Aug

26

To Get Social Businesses Going, Money Is Not Everything

August 26, 2008

On a recent visit to Canada I sensed tremendous excitement about a planned social venture capital fund, designed to kick-start the sector in the Province of Ontario. In other countries, similar excitement exists. Funds are being formed across Europe and the United States. These range from the “venture philanthropy-type” funds, such as Impetus Trust in the UK, government sponsored funds, as in Canada or those which are purely commercial, such as our own Catalyst Fund 1, currently being raised. While the sector certainly requires capital to grow, and we are aware of attractive enterprises looking for backing, a word of caution is appropriate. It is easier to assemble capital than to create social entrepreneurs or to build businesses. It is important to get the balance right, and more often than not we do not.
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Aug

15

Developments in Georgia and their relevance

August 15, 2008

A “friend of Catalyst”, Luca Bosatta, must be feeling a bit strange these days. He has just published a series of posts as part of our “Catalyst in…” series, about Georgia and Armenia. He had taken his wife and kids with him on an “family holiday” and only a few days afterwards he returned to the UK, war broke out is in South Ossetia, Abkhazia and central Georgia itself. Cities he visited, such as Gori (Stalin’s birthplace!) in the central part of Georgia, were ablaze; swarming with Russian tanks, only 72 hours after he left. I can imagine him feeling relieved that he and his family got out in time. On the other hand, it would certainly leave me feeling very, very mortal.

He has just posted about the aftermath in typically understated fashion. I recommend you have a look. He also includes a lengthy comment from GML Capital LLP, who have a fund in Georgia and a good insight into the country. I urge you to link to the recent post if you have an interest in the subject. (Of course, readers are always invited to check out any one of our “Catalyst in….” blogs, which now cover 15 different countries.) There are also a few other points I think worth mentioning.

Aug

13

Sorry, A bit of a hacking problem

August 13, 2008

One of the downsides of having a blog people are increasingly reading is that it becomes tempting for hackers. We have recently had such difficulties and hope we have solved them for now. Our gratitude to those of you who pointed this out (no, we are not going into the sale of dubious performance enhancement drugs) and to the rest of you for your patience.

Rodney Schwartz

Jul

31

A Great Book and the “Heroes” of Loch Fyne Oysters

July 31, 2008

About 2 weeks ago I had the opportunity to read a fantastic book on a flight from London to Toronto, Canada. The fact that I was also able to view two on-board movies is a testament to the book’s brevity but also how easy and enjoyable a read it was. As this is a social business blog and not the Times Book Review, let me note that there were several important points crystallized in reading “Local Heroes”, by the author, David Erdal. He exquisitely tells the story of Loch Fyne Oysters and the employee buyout his firm, the Baxi Partnership, assisted and goes on to make the case for employee ownership generally. My three “takeaways” were, first, it highlights the social returns inherent in staff ownership of an enterprise, and underscores the improved operating performance such ownership can achieve and provides examples of this at work. Second, it reminds us of the “social” aspect of employee ownership. Third, and more critically, lurking underneath this uplifting story is an issue which we in the sector too often ignore.
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Jul

31

Innovations in Unexpected Places: The Tale of Aji Sai

July 31, 2008

As some readers know, I have spent a week in July on a “Catalyst in Canada” trip, searching for inspiration in the social business and enterprise sphere in Toronto. During this trip, I had the pleasure to have lunch last week with Tonya Surman, the Director of the Centre for Social Innovation (CSI). Apart from providing fabulous and interesting company, I have Tonya to thank for a powerful lesson regarding innovation and where one can find it–in this case, she enabled me to discover it at the Aji Sai restaurant.
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Jul

21

A Green Submarine Company?

July 21, 2008

Earlier today, on a visit to Toronto, Canada, I had the chance to meet with Andrew Heintzman, President of Investeco, a venture capital investor in early stage environmental businesses (get it? invest-eco). They are a bit like Impax Asset Management in the UK, with both private and listed equity arms. Perhaps I will write about them at some point this trip–but this post is about one of their clever investments–Triton Logging. As businesses go it is cute, shrewd and delightfully simple–like all the best ideas.
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Jul

18

ECT Recycling Group II–A Beer Raises More Serious Issues

July 18, 2008

WE HAVE HAD TO REPOST THIS BLOG TWICE DUE TO SPAMMING (YOU MAY HAVE NOTICED THE PHARMACEUTICALS ADVERT…) SO APOLOGIES TO THOSE WHO READ THIS BLOG AS AN RSS FEED AND HAVE RECEIVED IT THREE TIMES. WE ARE WORKING TO FIX THIS PROBLEM AND DO NOT INTEND TO POST IN TRIPLICATE EVER AGAIN!

In a recent blog post on the subject of ECT Group’s sale of its recycling business to May Gurney (MG) we raised a few questions about CICs in particular and the funding of social businesses in general. After a beer (OK, perhaps more than one) with Stephen Sears earlier this week, a number of other questions (four to be precise) emerged. I consider Stephen a professional friend and good guy, so if you think I cannot be objective on this one, stop reading now!

First, it still seems odd to me that a CIC (which I must remind readers stands for Community Interest Company–a UK form of association established a few years ago) was able to be sold in this way. It is clear from the start this sort of sale was allowed (at fair market value) but I suspect few observers realised that what was alleged to be an asset held for the “interest” of the community could so easily pass into private hands. The CIC itself is simply now owned by MG, but its contracts novated (passed) over from the CIC to MG over time–thus the economic value will pass. That ECT Group received fair value in what many might describe as a “fire sale” has raised some concerns. Defenders of the CIC, howevere, feel this all highlights their marvellous “flexibility”. To me this it seems somewhat farcical for one main reason. The benefits of the CIC structure, as presented by the Government, was that CICs would ensure the assets would be used solely for the benefit of the community. Though not explicitly stipulated, one was led to think this was for a very long time. It was argued that this would reassure charitable funders and social investors in CICs that they were charity-like. This has all been thoroughly discredited. That it has hit one of the biggest and seemingly most successful social enterprises is highly embarassing.

Second, by structuring as a CIC, ECT and others forgo the ability to raise genuine equity. Investors are unwilling to accept equity-like risk (which is associated with many of these CICs) for what are (lower) debt-like returns. Who could blame them? This is a fundamental flaw of the system, especially for fast-growing companies like ECT which require the cushion normally provided by equity.

Third, the same limitations which make equity-like structures impossible, make share options essentially infeasible for the hard-working staff of such organisations. Creative solutions can be devised but they are costly, inefficient and generally more cumbersome. Why do enterprises which serve a social purpose get penalized relative to commercial companies? Some argue that equity-like returns are “not the point” of CICs. But why should only the community benefit from the “fair value” created? Are not the staff equally deserving stakeholders?

Finally, for all the restrictions of a CIC there are simply no benefits. The reputational benefit meant to be conveyed is now in tatters because of the argument made above. If the Government wants CICs to thrive it must provide for some meaningful benefit to offset the limitations it has imposed.

Rodney Schwartz

Jul

11

A State of Denial for Social Enterprises?

July 11, 2008

The juxtaposition of two articles in Wednesday’s Financial Times was clearly not unintentional (it never is!). The first, entitled “MPs raise doubts on the not-for-profit sector”, highlighted the fact that there is no clear evidence that voluntary or not-for-profit sector companies improve outcomes. The second, obviously in response, was entitled “Charity chief criticizes Whitehall’s ‘barriers’”. The second is clearly meant as a riposte to the first. And to make its “fleshing out” of the issue complete (typical FT) it includes a comment piece on the same day by John Cridland, the Director General of the CBI (the UK’s business trade body). For me, these articles, and the broader issue of public sector provision, raise at least two vital points about the role social enterprise and social business can play in our economy. Readers will not be surprised to note that these points are not covered to any satisfactory extent in the FT’s pieces.
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Jun

21

The Sale of ECT Recycling: A Cause for Jubilation or Concern?

June 21, 2008

Recently our affiliated website socialinvestments.com commented on a report that the ECT Group has sold its recycling business to May Gurney (MG) in order to achieve scale (for the commentary click here). As over 80% of its turnover was in the recycling area one could effectively say that ECT has sold itself to MG—the remaining businesses will either be sold (like rail operations) or managed as a small remaining social enterprise (like the transport business). Readers of our blog will know that we normally applaud when successful social entrepreneurs sell out. For example, see our comments on the sale of the Body Shop. However, in this case we do not feel like celebrating—and we think the sale of ECT Recycling (ECTR) highlights at least two or three very serious problems for the social business sector.
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Jun

10

Riverford- a successful growth model for social business

June 10, 2008

This blog has been reposted because the original version was somehow replaced by a pharmaceuticals advert- apologies for any confusion.

One of the big challenges for companies operating in the Social Business sector is managing growth in the business without sacrificing social principles. There are many examples which would suggest that once a Social Business reaches a certain size its owners sell out to large corporates or private equity companies (The Body Shop, Ben and Jerry’s and Green and Black’s, to name but a few). Inevitably, this leads to loss of control and, in many cases, a dilution of social values. One company that seems to buck this trend is http://www.riverford.co.uk the Devon-based organic vegetable box scheme, which was recently included in the Sunday Times list of 100 fastest growing private companies (2nd December 2007).

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Aug

26