Venturesome calls for clarity on 'social enterprise' business
models
30 July 2008
Venturesome, the social investment fund of the Charities
Aid Foundation, has today published a paper outlining three
different business models of social enterprise, and is calling for
a debate to get common agreement on the language used to describe
them.
In the past five years there has been a dramatic growth in
interest around social enterprises. The Office of the Third Sector
estimates that there are over 55,000 social enterprises in the UK,
generating a turnover in excess of £27billion and contributing £8
billion a year to GDP.
John Kingston, Venturesome’s Director, said: “To attract and
retain more social investors we need to use a common language. More
and more people are talking about themselves as social enterprises,
but this means different things to different people. The interest
is positive but there is now a need for clarity about the different
types of organisation trading to achieve positive social
impact."
Since its creation in 2002, Venturesome has provided loans and
other finance to over 170 organisations. From their experience of
working with social investors and charitable enterprises they have
developed three models.
Model 1
Enterprises which fit into this model operate a profit making
trading activity that has no direct social impact, but they give
some or all of their profit to a charity.
Examples of this business model include:
- trading subsidiaries of charities, eg Save The
Children’s Christmas card business
- companies which promise to give a percentage of
their profits to charitable projects, eg Belu water
- a hedge fund which gives a slice of its profits
to a charitable foundation, eg Children’s Investment Fund
Model 2
These enterprises operate trading activities that have a direct
social impact but manage a trade-off between producing a financial
return and social impact.
Examples of this model include:
- fair trade businesses, eg Cafédirect
- microfinance funds, eg The Grameen Bank
Test question: can you increase the social impact of the firm by
decreasing financial returns? If the answer is ‘yes’, then the
organisation is a Model 2 type organisation.
Model 3
Enterprises which fit into this model engage in a trading
activity that not only has a direct social impact but also
generates a financial return in direct correlation to the social
impact created. Fewer organisations fit into this model.
Examples of a Model 3 include:
- Windfarms
- FareShare 1st
- Farmers’ markets
Test question: Can you increase the social impact of the firm by
decreasing the financial returns? If the answer is ‘no’ then the
organisation is a model 3.
John Kingston continued: "We don’t see any of these models as
better than the others. We have designed them to help create
clarity, which is important if they are to be successful as each
model requires different management capabilities and different
types of investment."
Media enquiries:
The paper is available for download
here
Media contact
Mandy Pursey
T: 020 7832 3012
E: mpursey@cafonline.org
Editors’ notes:
About Venturesome
Venturesome is the social investment fund established by the
Charities Aid Foundation. It provides advice and finance to a wide
range of charities and other social-purpose organisations bridging
the gap between grants and traditional bank loans. Since its launch
in 2002 it has offered over £12 million to more than 170
organisations.