Risk capital fund for social enterprise
Many social enterprises find it difficult to access risk capital, leaving a gap in their finances, particularly when they are at the critical stage of their development between starting up and growing their business. The Office of the Third Sector's risk capital investment fund will aim to fill this gap and improve social enterprises’ access to private and independent investment in the future.
The Government's £10 million investment will be matched by a further £10 million investment from the private and independent sectors. The objectives are to:
- demonstrate the viability of investment in social enterprise, by way of example, by encouraging an increase in the flow of independent risk capital into the equity gap
- improve access for new and growing social enterprises that are seeking equity financing to develop their business
- demonstrate that there are a meaningful number of investors interested in making a profit-maximising investment in the area of social enterprise and test the terms on which they are willing to invest
- develop equity funding investment instruments that can be used by fund managers when making investments into social enterprises
The Office of the Third Sector held a consultation on the risk capital investment fund, to gather evidence that social enterprises face an equity gap when looking to expand their businesses, and to give stakeholders a chance to comment on the proposed structure of the fund.
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.
The next step will be to appoint a fund manager or managers through an open competition over the coming months.
