The document discusses the growth of social enterprises in the UK and argues that with the right resources and support, the UK could become the "Silicon Valley of social change." It notes that social enterprises reinvest profits into their communities to tackle social problems. However, many lack access to financing needed to scale their impact. The document argues that with improved access to social financing models and an understanding of opportunities like crowdfunding and social impact bonds, young social enterprises could accelerate growth and increase their social impact, similar to how startups in Silicon Valley have benefited from venture capital funding.

1. SILICON
VALLEY
OF
CHANGE

2. 7
Home to many of the world’s largest high-tech
corporations and thousands of tech start-up com-
panies, Silicon Valley brags of its status as the
leading hub of innovation and technological devel-
opment, bringing in what amounts to a third of
all venture capital investment in the US. In 2014,
venture capitalists invested some $48 billion in
4,356 deals. Europe’s start-up scene is also look-
ing optimistic: the UK houses 17 of Europe’s 40
billion-dollar start-ups. Venture capital is a unique
form of equity financing, where the investors are
given holdings of shares in the enterprise in return
for the start-up capital that is often very hard to
raise in a company that lacks credibility and limited
operating history to evidence its growth potential.
At the time of writing, Pebble Time smartwatch
used a month to raise $20.3 million through
Kickstarter, a crowdfunding platform where people
pledge a financial contribution, backing a project.
In this case: a smartwatch. The Pebble Time smart-
watch breaks the record as the most funded project
ever on Kickstarter, doubling the $10.3 million that
the company raised for the original Pebble smart-
watch. Crowdfunding breaks away from traditional
financing models of debt and equity as it raises
Social enterprises are thriving in the UK.
Can the country revolutionise how we think
about businesses?
money through contributions from a large num-
ber of people. In 2013, the crowdfunding industry
grew to be over $5.1 billion worldwide.
The figures speak for themselves. Large amounts
of resources and power are driven into the tech-
nology market yielding astonishing results, both
in terms of profits and innovation. What if the
same resources and power were diverted into
enterprises with the delivery of social impact at
its core? As a nation with the world’s largest social
enterprise sector, couldn’t the same resources and
power be pooled into the United Kingdom to cre-
ate the Silicon Valley of social change?
By Jamie Mui
Pebble Time Smartwatch broke the record by raising
$20.3 million on Kickstarter within a month.
Photo credit: gdgtarena.com

3. the big question for a
lot of these SMEs is
whether they can scale,
given their social ethos
and financial burden
“
“
8
Some may argue that with the massive profits that
tech corporates make, companies or their CEOs
could take a portion of that money, set up a foun-
dation and donate it to a worthy cause as part of
its corporate social responsibility remit. A few mil-
lion dollars should do the trick: taking X number
of people out of poverty, build Y homes for them to
live in and completely turn Z lives around. In some
cases, this has proven to be successful.
The Bill & Melinda Gates Foundation needs no
introduction: as the largest private foundation in
the world, they have brought about massive change
through their immersive, collaborative approach,
following through with their sheer influence
and amount of investment, to help develop some
game-changing results, including the development
of the world’s first malaria vaccine.
The world doesn’t have very many Bill Gates
though. Not everyone can be as successful or wield
as much influence as him. Instead, social change
must come from the grassroots and increasingly,
this change is starting off as social enterprises. The
world has moved on from just relying on donation
towards charitable entities. Charities themselves
are having to look for ways to generate revenue
amidst austerity and reduced funding. Many entre-
preneurs are taking matters into their own hands,
developing businesses with social impact at the
very heart of its existential purpose.
Above: As of March 2015, The Bill and Melinda Gates Foundation has paid out $33.5 billion since its inception in 1997.

4. 9
As mentioned previously, the UK prides itself as
having the world’s largest social enterprise sector.
As stated by Social Enterprise UK, social enter-
prises are businesses that trade to tackle social
problems, improve communities, people’s life
chances, or the environment. Generating revenue
from selling goods and services in the open market,
they reinvest their surpluses back into the busi-
ness or local community.
Massive costs are incurred for a sector offer-
ing solutions to social and economic problems.
Furthermore, the big question for a lot of these
SMEs is whether they can scale, given their social
ethos and financial burden. The preconception
that no social enterprise can scale is a myth. In
fact, the financial year of 2011/12 saw 8% of sur-
veyed social enterprises turning over more than
£5 million per year. However, these social enter-
prises tend to be a lot older and have proven track
records to access finance with, alongside having
much more market expertise.
The problem then becomes how we can capital-
ise on this knowledge to understand how young
social enterprises can achieve accelerated growth.
According to the 2013 State of Social Enterprise
Survey, close to a third of all social enterprises are
three years old or younger – three times the pro-
portion of start-ups in the SME sector, regardless of
whether the firms in the SME sector belong to the
tech industry. Under the preconception that these
social enterprises want to grow so that their social
impact becomes more substantial, their revenues
are going to have to increase much quicker than
their operating costs. To do this, social enterprises
will need much easier access to finance.
Assuming the intent and resources exist for the
social impact space – for which it does – how
should social enterprise start-ups go about
accessing social finance and what barriers exist to
prevent them from doing so?
As mentioned at the outset, start-ups in the tech
Above: Jamie Oliver’s Fifteen Restaurant in London is a social enterprise that uses its profits to fund an apprenticeship
programme. The course aims to help young unemployed people develop skills, especially those who have dropped out
of mainstream education.

5. “
10
scene have managed to pull in massive amounts
of financial resources from venture capitalists and
the general public via the Internet. Their successes
are based on the same principles that social enter-
prises should adopt. Social enterprises are trading
alongside commercial entities in an environment
where they are susceptible to market forces. This
means that they should dedicate efforts to grow, in
part, like a commercial business, for instance, con-
sidering increased investment on advertising for
maximum success in a crowdfunding campaign.
Many companies are granted large sums of money
by angels and venture capitalists because there
exist sound value propositions, (potentially)
healthy finances, and investors envisage massive
returns. For social enterprises, the most impor-
tant return is definitely not financial and hence
social entrepreneurs must take a triple bottom line
approach where sustainability should be delivered
not only regarding profit, but also for the planet
and people – namely, the three Ps.
People new to the social investment market have
been conditioned to think that financial return is
the most important criterion to assess their deci-
sion against, as well as taking founder(s)’ skills,
market opportunity and other factors into con-
sideration. However, as a social investor, impact is
equally as important as well as recognising the fact
that risk will be much higher, terms may have to be
longer and the same amount of money may have
more mileage in the social space.
As well as repositioning the internal culture of
the organisation, it is equally as crucial that social
entrepreneurs know what financing opportuni-
ties are out there in terms of social investment.
Philanthropic donations used to be the major
source of donation for growing social enterprises.
The financial infrastructure for social investment
has developed a lot since then. The UK social
investment market surpassed £200m in value for
the first time in 2011/12 and a lot of traditional
financial institutions have been mirrored in the
social space, for instance, the role of venture cap-
italist funds is played by venture philanthropy
funds, investment banks by social investment advi-
sors and many more.
Not only is the framework now much more
advanced, but new financial products have spun-
off from traditional ones, like the birth of the
Social Impact Bond in September 2010. This only
just begins to highlight how there are a wealth
of opportunities now out there for both social
entrepreneurs and social investors to explore and
understand.
This article has only scratched the surface of
the deeper issues concerning social investment,
financing the scaling of social enterprise, amongst
others. Rather, this is a calling for awareness to be
raised and people to educate themselves about the
social space. Amidst a government trying to make
itself leaner through increased austerity, many are
turning to the business world and third sector to
deliver the social change that government has no
capacity to achieve anymore.
The UK is a social enterprise leader and its regula-
tory framework reflects that: Community Interest
Company as a legal form created specifically for
social enterprise, social investment tax relief, to
name a few. All that remains is for the movement
to carry on thriving, to enable even more progress
in the near future. ¶
For social enterprises, the most important return is definitely
not financial
“