Back to the future: Redesigning social investment to deliver what we promised

In this blog we share our views on how social investment can be brought back to the future and re-designed to finally deliver on the transformational, progressive impact it once promised social purpose organisations.

Last week’s Adebowale Commission Report, Reclaiming the Future: Reforming Social Investment for the Next Decade, is a shot across the bows for the social investment sector. For some, the findings may come as a shock, for others this report is a long time coming, a product of ten years’ worth of evidence refuting the groupthink that has led us down the road towards ‘finance first, enterprise second’ capital. The findings call for structural reform; challenging the sector to be more inclusive, open, and daring in meeting the needs of the social purpose organisations we serve. This commission holds up the mirror and asks, do you like what you’ve become? If we agree the answer is ‘no’ – then we need to start changing how we think about, design, and deliver social investment, and we need to start now.

Shift has been involved with the social investment sector since starting our own ventures almost 10 years ago. We’ve been a recipient of investment, a consultant for investors, a facilitator of sector workshops and roundtables, we’ve published reports, and interviewed countless social entrepreneurs and investors on the frontline. All this to say – we’re complicit, and acknowledge that in our own way – we’ve contributed to the problems outlined in the report. But we’re also committed to change and helping the sector, in any way we can, to ‘reclaim the future’. We’re cautiously optimistic, because some fundamental changes are readily available and easily implementable. We just have to want it.

Four actions for change

01 Broaden how we think about and design social investment products

The social investment sector does not lack willingness or ideas. It is full of creative, smart, genuinely committed and passionate people exploring and trying new things. It’s actually proved itself to be a hotbed of investment product innovation; social impact bonds, perpetual bonds, revenue participation agreements, and community shares, are just some of the investment products that have been designed or adapted to meet specific social sector needs. Despite progress made, we must continue experimenting, investing in, and building the evidence of how these investment products can reduce the cost and increase the flexibility and patience of capital – it’s essential to sustaining the market.

But we must also change the way we design these social investment products. The modus operandi for designing investment products in this sector starts on the supply-side asking whether a product is feasible (can it be done?) and viable (will it be accepted in the market by investors?). It’s only after that they ask whether it’s desirable (do customers actually want it?). In fact, good design suggests starting the other way round. It’s not enough to think you are solving a customer’s problem at a conceptual level. Customers have to be at the very heart of how social investment products are designed. It’s only once you’ve got something that people want and need that you should start exploring how to deliver and sell it. It provides you with design constraints that allow for new fund structures, capital blends, subsidy models, and wrap-around support. In turn, these can help diversify the investor mix, drive capital costs down, and deliver these products in a way that customers have asked for. If you design a great, in-demand, high-impact product, the capital will come.

But having good social investment products alone does not make something enterprise-centric. There’s more to the innovation story. Social investment products need to be complemented by a service that understands and is empathetic to the wider context of what a social purpose organisation is actually trying to achieve. Social investors often de-prioritise how these products get marketed, shared, and accessed by their customers. Investment products need simple, timely, and non-discriminatory application and diligence processes. They need wrap-around support, which helps customers to identify what investment products actually suit their overall goals and plans for growth. If we want new investment products to succeed in growing demand, then we also need to re-think how we reach out to and build trust with those customers who’ve never even heard of social investment. Social investment needs a rebrand for the 21st century. And it needs to prioritise social investment as a service as much as it prioritises the product itself.

02 Diversify who’s involved in social investment design and decision-making

In order to design social investment differently, we need to think differently about the humans included in its design. Quizzically, social investment champions the bridging of gaps and divides, yet those who design social investment are almost exclusively unrepresentative of the communities it serves. We need greater transparency on who has been involved in the design process of any social investment product or service. We need to broaden who we involve in the design of products and services – and engage in more inclusive research and design practices. We need to create safe spaces, where more diverse voices are given a platform to be heard. We need better feedback methods to hear from stakeholders about what is and isn’t working, and to ensure customers can make their voice count via public feedback platforms. Most importantly, we need to transition customers from being consulted to active participants in designing social investment products and services; opening up the decision-making to be ‘with’ and not ‘for’ those it aims to serve. This will only happen if we change who works in social investment at all levels, in teams, committees, wholesalers, and in advisory and consultancy organisations like Shift to be more representative of the social purpose organisations and communities it aims to serve.

03 Invest in sector learning to de-risk innovation

It can be hard to take a risk in the social investment sector. Capital providers who invest in social investment funds have demanding – if not at times unrealistic – impact and return expectations. In order to take risk, social investors need to be able to justify how and why they think the investment is ‘worth it’. Like any investor, they leverage data to support their proposals; drawing from their own track record or track record from the wider sector. This is wherein the problem lies. We’re afraid to take a risk on something innovative, but it’s only by taking these risks that we build the track record needed to make them less risky. It’s a classic chicken and egg problem. But we’ve seen from other markets outside of the UK that there are capital providers who are willing to back risky, pioneering investments that might ‘fail’ in order for the sector as a whole to learn what does and what doesn’t work – and back the things that do. It puts investment additionality front and centre of investing for impact.

Organisations that encourage intelligent failures through deliberate experimentation can achieve the greatest results.

– Learning from Failures in venture philanthropy and social investment EVPA, 2015

Once we have some learning, we also need to find additional ways to share it with each other. There are so many examples of good practice that deserve wider adoption in the space, but often struggle to get the airtime they deserve. If the sector does not find new and engaging ways to learn about each other’s success, failures, and wider learning, we are destined to repeat our own mistakes. That means having some consensus on the types of data and learning we collect, how we collect it and how it gets shared to maximise adoption. If we prioritise transparency, openness, and collaboration, we’ll be able to build a culture of continuous learning across the sector.

04 Find and adopt inspiration from elsewhere

We’re not alone in trying to rethink how finance works, yet at times social investment in the UK can feel like a bubble. Sector wise, there’s lots to learn from other countries, such as tools shared by US-based Transform Finance to support increased social justice and community-led investment, or Illumen Capital’s bias reduction training for investors – to encourage fairer, more equitable decision-making. There’s also much we can learn from other markets. For example, in early-stage investment, we can learn a lot from customer-centric models, like how Uncapped deliver revenue-based financing for high growth companies within 24 hours of application. There are fantastic new models of community-based, democratised decision-making surfacing from decentralised autonomous organisations (DAOs), such as Big Green Dao, which gives donors and grantees an equal vote in funding decisions to deliver climate impact projects. By actively seeking inspiration from other places, we can offer new ways of thinking and remind ourselves that existing ways of working don’t have to be the norm – if we don’t want them to be.

Looking ahead

Arguably social investment to date has been too much head; logic, concepts and models and not enough heart, grounded in the real-life experiences, needs of those who are actually driving social and environmental change. But re-designing social investment doesn’t require radical innovation. For a start, thinking about social investment differently, designing products as a service, bringing more diverse and representative voices into decision-making, and learning from each other and other sectors will help bring about change. Making change doesn’t need to be perfect. We can start small and iterate, and share our wins and our failures. Experiments can be tested at a ‘deal’ level and scaled over time. We can keep the bits of what’s currently working and adjust what isn’t.

Ultimately, what we deliver in this sector doesn’t always need to be new and shiny, complex or ground-breaking. It just needs to work for those it’s designed for.

At Shift, we’ve been partnering with Big Issue Invest and UnLtd on designing a new fund to support social purpose organisations currently under-served by social investment. We’ll be sharing more with you in the coming weeks and months about our approach and what we’re aiming to learn. If you’d like to follow up about the fund or anything we’ve shared in this blog, then get in touch!