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Risk capital investment fund for social enterprise

The Office of the Third Sector consulted on a risk capital investment fund for social enterprise.

In the social enterprise action plan published in November 2006, the Government committed itself to working with the finance and social enterprise sectors to develop a scheme that improves the ability of social enterprises to access the finance they need when seeking to expand their businesses.

As part of that work, the Office of the Third Sector is allocating £10 million to help address the equity gap faced by social enterprises when trying to expand, by creating a ‘pathfinder fund’. Under the proposed structure for the scheme, the Government will invest in a social enterprise through the fund if the terms it is offered are the same or better than those offered to independent sector investors.

The main purpose of the consultation was to gather further evidence to strengthen the case that social enterprises encounter an equity gap when looking to expand their businesses, and to give you a chance to comment on the proposed structure of the investment fund.

Questions in consultation

Questions in the consultation included:

• From your experience, do you believe there are particular issues facing social enterprises in accessing equity financing?
• Are venture capitalists focusing their interest on relatively established businesses, resulting in smaller younger businesses being left behind?
• Are potential investors in the fund willing to invest on purely commercial terms?
• What are the advantages and disadvantages of the Government appointing one fund manager to run one large fund rather than several fund managers to run several smaller funds?
• What are the key factors that should be considered when evaluating whether there has been a successful development of equity funding instruments for investing in social enterprises?

The full list of questions is available in the consultation document.

Consultation document

• Consultation on the risk capital investment fund for social enterprise [PDF 99KB, 19 pages]

The consultation closed on 2 November 2007.

Government response

The Government response to the consultation was published in July 2008. Overall there were 29 responses to the consultation from a wide range of industry experts, Regional Development Agencies and bodies representing investors and thousands of social entrepreneurs. Respondents agreed with the Government that the proposed fund would help bridge a gap in finance that some social enterprises experience particularly when moving from a start-up to a growth phase.

The consultation also raised a number of issues that the Government has considered and addressed in its response (which can be downloaded below). As a result, improvments have been made to the proposals for appointing and reimbursing the fund manager or managers.

• Risk Capital Fund for Social Enterprise consultation: Government Response [PDF, 120KB, 29 pages]

The next step will be to appoint a fund manager or managers through an open competition in coming months.