Investor Talk: Big Issue Invest’s Nigel Kershaw

The Big Issue chairman is looking for investment pioneers for his new social enterprise fund

When Muhammad Yunus founded the Grameen Bank in 1983, he institutionalised a new category of lending through microfinance, lending small amounts to the poor in Bangladesh. Lenders were not subjected to credit checks and had no collateral. Some could not even read or write.

There were those who thought he was crazy, but of the 7.8 million people who have since borrowed from the bank, 97.94% have repaid their debts in full. Yunus has helped lift millions of people out of poverty who were previously excluded from mainstream credit, after pioneering an industry on the basis that poor people can, and do, repay loans.

Nigel Kershaw, CEO of Big Issue Invest, the financial arm of The Big Issue that funds social enterprises, is now embarking on a similar mission to that of the microcredit pioneers. Through the launch of a £10m fund for social entrepreneurs, he hopes to create a new category of social investment. The fund offers investors a real, if modest, financial return from social enterprise, although the underlying mission is the same – dismantling poverty.

It is different to other social investment funds, Kershaw says, which are either purely charitable or profit maximising using negative social screens, such as not investing in tobacco or arms, or positive screens like investing in certain postcodes.

“There’s nothing wrong with that, but what we’ve done is taken a pioneering approach, where we’re going to give a financial and social return, and you say it in one breath. It’s not what some people call a blended return. It’s not about dilution. It is a 10-year, fixed-ended fund, which means we’re going to give the money back to our investors, with a modest return, and we’re going to deliver social returns,” he says.

A dual return

Like microcredit before it, Kershaw sees  this as a new asset class, which is neither asking for investment to maximise profit or purely philanthropic. “We’ve named this asset class INVERSE: Investment return in social enterprise,” he says. “We’re not taking the toxic thinking into the market. We’re not taking philanthropic thinking into the sector. We’re combining the two together to create something new.”

Kershaw has enlisted the help of Sarah Forster, who previously worked at the World Bank and played a key role in growing the microfinance industry in post-conflict countries such as Bosnia, to help launch the fund, which he believes has turned a corner in social investment.

“When [microfinance] started, a lot of people said, ‘how can you lend money to the poor?'” Kershaw says. “It is now one of the fastest growing areas in the finance industry. Who would have thought so, 15 years ago? So we took a lot of learning from Sarah, because she was saying let’s look for the pioneers. Let’s look for the people who want to grow an asset class, grow a marketplace, and come with us.”

The fund requires those who are attracted by this unique return on their investment – both social and financial. It’s this same unique duality that has helped drive sales of The Big Issue magazine, founded by John Bird and Gordon Roddick in 1991. Kershaw joined as operations manager in 1995, and is now chairman.

The street paper is a paradigm of social enterprise – business being used to bring about social change. “A lot of people ask us, do people buy The Big Issue because of the editorial or do people buy it out of an act of charity?” Kershaw says. The answer is both.

“At it’s best there is something very new that is indistinguishable, that you have a great read while feeling good because you know that you’ve created social change and transformation. That’s very much like the fund for an investor. If you invest in this, it’s not about an either / or, it’s a financial and social return.”

The target for the first fund is £10m, and he is hoping to launch others off the back of its success. He is aiming to close the first round, at £3m, in the second quarter of this year, while the first dividends are expected to be paid to investors on the fourth anniversary of its launch. He is aiming to give investors a return of between 3-5%.

“The fundraising really seems to be hitting a nerve at the moment,” Kershaw says. Although investments are expected to range from £100,000 to £500,000, grantmaking organisation the Esmee Fairbairn Foundation has kicked things off with £750,000 as a founding investor. Kershaw is now in “advanced negotiations” with a number of institutions for sums at around that level and above.

A number of large organisations have also offered their services to Kershaw and his team on a pro bono basis, including law firm Nabarro, HSBC and business advisory firm PricewaterhouseCoopers, to help structure the fund. Ron Sheldon, MD of global private equity firm Advent International, is chair of the investment committee, and potential investors are eager to be active, through mentoring investee companies or sitting on the board.

The question of scale

One of the fund’s primary objectives is to bridge a gap in the market for social enterprise financing – where businesses often struggle to access sufficient capital for growth. Toby Eccles, development director of Social Finance, which is looking to find new models and opportunities for social investors, says the growth of social enterprises has historically been restricted by the way they are funded, which prevents them from being a real force for change.

“When you look at the way that social organisations are financed, you find that they are typically under-capitalised,” he says. “We ask the question, where’s a social organisation that’s grown from zero to huge in a relatively short space of time? And the answer is there isn’t one.”

According to Kershaw, the fund represents a maturing of the sector, by investing in a number of different ways. Big Issue Invest has been providing loans to social enterprises since 2003, but the loan-based model has taken a hammering from the recent spate of interest rate cuts. The fund will see Big Issue Invest offer equity investments for the first time.

“Big Issue Invest currently provides loans to social enterprises, but these are targeted at those with a track record and the cashflow to repay a loan,” he says. “It cannot provide longer term capital for growth. The investment fund is intended to help address this market gap by providing long-term funding that helps social enterprises achieve greater scale, sustainability and a bigger impact.”

By using a range of investment methods, ranging from loans and cashflow loans, to mezzanine, quasi-equity and pure equity finance, investee companies will have access to finance models that can offer real scale. They are even looking at buying private companies and backing them into social enterprises. “What really is unique about the social enterprise investment fund, is that it’s acting as an embryonic social investment bank,” he says. “The idea is that if you want to invest in social enterprise, you would come to us, because we will invest in a whole range of ways.”

Market experts

One of the reasons Kershaw is confident that the fund will be a success is that it has grown out of a social enterprise itself. This gives it the unique ability to qualify the most appropriate investment methods for beneficiaries. “If you want to scale up and make a real difference, we will say, ‘well this is the best way we can put investment into you’, whether it be loans or equity.”

Big Issue Invest also has a sterling track record of investing in social business. The organisation has provided loans worth £5.5m to 23 social enterprises, including Jamie Oliver’s Fifteen Foundation, since its launch in 2003. They have yet to encounter a single default on repayment. “We haven’t had a single writedown,” says Kershaw. “And that’s because we know our market and we understand it. I think we see things in a different way, because we think like social enterprises, so we can see unique things about how to make investments.”

The team are also using this knowledge to develop an alternative credit scoring index, which is currently in the concept proofing stage. If adopted, Kershaw believes it could help increase access to mainstream credit for up to 1.5 million low-income consumers, helping them to break out of a cycle of poverty that is perpetuated by their exclusion from bank accounts or affordable loans.

The concept is based on the theory that financial organisations and credit rating agencies are not using all the data available to them. The team is looking to devise a way of including rental payment data into a person’s credit score.

The investors

The fund, which will be a pooled resource, is hoping to attract investment from a wide range of sources, including individuals, foundations and private equity funds. It will invest in social businesses that range from the trading arms of charities, to non-profit distributing social enterprises, through to socially driven, for-profit businesses whose social or environmental benefits outweigh any private gains. Due to Big Issue Invest’s social investment expertise, there is already a pipeline of around 70 social enterprises seeking investment through the fund, of which they are seriously considering around 10.

Kershaw sees it as a one-stop shop, not only for social entrepreneurs but for investors too. The fund can take in charitable investment, mission-related investment from foundations and individual and institutional investment. In particular, he is trying to convince charitable organisations of the benefits of investing rather than donating. “What we’re saying is there is a new sector where you do not have to donate at -100% IRR, we’ll give you your money back.

“We’ll make sure that your financial and social objectives are being met by the one investment. I’m not anti-charity and I’m not anti-philanthropy, but it’s not necessarily the way to make social change within the marketplace.”

The fund certainly seems to be striking a resonant chord. “That’s because we’re in a pioneering space,” says Kershaw. “And that’s where the Big Issue ethos has brought us.”

Social business

The Big Issue was launched in 1991 by John Bird and Gordon Roddick. Its strapline – street trade, not street aid – sums up the ethos of a publication that is about empowering homeless people to earn a legitimate income, where every vendor effectively has a business. These days, vendors buy the magazine for 70p, then sell it to the public for £1.50, making a profit. The magazine, which makes most of its revenue through advertising, has an audited circulation of 135,000 copies a week, and is read by 670,000 people. Last year, it contributed £15m to the economy, of which £8m was earned by more than 2,500 homeless and vulnerably housed vendors that sell the magazine.

The Big Issue Invest Social Enterprise Fund: at a glance

– The £10m fund aims to provide growth capital to social enterprises, and financial and social returns to investors – It will provide long-term capital in the form of equity, quasi-equity and debt investments in UK social enterprises – Financiers can invest directly as a limited partner, with a minimum investment of £250,000 or make a charitable contribution through Big Issue Invest’s charity of £25,000 or more – In addition to a social return, the fund is targeting an internal rate of return to investors of 3-5% – Investors will be locked in for 10 years and the first dividends should be payable on the fourth anniversary of its launch – The fund will focus on social enterprises in five sectors: jobs, education and training; health and social care; environmental services; social and financial inclusion and disability. For more information, visit



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