it. It will no longer be necessary to make a ‘false choice’ between commercial discipline and social purpose, says Jonathan Kestenbaum, chief executive of NESTA. And the sector will become more, not less, relevant, as deprivation and social challenges increase. ‘The conventional modes of dealing with them will be insufficient. The scale of the social problems will be considerably greater than the conventional scale of solutions, and that’s where social enterprise will be more relevant than ever.’
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