A wide range of investors have backed a Cabinet Office proposal to set up a risk capital investment fund for the 55,000 social enterprise businesses in the UK. The proposal describes an equity-like investment scheme where Government funding will be matched by private investment.
Although there are various schemes for start-up businesses, there is a funding gap when social enterprises move to a growth stage. The new fund will fill this gap by providing access to equity financing to allow businesses to expand.
The fund will also be a demonstration project to show the viability of investment in social enterprise. It is expected that this will promote an increase in the flow of independent risk capital into the equity gap. The fund will also demonstrate that there are a meaningful number of investors interested in making a profit-maximising investment in the area of social enterprise and it will test the terms on which they are willing to invest.
It is expected that a fund manager will be appointed in the autumn and the first investments will be made by the end of 2008.
The Government has accepted that the Fund manager’s overhead costs should not be met from profits, but that the Government and independent investment partners should share costs, including up front if necessary, before profits are generated.
Social enterprise businesses have social or environmental objectives and they reinvest surpluses in the business or community. Their major challenge is to deliver public services in a different way, using the skills and expertise of users and frontline workers.