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The State of Social Enterprise

Dr Alex Nicholls MBA

University Lecturer in Social Entrepreneurship

Said Business School, University of Oxford

Fellow in Management
Harris Manchester College, Oxford

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*** Not for reproduction

Disclaimer: without
The views expressed the author'sareconsent.
in this paper/presentation the views of ***
the author and do not necessarily reflect the views or policies of the Asian Development Bank (ADB), or its Board of
Governors, or the governments they represent. ADB does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequence of their use. Terminology
used may not necessarily be consistent with ADB official terms.
 Overview

• Definitions
• Context
• Social enterprise typology
• Social enterprise investment

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 Definitions

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 Social Enterprise

A business with primarily social objectives

whose surpluses are principally reinvested for
that purpose in the business or the
community, rather than being driven by the
need to maximise profit for shareholders and
owners

DTI (2002)

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 Spectrum Of Action

CAF/Venturesome (2009)

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 Key Characteristics
• Purpose is social/environmental
• Vehicle is business
• Generate earned income
• Not necessarily profitable
• Create blended value
• Social + financial (accounting)
• Agnostic about legal form
• Method not the means
• Strong market orientation
• Performance measurement

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 Conceptualizing SE

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 Social Enterprise Models

• More efficient
• Driven by competition
• More self reliant/independent
• ‘Sustainable’?
• More scalable
• Better access to capital
• More innovative
• Hybrid synergies
• Investable

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 Social Enterprise Models

• Leverage public and private resources

• Free up philanthropic funds/grants
• Respond to demand more quickly
• Organisational mindset
• Resource availability
• Wider access to skilled personnel
• Greater financial rigour
• Reinvest revenues to capacity build

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 Context

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 Social Sector Effectiveness
• Move towards more ‘efficient’ business models
in social sector
• For-profit subsidiary ventures
• Cross sector partnerships/hybrids
• Drive towards ‘sustainability’
• Better responsiveness

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 Sustainable Business
• Enhanced CSR
• Triple Bottom Line strategies
• Pressure to act as corporate ‘citizen’
• Role in solving social problems
• Role in social institution building
• BoP opportunities

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 Reinventing Government
• Increased privatisation of government and public
services
• Search for better quality/efficiency/legitimacy
• Reduction in taxation
• Formats:
• Outsourcing contracts
• Voucher schemes
• PFIs/PPPs

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 New Resource Strategies

Strategy Variations Examples

Sale of products and Mission related Project Impact
services Not linked to mission
Fees/cost recovery Membership fees Fair Trade
Licensing fees
In-kind resources Pro bono goods and CityYear
services
Volunteers
Partnerships With business Eco-Clubes
With government
With local community
Raising funds Special events Habitat for Humanity
Additions to bills

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 UK Social Enterprise
• IFF survey (2006)
• 55,000 social enterprises in UK
• 2009 >60,000
• 5% of all businesses with employees
• Combined turnover of £27bn
• Contribute £8.4bn p.a. to economy
• 2010 >4000 Community Interest Companies
(CICs)

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 UK Social Enterprise
• GEM SE survey (2006)
• UK sample, 27,000 18-64 year olds
• 3.2% of working population engage with
SE (1.2 million)
• Mostly in start-ups (2.8%)
• Bias towards women (3.6%) v men (2.8%)
• Strong ethnic minority bias
• Afro-Caribbeans 3 x more likely to be SEs than
caucasians
• Some regional variation
• London 4.7% of working population engage with SE
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 UK Social Enterprise
• SEC Report (2009)
• Average annual turnover of £2.1m
• Maximum of c £100m
• 39% derive >50% of income from public sector
contracts
• Recession busting: 56% increased turnover
during 2009
• 60% of new investment for growth
• 26% lead by women (v 14% in all SMEs)

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 UK Social Enterprise

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 UK Government Policy

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 Big Society

Government needs to open up public

services to new providers like charities,
social enterprises and private companies
so we get more innovation, diversity and
responsiveness to public need

Cameron (2010)

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 Social Enterprise Typology

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 Social Enterprise Models

Social
Programs $
Social Enterprise
+ Social Enterprise
Enterprise Programs Activities Programs Activities
Activities

Embedded Integrated External

Alter (2006)
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 Employment Model

Embedded
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 Entrepreneur Support Model

IPO 2010 c$350m IPO 2007 c$450m

Embedded
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 Market Intermediary Model

Embedded
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 Fee-For-Service Model

Embedded
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 Cooperative Model

Embedded
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 Service Subsidization Model

Integrated
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 Organizational Support Model

External
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 Key Investment Questions
• Who is the customer?
• Market characteristics
• Economic model for social/environmental value creation
• ‘Green Ocean’ opportunity?
• Business model
• How are surpluses generated?
• How are surpluses distributed?
• Legal form
• Financial structure
• Risk and return
• Timescale for growth/expansion/profitability
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 Social Enterprise Investment

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 Impact Investing Fields
• Clean technology
• Microfinance
• Global health
• Water
• Housing
• BoP investments
• > $1tr investment opportunity

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 The Investor Universe

- 100% - 15% 0% + 8%
Grant-makers ? Capital-protected Market-rate return

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 Social Investor Markets

Nicholls (2009)
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 Structured Deals

Monitor(2009)
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 Vodafone’s M-
M-PESA Project
• M-PESA: mobile banking for Kenya’s poor
• Vodafone subsidiary Safaricom signed almost 2m
customers in the first year of operation
• DFID matched Vodafone’s investment of £1 million
to pilot M-PESA in Kenya (as a grant)
• Without DFID support Vodafone could not have
invested in the venture
• $38 million of mobile phone banking transactions
(2009)
• 2,500 people signing up every day

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 Social Impact Bond Model

Public Delivery
Agency
Sector Investors

Makes Payment Based Financial Returns

On Defined Outcomes Dependent On Outcomes

Service
Providers

Improved Social Outcomes

Reduced Public Sector Costs
Wider Benefits To Society
Target
Population

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 Social Impact Bond Pilot
• 18th March 2010: launch of the first Social
Impact Bond with the Ministry of Justice
• Pilot offers intensive support to 3,000 short-term
prisoners in Peterborough Prison
• Six year period, both inside prison and after release,
to help them resettle into the community
• Working with SEs such as St Giles Trust
• 5 million pound bond
• If SIB reduces re-offending by 7.5%+, investors
will receive a share of the long term savings up
to a maximum 13% return

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 Questions

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