So Unsexy – the drab realities of social enterprise + investment?

1 Apr

technology changesAlanis Morrisette, for those of you who didn’t stick with her beyond the highs of Jagged Little Pill, has a song on one of her later albums called ‘So Unsexy‘ – it’s not a wonderful piece of work, but I’ve been reminded of it quite a bit of late whilst beavering away in the social enterprise space, as we are deluged by the sexy, the innovative, the techno-phile and the next big thing.

This post by the ever-provocative and insightful Craig Dearden-Phillips inspired me to get these thoughts down in writing – in the post, Craig wonders whether the social investment marketplace would ever “back the next Mark Zuckerberg” in its current formation, and wonders whether in fact he or she is languishing away in a bedroom, filling in a grant application. Craig was pointing out that backing disruptive innovation is about risk and that there is no ‘social silicon valley’ equivalent in the UK of the kind of network of entrepreneurs and angels who take that risk over in the tech world of the West coast of the US.

It reminded me, though, that actually it is an extraordinarily good time to be a UK-located tech-based social entrepreneur. You could apply to:

Wayra UnLtd
Bethnal Green Ventures
– Google’s Global Impact Awards
– Big Issue Invest’s Tech for Good Challenge
NESTA’s Innovation in Giving
Nexters
alongside existing pioneering funders like Nominet Trust who focus on this area (and support some of the above) and programmes like Big Venture Challenge that have traditionally had a decent-sized tech slant to them.

This, in my opinion, is a good thing – we need to understand how we better use technology for social good, and put as much resource + energy into that as we do into understanding its potential for neater apps and better games. Where I work has its own slew of tech-based product + service ideas that it wants to implement. And I’m an absolute technophile, excited about all the latest developments (see my latest column on the potential of technology / peer-to-peer in social finance, for example). So the following should be placed in that non-Luddite, ‘not an either-or’ context…

…because I can’t help feeling that we are neglecting, or at least not putting similar sizes of resource, into other, less ‘sexy’ areas. The social enterprise that’s excited me most over the last few months is the Bounce Back Foundation – it does painting + decorating (and other manual work), and employs ex-offenders. And it does it very well. Another which I came away from completely inspired is Fusion 21 – a procurement and housing social enterprise, which uses purchasing scale and aligned social mission to create employment and training. It is fantastic – financially resilient, scaling social impact (1000+ jobs created), and spreading out from its North-West roots to other locations. And creating (real) apprenticeships in construction too.

I could go on with other examples, but what connects these two (though at different stages + scales of their journey) is a) their focus on employment and b) their focus on the mission / social impact; really, painting & decorating and procurement are, in this instance, just means to an end of employment, reduced re-offending, job readiness and so forth. It’s the old “we don’t hire people to bake cookies, we bake cookies to hire people” deal. They are rooted in practicality, and tackling some of the most intractable problems we have right now: youth unemployment and reducing re-offending.

I can tell you where the next socially-minded app or game might come from, or even the most brilliant use of technology in healthcare or crowdfunding which revolutionises its field; but I’m struggling to see where the next social enterprise plumbers, the next social enterprise construction firm, the next social enterprise farm, the next social enterprise garden centre (to add to Social AdVentures), the next housing refit social enterprise, the next loft insulation social enterprise….and so on.

This isn’t arguing for switching investment away from technology – but, to generalise horribly, the things that make it so swift to scale (low cost base, few people needed) also make it less likely to create jobs and employment on the ground. And if the financiers all pile in to tech, because of that potential to scale rapidly, rather than grow incrementally, we may miss a significant opportunity for social enterprise to tackle the biggest problem the country faces right now. It might not be sexy, but it’s hugely needed.

 

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4 Responses to “So Unsexy – the drab realities of social enterprise + investment?”

  1. Cliff Prior April 1, 2013 at 9:46 pm #

    Good thoughts Nick. But Big Venture Challenge has backed a number of excellent social entrepreneurs with the sorts of ventures you call for – from B4Box to Reds10 and more. I reckon there is another gap emerging in the area of engineering and technology based social enterprises, outside of the digital field. And that’s something we hope universities will help with, providing the technology backbone to social applications.

    • nicktemple1 April 2, 2013 at 12:47 pm #

      Hi Cliff – thanks for the comment. Yes, agree – BVC has a wider remit, hence my saying it had a decent-sized tech slant, but not a specific tech remit. And the two you mention are bang in the area I’m talking about (you could add Bulky Bob’s in there too). I had MyChoicePad, PatientsKnowBest, SpaceHive, Moodscope, MyKindaCrowd in my head, but they are only 20% of the first cohort. Will be interesting to see a) what type of ventures are backed in round two of BVC (charities, social enterprises, companies limited by share) and b) what type of areas they are working in – especially as you are targeting this time both in terms of industry sector (health) and geography (North West). Looking forward to finding out.

      Really, I was talking about the proliferation of tech-only programmes; like you, I think there is life in the engineering + technology fields, but also on models that are explicitly about employment. Hope this didn’t come across as anti-tech, it’s more about the need to be pro- a whole bunch of other industry areas + segments.

      • danlehner29 April 10, 2013 at 8:22 am #

        Nick, it feels like a question of scalability not sex appeal. As a generalisation, tech businesses have scalable revenue models: the marginal cost of servicing one extra user tends to zero. Most of the ‘unsexy’ ‘bricks and mortar’ companies you mention don’t have a model like this – indeed many actively employ more staff than is absolutely necessary (in commercial terms) to achieve their social goals.

        This is important because early stage investment is about risk vs reward. Early stage investment is high (financial) risk, so traditionally it’s had to be high (financial) reward.

        The reason Wayra UnLtd works (we hope) is that even if 49 of the first 50 ventures we back fail and 1 becomes the next Facebook, we still have a viable investment. We write off £40k x 49 but because we’ve taken equity, our 10% of the once big winner is worth $10 Billion at IPO (on the social stock exchange!?!). So, in aggregate, the £1.2MM investment book shows a healthy return. No cohort of your ‘unsexy’ ventures could ever offer this. Which isn’t to say that they’re not capable of high growth or of achieving wonderful social outcomes – just that there’s not currently a (financially) sustainable investment model to support them.

        So what’s the practical answer? Well, short of making every social venture structured for equity – which, aside from leaving you with heart palpitations 😉 is highly impractical – we do need a leap in risk appetite from the social lenders out there when considering early stage ventures. One way to start this process would be a greater emphasis on the personal track records of the management teams rather than purely considering the financial and social performance over last three years of the company. Consequently we, as a sector, have a duty to proactively target proven entrepreneurs and senior managers of SMEs to join our world).

        Alternatively (or additionally), we need a willingness from high risk investors (especially angels) to compromise on their commercial returns in exchange for social outcomes. This is a huge educational piece we need to take on.

        For either of these, more than anything we need case studies: evidence of early stage, high risk social investments that have happened – from a range of investors. In the case of Big Venture Challenge we now have 13 deals closed – from angels, corporates, traditional grant funders, social investment institutions and commercial VC Funds. With the next wave we hope for another 100. This will provide an evidence base to new investors to make informed decisions on whether they can get their money back, what degree of returns they can expect and what social outcomes will be achieved in the process.

        There are other forms of high risk capital out there – community shares, crowd-funding etc – but these are all either tied to one legal form and/or still at a very nascent, tiny part of the market. The idea of corporate venturing (as with Wayra UnLtd) is really appealing to me – this helps massively de-risk the investment as the investee benefits from incredible access to supply chains, routes to market and industry networks and knowledge. We need much more focus on this in our sector.

        Failing that… we need to invent a new form of capital that accepts both high risk and low expectations of returns. We could call it a grant…

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  1. The challenges of scale | Beanbags and Bullsh!t - April 7, 2013

    […] Dearden-Phillips is this typically provocative blog post. In a response last week, Nick Temple rightly highlighted the need for support for non-tech social enterprises, but the general points that Dearden-Phillips is making apply to social innovation in any branch of […]

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