If there’s one thing a charity fundraiser loves, it’s discovering a new way of generating funds, but so far social investment doesn’t seem to have made it onto the radar, says Geetha Rabindrakumar.

At a first glance, social investment might seem a competitor to donations and grants, and an unnecessary financial risk to your organisation. I want to dispel these myths, and instead lay out reasons why it can complement traditional fundraising methods and deliver some often overlooked but welcome benefits – such as developing your professional skills, or building new corporate partnerships for your organisation.

Here are my top five reasons why a fundraiser should consider social investment:

1) It can help to grow fundraising

Repayable finance can provide a dynamic new source of funding for your charity. That investment can be used to provide working capital to deliver contracts, aid your charity’s expansion efforts (whose funding capacity will also expand as a result), fund innovation, or help deliver new services. It can also be used to grow fundraised income. There may be limited corporate appetite to invest reserves into expanding fundraising, and social investment can offer a means of doing so.

During my time at Scope, I witnessed the success of taking a leap into the unknown, by taking on social investment to assist in our fundraising goals. We knew we wanted to expand our charity shop network and scale up donor recruitment to increase unrestricted income, but needed the extra capital to achieve this aim. We decided to issue a £2 million charity bond, which helped to build 20 new shops and assist in growing our donor base by another 100,000 supporters. This upfront investment was invaluable in helping us to develop increased long term sustainable income streams. Scope can now fund additional programmes, such as the training of parent befrienders to run peer support groups for parents with severely disabled children.

One social finance provider, Social and Sustainable Capital (SASC) has worked with a charity that wanted to develop its individual giving income. The charity had a clear choice – they could divert expenditure from the delivery of front line services into the fundraising programme, or borrow the money and maintain service delivery.  As it cost significantly less to borrow the funds than the expected return from the individual giving programme, the charity could see the benefit of funding the project with a loan from SASC, allowing them to maintain the service level of charity, whilst allowing them to create a new and more stable income stream, ultimately increasing the organisation’s financial strength.

2) It can be combined with other funding sources

There doesn’t need to be a division between the methods of fundraising, as there are some projects that may lend themselves to receive ‘blended capital’ (a combination of grants and loans) to get them up and running more quickly. This can be particularly useful if it may take a lengthy amount of time to raise the funds needed for a project through donations – particularly for large capital schemes, where often a social investor or social lender can provide funds to meet any shortfall in funds raised from donations and grants.

3) It can generate new support

Undertaking the process can also generate a new set of networks and supporters, particularly in the form of high net worth individuals and corporates. And even if a particular individual may not invest in your organisation directly, there are often longer term benefits to gaining support from influential people attracted to charities using new approaches – including broader connections that could help further your cause or donations in the longer term.

Depending on the type of investment used, social investment can also offer a route for existing donors to increase their support for your charity. One concern I hear is around whether social investment could cannibalise donations – experience from Scope and anecdotally from others has been that this is not the case, and it was good to see in Barclays Wealth’s recent research that the vast majority of individuals (93%) would not decrease their charitable giving if they started to invest more socially.  

Corporate partnerships can also be a welcome result of seeking social investment. Some of the biggest players in the market, including prestigious financial institutions, may be open to new charity partnerships or joint projects that could fit into their CSR objectives. These relationships can also reap extra rewards, such as them providing commercial advice and expertise.

Lastly, offering an investment opportunity could raise the profile of a particular project beyond what would normally be possible through donations, and by gaining some PR traction, it may attract other donors to the project. As Alastair Graham, CEO of Golden Lane Housing (the housing arm of Mencap) says, ‘The publicity from the charity bond has helped to raise awareness about learning disabilities.’

4) It can utilise your skills and provide you with new experiences

It’s not just the financial benefit that fundraisers should be thinking about; going through the process of undertaking social investment can provide you with valuable experience that would benefit both your charity and your own professional development. Sales, negotiation and general relationship building are all part of successfully engaging with investors and investment institutions, and are often key strengths of fundraisers. There are differences of course, and there can be issues where professional advice and support may be needed – for example understanding what constitutes a financial promotion. Collaboration across departments is also essential; the success of the Scope bond issue was very much based on a partnership between finance and fundraising.

Finally, as part of the due diligence process and ongoing partnership, you will have to be able to demonstrate your charity’s social impact. This will incentivise you to develop your social impact measurement and reporting abilities, which should be essential for engaging with other funders as well.

5) It can broaden your horizons

With the vast array of social investment products on offer, new opportunities are available for fundraisers beyond traditional loan finance. One such example is crowdfunding. The UK has witnessed the number of sites grow exponentially over the last few years, and while used predominantly by early stage start-ups, they’re starting to gain momentum with charities and social enterprises. Crowdfunding can be a more tangible way of gaining support and investment from individuals, particularly for local community projects, and is definitely an area worth considering. Spacehive specialises in funding civic projects, and is an example of an organisation that provides a platform for charities or social enterprises.

Another area within this space that your organisation could consider is Social Investment Tax Relief (SITR), a 30% income tax break for individual investors providing debt and equity finance to eligible charities and social enterprises. It is an effective policy that encourages individuals to support the trading activities of your charity or social enterprise. Major donor fundraisers may be best placed to identify potential investors likely to be interested in supporting their organisation through an alternative route. If you’re interested in finding out more, Big Society Capital has recently launched ‘GET IT’, a campaign encouraging the uptake of SITR and offering support to interested organisations.

Now make it happen

Donations may be the bread and butter of your fundraising strategy, but there is no reason why social investment shouldn’t be part of it. Do remember that it’s definitely not suitable for all charities, and your organisation has to be confident that it is able to generate the necessary income to repay the investment plus interest. Its suitability will also depend on your mission aims, legal structure, stage of development and business model. Looking beyond the recent media spotlight on charity fundraising practices, the recently released report published by NCVO on regulating fundraising for the future, highlights the general mood that fundraising needs to move from being “just a money-raising technique” to a way to “provide a connection between the donor and the cause”.

Fundraisers can provide the impetus for their organisation to use social investment, and could be best placed to maximise the wider opportunities that social investment brings in connecting individuals and institutions with your charity’s work.

Geetha Rabindrakumar is social sector leader at Big Society Capital