Social Business in Escher

What a week it has been. Social entrepreneurs are still the negative (white) space in an Escher symmetry drawing.

We saw an investment project go to an investment panel, returning to the panel actually, having achieved all that was asked of it and a bit more for good measure – including reducing the costs by 35%.

We saw Barclays transfer risky debt of £12bn to 40+ former employees in the Cayman Islands, and give them £40m a year to suffer through the management of it using money loaned from Barclays to purchase it from Barclays. (Confused? You should be).

We saw what appears to be a no reply from the investment panel on that investment project I just mentioned.

What are third sector investment panels doing when they give a provisional green light to a project and ask the team to address X number of concerns to release the financing (yes, 80% finance 20% grant)? One would assume they are ensuring the social business invests more time and money to provide a project ready for investment. But that assumption would be wrong.

It appears that the investment panel gives a green light with conditions only to meet again and dismiss the previous requirements, replacing them with vague commentary about project risks and a no.

If the investment panels are set up to invest, why are they acting like anonymous credit committees at a traditional bank? Credit committees at banks are not investors, they are auditors. They don’t like or want risk. They are set up to ensure little or no risk is taken.

I am happy to be rejected. If your project sucks or is inordinately risky, you need to realise your limitations and change the project or find the right source of funding. However, I am not happy to be rejected after I spend significant time and money reaching agreed milestones/targets only to be shunted. Even the high street bank and its anonymous credit committee is happy to lend once you meet their criteria.

If 40+ employees can jump ship from a big bank, secure a £12bn loan to allow them to get paid £40m per year to manage risky assets with virtually no downside (they can default on the loan, but they put up the risky assets as security, ha!) while a social business project cannot attract £2m finance from a source set up to invest in social entrepreneurial activity (which is inherently risky) because they see inevitable risks in the project…..the movement is in big trouble. And this is not really about our rejection, its about a bigger problem with the processes. These processes used to be anonymous, slow and risk adverse. Today, the processes are all those things AND schizophrenic. This makes it fun for the business seeking investment.

Many folks have talked about the need for business-like approaches to social business, the need to act like equity investors with loan finance, and indeed the need to bring real equity investment into the sector. However, when I talk to social businesses across the country and now witnessing it first hand – I see something in stark contrast to the vision being presented at the leadership level. I see nervous committees composed of people unfamiliar with social business (or business for that matter) and scared to death to make mistakes with public money. This behavior is in stark contrast to the principles agreed for the funds by the government and the quango delivering it.

If we are going to move the agenda forward, creating a plethora of triple bottom line companies, we will need sources of debt that get risk. We will need a social investment bank, per the current proposals on the table, that acts like an investment organisation; not a bank. We don’t need more banks, that would be a waste of government money and time. The reason most social enterprises can’t get bank finance is not because they can’t present a competent case; rather it’s because they don’t need a bank – they need an investor. This is the fundamental problem today, we have loads of funds set up to act as surrogate banks when what we need are investors.

If we are going to move on from being the negative (white) space in an Escher drawing; (where you can see us, we appear to be fundamental, but you can’t really grasp us because the positive space dominates); then we must create appropriate investment organisations to drive change forward.

Picture from Official Escher Site where you can buy prints from the master.

http://www.mcescher.com/