On 04 November 2015 Flip Finance ran a Sprint where 15 people came together to assist the Centre for Innovation in Voluntary Action (CIVA) develop its approach to social investment. Below is a write up of the session. It’s rough and ready, being used as a “live document” as we continue to work up the CIVA Invests Fund.
For more information or to discuss anything presented here please get in touch with Ben Metz – mail (at) benmetz (dot) org.
Key observations
Key observations for the afternoon can be summarised as:
- This new fund is an opportunity to “show the rest of the market” by demonstrating a different approach deeply aligned to on the ground need.
- There was a strong message to do the opposite of what current providers do i.e. don’t offer set products, don’t set any parameters and actually ask people what they want (which is very much in keeping with CIVA’s current approach).
- That in order to be successful, and cost efficient, a distributed model for sourcing and supporting applicants and investees needs to be developed.
- Consider how those who engage with the fund, through just applying or receiving funds or indeed any other stakeholder, could be involved in the administration, management, decision-making, governance and perhaps even ownership of the fund.
- The new fund has to be prepared to lose money, but this doesn’t mean we should expect to or aim to. Just be prepared to. That means all investors need to be prepared to lose their investments.
Main thread to build on
The main thread picked up by all three working groups was to:
- Configure the pipeline / application process as an open call, in that criteria and terms are not set ahead of being open to applications. The rationale for taking this approach is so as to be able to gather volume evidence of need to be gathered and used to calibrate focus of fund, investment criteria, support functions, term sheet conditions etc. This could potentially provide a body of knowledge about need to the wider social investment sector, as well as serve to calibrate our own fund activities.
- Then, assuming we have a substantial volume of applicants / expressions of interest, we could look to create a ‘peer triage’ system where we would create cohorts of Social Sector Organisations (SSOs) who could support each other to find and apply for appropriate social investment. We’d convene and support each cohort as well as develop and provide information materials to help them make sense of the social investment field.
- CIVA would then select the SSOs we most wanted to work with and invest in from this pipeline. We could look to engage them in management and governance of the fund in a number of ways:
- Sitting on later investment committees and taking part in due diligence and assessment;
- Providing support to later applicants and investees; and
- Potentially engaging as part owner in the fund (mutual shareholding, limited partner or similar).
The first two points would need to be grant funded or subsidised, perhaps by Access money.
Overall these three points strong together to create a neat narrative that places beneficiary organisations front and centre in this fund’s management: in how focus and terms are set, how applicants and investees are supported; and how ownership is used to align all parties incentives.
Other headlines
Blockchain?
An opportunity that is emerging from thinking since the event is how a blockchain might be utilised to facilitate the application, support, decision making as well as governance and ownership of the fund. If you don’t know about Blockchain read this Economist article.
The idea is that we could anchor the application and decision-making processes, as well as the support services provided – especially the peer to peer support, into a blockchain. By using, for instance, the FreeCoin Toolchain we’d be able to create a ledger that recorded the quality of and benefit derived from all interactions around the Fund. In this way we’d potentially be able to incentivise behaviour and interaction that was of benefit to applicants, investees and the fund alike. It’s early days and a pretty wild idea, but worth exploring further.
Focus on a sector
Another strong theme that emerged, that is not mutually exclusive to the above, is to focus on a specific sector, most likely small in size and underserved, where policy change, technology change or other external factor has the potential to transform the viability of the sector. We’d invest Venture Philanthropy-like very flexible capital and remain highly engaged with the investees. At the same time we’d build a “Participant Productions’ type activist community that sits underneath the investments and pushes for structural change (learning from activist fund management approaches).
Application sifting and reducing human bias
Developing an assessment process using Order Theory where mass participation in binary assessment of applications could transform crowd involvement in and quality of assessment processes.
Lending within
Underwriting and guarantees to existing SSOs and their directors and trustees to encourage intra-SSO lending.
Ideas generated during the Sprint
Below are summaries of the key ideas developed during the afternoon.
Open call
- The idea:
Crowdsource the fund criteria. - Key point #1:
Don’t have any fund criteria, instead extensively survey, via a call for investments, the sector asking what they need. - Key point #2:
Use this to define demand, then create criteria and invest on this basis. - Key point #3:
Don’t annoy the demand side in the process so minimise time spent, expectations, etc.
Peer triage
- The idea:
Create cohorts of organisations who peer triage each other to the full range of social investment available. - Key point #1:
Linked to the above idea, once substantial numbers of organisations have expressed interest group them into related cohorts and facilitate interaction and access to quality information materials. - Key point #2:
Ensure the right mix of people in each cohort to maximise chances of meaningful interaction.
Investee involvement in investment committee and more
- The idea:
Fold investees into investment committee (IC) and support processes. - Key point #1:
Make investment conditional upon engaging with the fund in deal origination, IC and ongoing support. - Key point #2:
Linked to the two ideas above, taken together they form a coherent thread / narrative of how the fund operates.
Metrics
- The idea:
If it costs too much to work out robust metrics then don’t bother. - Key point #1:
Maybe choose a narrow sector. - Key point #2:
Take metrics from investees, don’t impose.
Serve a small sector
- The idea:
Focus on a small,and possibly underserved, sector. - Key point #1:
Choose a sector where policy change, technology change or other external factor has the potential to transform the viability of the sector. - Key point #2:
Invest VC-like injection of very flexible capital. - Key point #3:
Build a ‘Participant Productions’ type activist community that sits underneath the investments and pushes for structural change (learning from activist fund management approaches).
Application assessment using Order Theory
- The idea:
Application of Order Theory. - Key point #1:
Binary assessment of applications. - Key point #2:
En masse (hundreds, potentially thousands, of assessors). - Key point #3:
Provides a new level of assessment.
No fund
- The idea:
Don’t create a fund. - Key point #1:
Underwrite other funds. - Key point #2:
Guarantee director loans and intra-charity loans. - Key point #3:
Realise bigger leverage.
Other ideas
- Review the Alternative Commission on Social Investment’s (ACSI) 17 key insights and design with these in mind.
- Build a network of like-minded referral organisations – by geography and by sector.
- Explore a mutual ownership model where, once an investee, you become a limited partner or shareholder.