A new kind of early stage impact fund.

An ideas paper

As the dust settles on a significant period of upheaval for anyone running a business, paying bills or choosing which public services we can afford, we need to see new ideas: 

Some of these ideas are already coming from startups, either incorporated social enterprises or 'purpose-led' businesses - defined by their social or environmental focus.

Some examples of this can be found in the work section of this site.

I would argue these businesses offer innovation we need. Low cost low impact housing, youth facilities that pay for themselves, programmes that give refugees the means to improve their prospects, new facilities growing sustainable produce and creating jobs in areas that really want them.

Some of these ideas need finance. Any new founder soon realises, finance is not designed for you.

Being on 'the journey' with early stage business ideas looking for finance you quickly see a gap between what lenders, investors and grant funders offer, and what founders need to build a business.

Problem - The funding gap

Without security, 1-2 years trading history or an idea offering equity, growth or ownership of an asset, raising money is either incredibly difficult or you have affluent friends and family.

Within the constraints our current system of funding and finance this can be understood, but if we want to see new solutions, new growth, new jobs, surely we need a new approach?

Sub £50K loan or equity funding is what many of these businesses need. 

Banks and investors either won't lend, or arguably want too much in return. Social investment funds expect a return and/ or tax breaks, whilst philanthropy and grant making foundations risk creating a grant seeking culture that doesn't stimulate enterprise.

Solution

A SW wide fund that offers low cost sub £50K financing for purpose-led early stage businesses alongside a more involved mentoring model to give ideas the best possible access to market.

The challenge for this project will be to provide both the money and the relationship new ideas need. Whilst usual due diligence will be in place, the relationship between fund and fundee will be closer, more collaborative, supportive and challenging.

The fund will blend principles of philanthropy and social investment, inviting contributors to expect 50-70% of funds returned and the remainder to be treated as a donation.

this has already been done

A £1m fund based in London CIVA Invests has managed a fund thanks to a philanthropic donor. The fund has distributed all funds (to 20 investees) and is receiving repayments. Investees are mainly London but also some in Bristol. CIVA has helped the Real Farming Trust to setup a parallel £1m fund.

A draft idea for the fund

For enterprises:

£20K or £50K loans (or potential equity mix) 5 year term on debt

1 – 1.5% above base rate

‘soft’ non-punitive terms, but high accountability

Tough, focused experienced support pre and post award

For investors/ donors:

A partially repaid donation that delivers a high impact yield, that recycles within the fund.

50-70% of funds guaranteed to be returned, remainder to be treated as a donation.

The fund:

Providing stress testing, funding and ongoing support enterprises require to succeed.

A pool of consulting non execs and high quality connections to support ventures and connect to market opportunities, technical and development expertise.

A different approach to reviewing and awarding propositions – connecting beneficiaries and end users to the process.