Holly Piper

Head of CAF Venturesome

Charities Aid Foundation

CAF Venturesome update April 2020

What we've learned, what we've done and what we plan to do

14 April 2020

In these extraordinarily challenging times, the impact on social enterprises and charities will be significant.   CAF Venturesome has a portfolio of over 130 current social investments, and we have spent the past few weeks working closely with as many of them as we can to understand what they’re facing and how we can support them.  I wanted to share what we’ve learned, what we’ve done, and our plans.

What we’ve learned

The coronavirus pandemic has resulted in huge financial and operational challenges for many of the social organisations we support.  This isn’t universal – some of our portfolio (particularly the community-led housing schemes we support and housing charities) are much less impacted, and expect to continue with their plans, albeit perhaps with some delays.  However most are facing a double-whammy of reduced income and operational complexity.  Trading and fundraising income has dropped dramatically.  Very few of our portfolio have sufficient reserves to leave them wholly unscathed by this severe disruption.  Some charities have responded by hibernating their organisation - using the Government scheme to furlough staff, and thereby dramatically reducing costs.  Others are not able to furlough staff because they are providing vital services to vulnerable beneficiaries – particularly in the social care sector – and we are supporting them with finance to reconfigure their (usually income-generating) services.  Most of our portfolio are taking a balanced approach – perhaps furloughing some staff to reduce costs, and focusing on their core services which have the greatest impact.  We have been hugely impressed with how many (often fairly small) charities and social enterprises are making thoughtful yet speedy decisions about how they can best deliver impact – well supported by their volunteer boards. (Please read our blog last week highlighting some of the fabulous and much-needed work our portfolio organisations are doing)


What’s needed

Our support for our portfolio is critical at this time – but our toolkit is limited.  We can give capital repayment holidays on existing drawn loans.  But for some, this is unlikely to be sufficient financial support to see them through this crisis.  Many will need additional grant funding (as shown by recent CAF research) or government support, as well as any repayable finance we can quickly provide.   The Government’s recently announced £750m support package for the charity sector is hugely welcome, but may not be enough for the gaping income hole (estimated by NCVO to be at least 4.3bn for this quarter).  We have strongly encouraged all of our portfolio to apply for emergency grant funding wherever possible (including to CAF’s own emergency grant fund).

Impact on our portfolio 

Across our funds, we have around £10m capital outstanding, of which £6m is drawn.  The majority of drawn capital is in our main portfolio (our Development Fund) – which provides loans of £25k-400k to social organisations operating in the UK, and also overseas.  We expect around half of our main portfolio to be in short-term financial difficulty – we have approved many bespoke capital repayment holidays to support cashflow.  We expect some social organisations will unfortunately close as a result of the huge disruption caused by coronavirus pandemic. We know that our portfolio (78% of which had been performing or outperforming their targets in Q1) is now higher risk, and performance will be impacted.  We always expect to write off some capital in the Development Fund (the nature of making high-risk affordable loans), but we unfortunately are likely to write off a bit more capital than previously expected.

We have two specialist funds – our SE-Assist Fund provides small interest-free loans to early-stage social enterprises, and most of the 25+ portfolio are based in Wales.  We have recently approved capital repayment holidays for these organisations as cashflow support.  Similar to our Development Fund, we expect portfolio performance to be impacted.

By contrast, our community-led housing funds are less impacted – these organisations are primarily volunteer-run, with few immediate cashflow needs.  From our decade of investing in the community-led housing sector, we know how resilient (and patient!) these organisations are – helpful characteristics at the moment!  We have a strong pipeline of potential social investments for our new CLH Fund.

What's next? 

This month, we have made new loans to high-impact organisations in urgent need of financial support.  We have a busy pipeline, and we continue to make new loans.  But we recognise that these may be much higher risk given the current economic circumstances – we need to balance the risk to our funders’ capital, with our mission of supporting brilliant social organisations.  As always, we are willing to take a higher financial risk when the social impact is higher – this means we are prioritising supporting organisations working with vulnerable people and communities most impacted by the coronavirus pandemic.  But we will not be able to make loans to every organisation who comes to us  over the coming months.

We will continue to work very closely with other social investors, including on the Resilience and Recovery Loan Fund launched by Big Society Capital and Social Investment Business.  This Fund will provide emergency loans (using Government guarantees) and should be very helpful to many social organisations with significant trading activity.  Taking on additional debt may not be appropriate for all, and we therefore continue to work with a wide range of partners to support high-impact social organisations with grant-funding or de-risked lending in the short-term. Please get in touch if you would like to be involved.

We are very aware that the support and finance we provide will be crucial in the “rebuild” phase which must follow.  Our mission to support social organisations to sustain and grow their impact will be even more important.  We will continue to work extremely hard to support our portfolio of brilliant charities and social enterprises, and we are hugely grateful to the ongoing support of our funders which allows us to do this.

Holly Piper, Head of CAF Venturesome

CAF Venturesome’s mission is to use social investment to support social organisations to sustain and grow their impact.  We have made over 650 social investments totalling £54m to date.  www.venturesome.org

For insight on the impact of the coronavirus pandemic on the social sector, my colleague Rhodri Davies has made a special series of his Giving Thought podcast, including an interview with me.

Remember, we are here to support social enterprises and charities in any way we can. 
If you want to know more about a social investment from CAF Venturesome or want to use your philanthropic capital to support our fund, talk to our team on 03000 123 300 or email us at venturesome@cafonline.org and we’ll be happy to help.