acquiring angels: how social enterprises can attract smart money
The recent report ‘Social Investment and the Acquiring Business 4 Good Programme’ produced by MBA students Troy Barnes and Robert Hoermann from Edinburgh University Business School set out to determine if Business Angels were prepared to put their hands in their pockets for social enterprise. We’re talking about serious investment, not philanthropic giving or charitable donation. And given the increasingly turbulent economic times ahead for third sector organisations, with more emphasis being given to commercialisation strategies, the research is timely.
Consultation with some of the top private investors in Scotland*, co-ordinated through Peter Shakeshaft, current Chairman of LINC Scotland, yielded results that were both surprising and encouraging.
The report found that many investors are interested in investing in social enterprise, but several issues need to be addressed before the sector can see any real engagement from the angel community:
Awareness: Profile of investment opportunities needs to be raised for private investors to know what's there to invest in, and on what terms. 'Let us know you are there' [survey respondent]
Professionalism: Social enterprises need to start talking in native business tongue, pitching and presenting professionally. 'Start talking business and not political correctness' [survey respondent]
Clarity: investors want to see real financial return and need a clear distinction between investment and philanthropy, no blurred lines. 'If [they] want private investment rather than donations, they must demonstrate how the investment will provide a return of 30% IRR.' [survey respondent]
The report concluded:
"We believe that with increased awareness given to social enterprise's funding objectives and potential returns, a knowledge of investors views on investment vs. philanthropy, and the business acumen to bring these investment opportunities to the right investors, a network could start to be created that would give the sector access to previously unseen investor funds."
A crucial factor for social enterprises considering getting an investor on board, aside from the obvious financial input, is the added value that can be brought to the boardroom. Known as 'smart money' the experience and expertise angels have under their wings can lend vital insight to those social businesses ready to take serious commercial trading in the marketplace to another level.
*A survey was administered to a network of 120 investors and investor syndicates, including Archangel, Angel's Den, Par Equity and others. An approximate response rate of 25% was received, providing ample and accurate representation of the overall Scottish investment community.
"We are delighted with the report. Robert and Troy through the Edinburgh University MBA programme were able to reach the business angel community which would not have been so easy for us as a charity. Peter Shakeshaft's personal support of the survey was key to receiving such a high response. And the actual results are far more positive than we had expected. We know that the number of social enterprise start-ups which could potentially be eligible for angel investment is very small, but business angels bring "smart money" and this would be a boost to the sector as a whole.
"The report was included in our pilot programme on business acquisition as it fits with the overall message of the programme being one of the financial independence of social enterprises being enhanced through commercialisation strategies."
- The Acquiring Business 4 Good (AB4G) programme works across the Third Sector delivering mergers and acquisition support.AB4G is a pioneering pilot project developed by Social Firms Scotland and funded through the Big Lotteryâ€™s Dynamic and Inclusive Communities fund. One of our key areas of support is to assist social enterprises and charities to acquire profitable private businesses. We also support organisations looking to work together, develop partnerships or merge, either within the Third Sector or cross sector. Social Firms Scotland is the national intermediary promoting and supporting the development of Social Firms. Social Firms are a distinct type of social enterprise. They are recognised internationally as market-led businesses working in a wide range of sectors with the specific social mission of creating employment for people most disadvantaged in the labour market.