At first sight it looks as if those with the money call the tune in the world of social investment, but Dominic Llewellyn says that a charity looking to make a deal can find it exercises plenty of power.
These are challenging times for charities. With funding scarce, the foundations and funders which hold the purse strings also hold the power. Weary charity leaders are looking to the feted world of social investment and wondering: will this be a source of power or another drag?
Where money is concerned, it’s an inescapable fact that those who want it are beholden to those who have it. Charities jump through hoops, tick boxes and generally dance a merry jig to the tune of foundations.
At first look, the world of social investment appears little different. It is the investee, for instance, who must go through an extensive exercise of due diligence, the investor-led audit that verifies all the assumptions and assertions in a business plan, governance, financials and social impact. Ask anyone who has gone through due diligence and watch the colour drain from their face as if recalling a particularly unpleasant trip to the dentist.
Things don’t necessarily get any easier once an investment is made. To varying degrees, organisations who’ve received an investment are required to make a range of concessions to investors. These include reporting requirements on financial and social impact performance, providing regular management account reports and giving board positions to individuals stipulated by investors.
In one way or another these mean sacrificing control – and power – to investors. Why are social investors’ requirements so stringent? The dual needs of investors to see their investment repaid and to increase social impact is not easily achieved. While the push to invest isn’t as strong as the pull to receive it, investors need to do deals too. Their business model – and the success of the social investment sector – depends upon it.
This knowledge, and the fact that there is more social investment available than organisations willing or able to handle it, shifts power back to the investee. The best charities – those with strong social impact, reliable revenue streams and excellent leadership – are in high demand. So while treating investors mean is short-sighted, keeping them keen is highly recommended. Shopping around for different social investors is essential to getting the best deal, and helps ensure the balance of power is in the hands of those seeking investment.
Understanding what you want from the investment process up front also allows you to set a clear tone in your interactions with social investors, and informs where you are happy to make trade-offs (there will undoubtedly be some) and where you are absolutely uncompromising in your demands.
Dominic Llewellyn is co-founder of Numbers for Good
