Social Businesses are becoming an increasingly important area of the UK economy but need support to grow faster, a new report – produced jointly by the ScaleUp Institute and Barclays – reveals.
The report, entitled Social Scaleups: High growth businesses with impact, identifies access to finance as a more acute challenge for fast-growing social businesses than their peers in the wider economy.
It also celebrates the growth of the sector and the impact being made by social businesses on social, environmental and health challenges. Its findings are based on evidence from a wide range of sources, including the ScaleUp Institute’s annual survey and in-depth interviews of social business leaders as well as insights from experts across industry and academia.
Almost two-thirds (62%) of social scaleups say they do not have the right amount of finance in place and 57% cite access to equity finance as a vital or very important barrier to growth compared to all survey respondents (43%). In addition, 20% say they do not know enough about equity finance and 9% say they do not know where to start seeking such investment.
Access to talent and skills, UK markets and infrastructure are cited as other obstacles to growth.
The report highlights the growing impact of the sector. It reveals that eight out of ten social businesses surveyed expect to achieve more than 20% growth in the next year, with 20% already achieving turnover of over £10m and three in ten having more than 50 employees. Two-thirds have been trading for six years or more and are present across all regions and industries – not just education, arts, health and social work.
Social businesses are also growing at a similar rate as scaleups in the wider economy – 64.8% of social businesses grew by 20% or more annually over three years, versus 65.1% for the whole sample.
The report also includes an analysis of £446m of equity investment in 231 UK social businesses. This dataset, built from the portfolios of impact investing intermediaries, shows that total investment raised and deal size has been growing since 2015, and that 28 businesses have successfully scaled by raising over £3m in equity investment.
Irene Graham, Chief Executive Officer of the ScaleUp Institute said: “The social business sector is still developing but it represents an increasingly important sector of the UK economy and many of these businesses are scaling fast. These social scaleups are delivering innovative solutions and have similar growth challenges to their peers but face more acute barriers when seeking finance.”
“While UK social businesses have attracted £446 million of equity investment since 2015, highlighting more impact investment is occurring, more still needs to be done. It is both a challenge and an opportunity for the financial community, including the traditional players, to think harder about how to reach out more effectively to social scaleups and to enable greater levels of investment. This includes the finance institutions making sure the leaders of social scaleups are aware of all the options available.”
Damian Payiatakis, Head of Impact Investing, Barclays highlighted the role that social businesses play in tackling social problems, improving people’s life chances, and responding to the climate emergency.
He said: “These findings challenge the assumptions held by some which claim that social businesses have limited potential for growth; or that they are automatically less commercial [QSA:IB5] than businesses without an explicit social or environmental mission.
“This presents exciting opportunities for investors to support early-stage, high growth impact companies. We have already seen a growing interest among clients to invest in businesses that create a positive change in addition to financial returns.”