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What do Social investors look for?

Insights

09 May 2019

In Part 1 of this blog, Peter Gilson, Investment Manager at Northstar gives his insight on what social investors look for, and why.

Most beneficiaries of social investment feel the assessment process where a social investor gets to know a company is helpful, supportive and in some ways a welcome challenge; however some have remarked that it feels like a gruelling exercise.

The reasons behind our questioning is to understand the business, and ensure that as far as possible social investment is the best option for the organisation.

Whilst different social investors have different requirements there are around 8 areas which we all focus to some extent on. Knowing what these are enable VCSE organisations to prepare their business plans and discussions.

Getting to know the people running the business
More often than not it is who we lend to not what the organisation is – people make all the difference, we’ll want to know things like:
• What is the background of the management
o Are they prudent or over optimistic
o What skills do they bring to the business
o How long have they been in post – what has been the history of the business under their stewardship
• What about the Trustees
o Again what is their background
o What are the trustees’ roles – passive and active members
o What is their history of guiding the business.

This helps us to understand who is making the daily decisions, are they strong enough to cope with the unexpected, do they have the right skills to do what they are proposing and, if not, how do they intend to address any shortfall.

Getting to know the business
• What does it do – how long has it been around
• What is its reputation and what is its external recognition in the areas it focuses on and / or intends to focus
• How do the management and trustees interact with the workforce – what is the communication policy
• Is the business reliant on one or two key individuals – have the “what if…” scenarios been addressed
• How effective are the systems in place e.g. Financial, environmental, HR and social impact
• Key aims and mission of the business how effective are they adhered to and how have they been developed to sustain / grow the business
• What is the company structure – are there subsidiaries or associate companies – what is the intercompany interaction – what does each do and does the management have the skills to lead multiple businesses
• What has been the historical performance of the business both financial and operationally.

This gives us an understanding of the business, its activities and the policies behind the operations

Getting to know the market the business operates in
• How well does the organisation understand its market and the likely conditions going forward
• How many other organisations undertake similar work locally – who are they
• What differentiates the organisation, what is its USP (Unique Selling Point) i.e. why would someone come to them rather than go elsewhere
• If venturing into a new area or targeting new beneficiaries what research has been done

What social impact do they make
• What are the key needs of the beneficiaries and what difference are they making to individuals and communities
• How does the organisation record and use this data
• What difference are they hoping to make in the future – i.e. are they looking to do more of the same, or maybe the same but to different individuals, or maybe doing something different with a new group of people

At this point we will have a good understanding of who runs the business, what the business does, and what / how it is seen / perceived in the market it operates / and the impact it is making.

In the next article we’ll look at issues around the funding and what it is needed for.

Posted By
Ian Richards

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