A legal perspective on Social Investment for the VCS David Hunter Consultant Charity and Social Enterprise Department BWB

Headlines What is social investment? Matching forms of investment and funding with your organisation and requirements Matters to consider before embarking on the process Where to find further information

What is social investment? Generally, if looking for funding, you are looking for the best value funding, whether ‘social’ or not Growth of social investment market has significantly increased the options available Potentially means a relationship with a more aligned funder BUT not a soft touch: social lenders want to see the social and financial returns they expect and will be rigorous before and after any decision to invest

Is Equity (shares) an option? Not if you are a charity Not if you are a company limited by guarantee Not if you are unincorporated Not if you wish to retain control of your organisation (potentially) But if the above does not apply and you want an investor who may take an active role and has an appetite for risk, may be worth considering

Do you have assets to offer as security? Most commonly, this is a property Could be other forms of assets, both physical and intangible (including contracts) Secured lending can be relatively cheap if you are able to offer this But, be aware of existing and planned financial commitments which may impact on ability or desire to do this

Social investors want to see social impact Do you measure your social impact? Are you confident you can deliver it – to the extent it may affect the cost of finance? The term “quasi equity” can refer to lenders pegging their return to a degree to financial and/or social performance

Some funder requirements A seat on the board Security A shareholding (in addition to lending) BSC Responsible Business Principles Financial covenants Reporting requirements Director guarantees

Project Finance Funding for a specific project rather than the business in general May involve creating a subsidiary vehicle to take on the finance and run the project (SPV), or a joint venture Query whether the parent will make any commitments in respect of the SPV May be suitable, for instance, in relation to SIBs

Matters to consider (1) Does your constitution permit what is proposed? Will (and how will) the Financial Promotions rules apply? The financial condition of the organisation; the suitability of the finance; the prospect of being able to repay The rationale for taking the finance (not just because it is there) The fit with the business plan The fit with and enhancement of your mission

Matters to consider (2) Will Social Investment Tax Relief be available to investors? Is the organisation ready to receive investment? Is it ready for the due diligence process? Importance of relationships – is this investor the right partner for you? The access provided to further networks Personal liability for directors / trustees?

Further information

David Hunter Consultant Bates Wells Braithwaite London LLP Tel: