Please send me SCA's fortnightly briefing:

August 10, 2016

Finding finance

As social enterprise, particularly in England, edges closer towards the ‘for-profit sector’, a new venture – the Social Stock Exchange (SSX) – is coming to Glasgow which aims to bring those that brand themselves as ‘profits-with-purpose’ closer to those with the capital to invest in ‘purposeful’ ventures.  But as we begin to see some community share offers fall short of their targets, might the SSX help to underwrite these community financed ventures? Projects like BroomPower have already attracted a lot of funding but require even more.  If people have cash to invest, how else are projects to find them?

Simon Bain, The Herald

The Social Stock Exchange, offering investment with a social impact, is to cross the Border and open in Glasgow.

Launched as part of the Big Society Capital initiative three years ago, the SSE now has 35 member companies worth over £2billion, who raised some £400m last year on the exchange.

Mike McCudden, who has joined SSE from Interactive Investor to open the first Scottish office, said he hopes to recruit up to 30 company members over the next year or so.

Companies have to pass stringent checks on the social and environment impact of their business, and investors can buy and sell their shares as on any exchange. It is part of the ISDX platform, accessible from the most popular share brokers and trading platforms.

McCudden said: “There used to be regional stock exchanges throughout the UK, in Glasgow, Edinburgh, Dundee, Aberdeen. The Glasgow stock exchange closed in the late seventies, and we are bringing it back.”

But this time around only local companies making a distinct and measurable contribution to regional well-being – in areas such as social housing, clean energy and charitable projects funded by bonds – will be listed.

“Since the financial crisis there has been a realisation that capital markets aren’t working the way they should for local investors,” McCudden said. “Local businesses can’t go to a local exchange any more and find local investors to support them, that is something that has disappeared.”

The SSE’s first regional branch opened recently for Liverpool & The Wirral, and Scotland is close behind.

McCudden said: “It is not crowdfunding. We offer an actual exchange and an underlying price. It is a secondary market so if you are an investor you can sell your shares at a live price, unlike crowdfunding where you have to find a buyer.”

McCudden said it is a movement for the young. “Right now your typical retail investor in these stocks is slightly older and slightly more savvy and sophisticated. But the market is changing. Statistics show that millennials for instance want to know where their money is being invested and are taking more care about the impact of their investments. There will be a broader demographic in future.”

He went on: “Glasgow is where we want to be based. There’s a lack of quality housing stock, one in five children in poverty, a life expectancy of 57 in the Gallowgate. Scotland also has aggressive carbon reduction targets and is always trying to be ahead of the curve, leading the world in renewables. We want to bring some positive impact not only to Glasgow but to Scotland.”

McCudden has been sounding out potential partners such as Social Enterprise Scotland, umbrella group for Scotland’s social enterprises, the Scottish Community Re:Investment Trust, which pools the collective resources of the Scottish third sector, and Community Shares Scotland, which says almost 100,000 people have invested over £100m to support 350 community businesses in the UK in the past seven years.

“The feedback has been fantastic, “ McCudden said. “They really welcome somebody who brings a different flavour to the investment side and raises the profile of what we are all trying to do.”

The main exchange has seen fundraisings of anything from £30m to £300m. Glasgow’s is likely to attract small firms who want to raise their profile and gain endorsement for their model, along with charities or local authorities seeking support for social bond issues – debt could make up around a quarter of capital raising, McCudden said.

He also hopes to get the message out to the chambers of commerce and other business groups. “In the current economic climate it’s difficult for companies to go out there and do capital-raising. By bringing this to the market we can help them case their net wider and attract a bigger audience who care about their mission and their business.”

Gavin Francis, founder of Worthstone the UK’s leading social impact investing consultants, commented: “Intelligent capital is already being drawn to social investment opportunities. The early adopters have been purposeful, entrepreneurial and community-minded individuals and Scotland has demonstrated a pioneering spirit in much of this progressive development.

“We welcome this launch as a further step towards building a thriving market where social capital can be deployed effectively and meet the compelling objective of the majority of investors to generate a defined and measurable social impact as well as a positive economic return.”

At government level, the UK is currently seeking EU approval for the raising of social investment tax relief from £250,000 to £15m, in a move that Francis has said could channel investment into “a myriad of potential enterprises tackling some of the most hard-to-reach problems in the country”.