The top ten crucial things to remember when pitching for social investment.
1. Don’t develop all your investment materials before speaking to investors
Don’t assume that you know who the right investor is going to be and what they will want to see. Engage them in the process from the get-go and craft your pitch accordingly. Discuss your plans and understand what they want, and evaluate your venture to make sure it is something they will want to go for.
2. Take time to understand the investment products out there and what will best suit your business model. New ones are being created all the time
The social investment market is growing. There is more capital available to fit different governance structures, business models and stages of development. Historically social investment was a more vanilla loan agreement. Now there are quasi-equity deals, community share offers and bond issues, to name but a few. How to channel new appropriate forms of finance into the system is constantly evolving. In particular, Social Investment Tax Relief (SITR) is beginning to help oil the wheels and bring in new investors.
3. Make sure that your board fully understands and embraces the culture of repayable finance before you start.
A classic problem is when a CEO keen to use new finance tools for growth builds a sensible business plan and delivers a successful pilot product with a proven market, but then still finds barriers being thrown up by board members unable to embrace this approach. This is usually the same board that will happily use the rainy day reserve fund to cashflow a Local Authority service – an altogether far riskier venture. You need to take your board along with you on this journey and educate them where required, as you will need their full understanding and support at every stage.
4. Be sure you can clearly identify a market and make sure your service or product has been well road tested. Social Investment is there to help scale businesses not fund pilots or replace grants
Social investment is unable to replace money lost in commissioning cuts. Instead, it’s there to support a new vision and a new business model. You will have to be able to evidence your ability in the future to repay investment and you’ll need a good line of sight on how this is going to happen.
5. Own the numbers. Make sure you really understand the financial model and are able to converse in it with an investor. Don’t leave it to a consultant
If you have ever seen Dragon’s Den, you can see in the faces of the investors the moment when they lose interest. It’s often when they wish to discuss gross margins and annual turnovers. The hopeful investee responds, “Oh numbers aren’t my thing, I have someone for that.” Understanding numbers enables you to be in control, genuinely understand your business and make the right decisions. Plus, you are asking for someone else’s money, so you’d better make sure you can convincingly demonstrate you can look after your own.
6. Make sure you look at your management team and their ability to execute new plans. You may need to bring in people with a better track record of delivering enterprising schemes
Investors put a very large onus on the ability of the key individuals – in many cases this is more important than the business opportunity. If you don’t have the right team, the idea doesn’t matter. Have the right team and they’ll work out how to make it work. Too often charities use people that they know or from the same culture. A big part of success is recognising that different skills, attitudes and cultures are required to be enterprising and manage business-focused teams.
7. Don’t work in silo and be wary of doing something you have no experience in
Figure out what you do best, what value you bring to the proposition and then what relationships, partners and joint ventures might be critical for success. If your area of expertise is supporting youth unemployment but a key part of your new venture involves transportation, be wary of investing in in-house transportation operations and depreciating assets. Your business will struggle to support an overhead that you have no experience of delivering well. Look for a partner who specialises in delivering this service, negotiate a good price and keep it as a flexible gross margin cost. This might seem obvious but too many charities try to take it on.
8. There are more investment ready programmes out there offering specialist support. Don’t go it alone. Make sure you know what is available at the beginning
The government has invested in helping reduce the gap between investor’s expectations and investee’s ability to be investment ready. Programmes such as Big Potential and the recent Investment and Contract Readiness Fund look to reduce this gap by parachuting in business specialists to work alongside your enterprise.
9. Be prepared to invest time and money alongside any investor
We appreciate that many organisations simply don’t have any spare investment. Even if it is a small amount it is very important to show this commitment to the overall risk. Investors want to see you have “skin in the game” and that they are a partner in your venture’s success, not a benefactor. It will also give them confidence to invest. It is harder for you to walk away if you are invested and shows you back yourself to succeed.
10. Don’t delay on communicating your social impact
Develop a method early on of accounting for and articulating your social impact. Social investors want to understand your double bottom-line and believe in its authenticity.
Matt Knopp is director at Eastside Primetimers.