Holly Piper

Head of CAF Venturesome

Charities Aid Foundation


5 November 2015


Samuel Beckett


Social investment is about changing lives through supporting high-impact social organisations.  Without pushing boundaries and flirting with financial failure we will inevitably fail to deliver the highest social impact.

This means that failure is important.  And learning from failure even more so, as only then can we make better decisions in the future.  At CAF Venturesome, understanding what causes one social investment to fail is as important for us as identifying what drives success in another.  It is equally important for us to share those learnings.  Hence this blog.

Failure is important. And learning from failure even more so, as only then can we make better decisions in the future.

However, I have to admit that this is now embarrassingly overdue – we began a piece of work on our financial failures over two years ago, and we hosted a thought-provoking and lively roundtable to discuss our findings nearly twelve months ago.  The only benefit from such a delayed publication is that we’ve had the chance to update our analysis and conclusions, as our portfolio of social investments has matured.  I must also add that we owe a huge debt of gratitude to several Venturesome alumnae for contributing their time, expertise and musings to ensuring that the initial research was as comprehensive and useful as possible.



For this piece of work, we looked at the 400+ social investments made from our main Venturesome funds* – of these, we failed to recover some or all of the money in 32 cases.   This is approximately 1 in 12 (and it’s a very similar ratio when looking at the value of capital written-off).  Before we delve too far into failure it is worth bearing in mind that this is a far lower “failure rate” than was initially expected in the early days of Venturesome, when social investment had less of a track record.  

This work focuses on financial failure, rather than impact failure, for a couple of reasons:

  • The key reason is that repayment is fundamental for social investors – we are responsible for safeguarding money that has been designated for social causes and ensuring that the capital is used responsibly to create the greatest impact.  As social investors, we seek to recycle this capital as much as possible – using it to support one charity, and then another, and another.  The failure of one loan means that there is less money to support another social organisation in need.
  • A less noble reason is that financial failure is, in its rawest sense, pretty easy to measure.  If a social enterprise fails to pay back all of the money we loaned it, then we judge that to be a financial failure.  Social impact is harder to quantify, and therefore social impact “failure” may be more subjective.  In a still-young sector such as social investment, it is understandable to focus on areas where the data is less ambiguous.

This is not to say that financial failure is “worse” than impact failure, nor that it is more common.  

And what happens in a “failure”? Often the charity or social enterprise concerned went into liquidation, but in 7 of the 32 cases we chose to write-off some or all of the loan to support the organisation continuing, i.e. to try to preserve and support the social impact.

So, we’ve now shared our numbers (brownie points to us for transparency), but that alone doesn’t tell us much.  Far more interesting is what we found, and what we and others can learn from these failures.



The benefit of having a large social investment portfolio (470 social investments to date) is that we have a reasonable set – 32 – of examples to look at when trying to understand why some social investments fail to repay in full.We have identified six common factors in our failed social investments. One interesting finding is that being “bad with money” was identified as a key factor in only 7 of 32 cases. Whilst we are optimistic that this is because an organisation’s financial prowess is correctly evaluated through our due diligence, we were nevertheless surprised that poor financial management was not at the top of the failure leader board.

Here are the trends we identified. The causes of failure most commonly identified in the organisations where we have written-off capital can be characterised as:

”Can’t do it” (20 deals out of 32):

  • Where those in charge of an organisation lack the necessary skills, particularly business and commercial skills, to perform their role.  This includes cases where new management personnel had different areas of expertise to their predecessors; organisations adapted to trading models without having the requisite skills at the senior level to properly execute the transition; and, more recently, where management teams were unable to adapt their financial systems and operations to payment-by-results contracts.

”Won’t do it” (9 deals out of 32):

  • Where those in charge failed to perform as expected. Examples include instances where the board took a weak approach to specific situations; were insufficiently engaged with the organisation; and failed to utilise their professional skills (e.g. accountancy, commercial, legal and fundraising).

”Nobody’s buying” (9 deals out of 32):

  • Where an organisation has encountered low demand for their product or service.  This has occurred mainly in cases where organisations diversified into trading without properly assessing or mitigating against the risks. Poor market research was a recurring theme, either where an organisation was unable to afford it, or where the management was overly confident in the product and pursued the plan regardless.

Eggs in one basket (9 out of 22):

  • Either grant dependency, or increasingly dependent on a single income source (e.g. local authority).  Interestingly, this is a particular trend over the last two years.  Although it’s not yet impacting our write-off rate, we know that the increasingly strained local authority finances are stressing some of our portfolio – even before the imminent spending review.

”Bad with money” (7 deals out of 32):

  • Where the financial stewardship and decision making has been particularly weak. This has occurred where the board lacked the skills to interpret and interrogate financial information; where the person reviewing the financial information was the person that prepared it, compromising the independence of the analysis; and where there was failure to properly engage with the finances until it was too late.

”Cult of personality” (6 deals out of 32):

  • Where an organisation has become so reliant on one person that it struggles to exist independently. This has proved fatal in a number of cases, either when a key individual has moved on; when they have burned out under pressure; or when they did not meet our expectations.  This has become less of a trend over the last two years.

And overall, what does this tell us? People are important! And here are other things we have learned.



We at CAF Venturesome now want to share how we have changed (or not changed!) our approach in order to minimise unnecessary financial failure.**

We are not aiming for zero capital loss. We continue to believe, and the evidence of over a decade’s social investments by three major SIFIs bears out, that supporting high-impact social organisations to innovate their business models necessitates a high tolerance of risk, and not all of these social investments will repay the capital in full.   But we are of course incredibly keen to minimise these losses and to learn from them. And our top 3 learnings are…


1.       Back good, well-run organisations

I appreciate that this sounds so obvious that it isn’t worth writing down. However, in the quest to achieve fantastic social impact (or more prosaically, to meet fund targets), this overriding requirement can get lost. We know that one of the best ways to minimise financial failure, and to maximise social impact, is to make social investments in organisations which have diverse income sources (increasingly important), with committed boards and senior teams who are willing to take advice, and respond quickly to (and are aware of) changing market conditions. Crucially we think that organisations which don’t fit these criteria – let’s face it, everyone can improve – must show signs that they are aware of their shortcomings and working towards improving. Some of our own failed investments have been to organisations which, with the brilliant clarity of hindsight, were not well-run, nimble or with committed senior teams – and were not willing or able to improve.


2.       Don’t cut corners in your due diligence

Since inception in 2002, we have been (hopefully) improving our due diligence to pick up on obvious failings in financial management (e.g. accounts being not-so-independently reviewed by the person who prepares them).  It is very rare for our potential investees to have quite such glaring weaknesses - but we continue to look out for them.  We’ve even developed some checklists to ensure nothing accidentally slips through – exciting stuff.


3.       Be flexible, be patient

Life rarely goes to plan, and the same is true for social investment. Whilst remaining committed to being repaid in full, we often vary the term of our social investment - e.g. by giving an unscheduled six months’ repayment holiday - to provide our investees breathing space when they encounter unexpected difficulties. Such interventions are most effective if delivered early and identified through regular catch-ups with the investee. Many of our most successful investees have benefited from this flexibility, and we are confident that this approach has increased our overall repayment rate and our social impact.

So in summary, a thorough due diligence process reduces the chance for things to go wrong; and a flexible approach and close relationships with investees gives us a chance to help fix them if they do.


* We chose not to include our specialist funds: the Community Land Trust funds, which provide pre-development and development finance to community groups to build affordable housing; and SE-Assist, a pilot fund supporting start-up social enterprises, in Sussex and Croydon to date.

** We have had the privilege of discussing this with a number of knowledgeable people - including former team members - over the past 18 months, and our work has benefitted from these discussions.

Want to know more about CAF Venturesome? 

Talk to our team on 03000 123 300 or email us at venturesome@cafonline.org and we’ll be happy to help.