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What If A Private Investor Wants To Get Involved In Setting Up A Social Firm?

These enquiries are currently not very common as:

- most social enterprises have growth rates that are not attractive to private investors as they compare badly with private sector for-profit businesses;

- most social enterprises can access start-up grants from government and Trusts as long as they are non-profit distributing organisations. This gives social enterprises a competitive advantage as they do not have to repay this investment;

- some grant funds are better than others, and many have drawbacks related to admin or outputs that mean the business is compromising on its business focus. In some cases a social enterprise would be better rejecting the grant route and getting a private investor on board to create a well supported, very focused and dynamic business;

- we don’t yet have a network of high net worth individuals interested in investing in Social Firms, but this is something Social Firm UK is working on. We believe that there is a potential pool of investors that will be content with low or modest return on investment as long as the business is producing worthwhile social outputs. This is supported by the experience of our colleagues in Social Ventures Australia;

- a combination of grants and private investment is probably the best way to go for Social Firms. The new Community Interest Company legal model which was introduced in 2005 now makes this possible.  A CIC Social Firm structure allows a certain level of private investment and a capped rate of return, but is also an acceptable company structure for most grant giving bodies. Social Firms UK is monitoring its level of take up in the Social Firm sector with interest.

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