Local PartnershipsThe DH Social Enterprise Investment Fund, case study and lessons learned

© Local Partnerships LLP 2010

Background

• Capital, finance, investment vs. revenue, funding, income

(debt, grants, equity) (grants, contracts, fees)

• Investment need to respond to / be tailored appropriately to the potential for income generation. E.g. you only lend to someone if they can afford to repay. And you should only borrow to invest for the future.

• So what is the potential for revenue generation? In other words, what is the ‘state of the market’…?

© Local Partnerships LLP 2010

Case study: The market for community health services

• Immature commissioning

• Uncertain future commissioning landscape

• Cuts

• Provider side dominated by state providers but opening up

• Payment by results?

• Comparison with youth services?

© Local Partnerships LLP 2010

The Social Enterprise Investment Fund

• £100m fund

° To support the delivery by social enterprises of innovative health and social care services and products;

° To provide start-up funding and longer term investment to emerging and existing social enterprises in the health and social care sector with a view to securing their sustainability.

° For the SEIF to become financially sustainable through returns on non-grant investments and through leverage of funds from external investors.

• For emerging and existing social enterprises

© Local Partnerships LLP 2010

SEIF investment policy – the theory

• Viable but not bankable

• Products

° Business development grants

° Loans

° Grants

° Convertible grants

° Quasi-equity

° Guarantees

° Equity

• Co-investment

© Local Partnerships LLP 2010

SEIF – challenges in practice

• Politics

• EYF

• Perverse incentives for fund manager and Department:

° co-finance

° fund sustainability

° Innovation

° products

• Investment approach vs. programme model

© Local Partnerships LLP 2010

A youth sector spin-out fund?

• NESTA call for proposals

• Proposal:

° to use BSB capital to attract co-investment into a sustainable fund, which will provide financial support to youth services which wish to spin-out of the local public sector into viable social enterprises.

© Local Partnerships LLP 2010

What is the opportunity?

To provide the financial means to catalyse, nurture and support the spin-out of youth services from the local public sector, into viable social enterprises.

• To accord with an overall national and local policy direction, a move to a plurality of local services provision, moving services closer to the communities who rely on them.

• To focus on youth services in particular, an area of national and local priority where there is evidenced demand for alternative means of delivery.

• To leverage BSB capital by attracting co-investment into a fund which will provide the financial support for local youth services to spin-out into social enterprises.

• To fill a gap in the market, fledgling spin-outs are typically un-bankable but spinning-out takes both human and financial resources.

© Local Partnerships LLP 2010

Who will invest and how?

Investor Investment Example

a Stakeholders Equity Staff and community?

b Public sector Grant Local Authority?

c Social Investors Grant CAN? SFCT?

d Social VC (quasi-) equity Bridges? Baxi?

e Commercial Lenders Debt HSBC? CFS?

f Nesta (quasi-) equity Big Society Fund? Bank?

© Local Partnerships LLP 2010

Questions

• Does this investment model respond to / is it tailored appropriately to the potential for income generation?

• Could this offer an opportunity to create a social investment fund for the youth sector?

• Market dynamics particular to the youth sector:

° Already mixed market of provision?

° Asset rich, cash poor?

° Untapped potential for social enterprise models?