What is the best way to spend charitable money?

This is a question frequently asked by grant-giving organisations or projects needing donations, meaning that the focus is concentrated on where and why to invest.


Some people though have started thinking differently, questioning how they can make charitable money work harder by making Social Investments. It all started with Ford and Taconic Foundations at the end the 1960s, who began providing much needed capital investment to black and minority owned businesses. In March 2010, the UK showed an increased level of sophistication in this area through a record deal of £5m between HCT Group and Bridges Venture, which involved a combination of quasi-equity and loan.


There is a wide range of products to choose from when talking about Social Investments and some questions that need answering before you invest.


The first question to answer is the objective of the investment: “are you looking for an investment that gives you a primarily financial or social return?”.


The second question you have to consider is what organisational need you want to address. You have to consider that organisations at different stages and with different business models might have different needs for capital or expenses.


The third consideration is how far you want your money to go. At one end of the spectrum, you have secured loans, where it is guaranteed you will get your money back. At the other end, you have equities where your investment is susceptible to the risk of the organisation (grants of course are riskier as your money does not generate any financial return, however the social impact is definitely there).


Venturesome, CAF’s social investment fund launched in 2002, is an example of how this choices actually work in practice. Paul Cheng, from Venturesome (who we had the privilege to have as an On Purpose guest speaker), explained to us their unique approach to Social Investment. They believe the most effective way of doing social investment is to provide access to capital for organisations. They see that lack of capital is a barrier to charities increasing their social impact. The implications of this, and strengthening their balance sheets is being prepared, as a social investor, to incur occasional losses and accept that not all funds will be generate positive financial returns. The reason behind social investment is ultimately to help charities/social enterprises with their financial capital needs - e.g. working capital and cashflow (NOT just project funding). “That is the crucial point which most people do not understand - we need to invest in charities - not just pay/donate to them just to do projects. Charities need investment like businesses.” says Paul.


Social Investment has evolved a lot so far, however it is still a young market. My belief is that we all can benefit from more investment in this area as we can not only recycle the money and help more beneficiaries, but also educate organisations on how best to manage charitable funds. It is important nevertheless to highlight that social investment is just one part of the landscape - of course, we still need grants, donations, secured bank loans etc. Those products will always be needed in our society, however the theory of diversification is expected also to benefit the charity world.