Notes on market size comparison

Comparing market size

In this Impact Report, we have compared our current estimates of market size with a survey that was done before Big Society Capital was launched in 2012. We believed it was important to understand the level of change in social investment reaching charities and social enterprises over the last five years.

As a reminder we are aiming to assess here the size of the social investment market, where both investors and users of are capital are aiming to produce a positive social impact. This was the Segment A in our broader market report. This is the segment where we believe capital can achieve the greatest social impact, given aligned interests, and is where our efforts and capital are targeted.

Since releasing our impact report David Floyd from Social Spider CIC has pointed out to us some errors we made in comparing with 2011/12, especially that the ICF GHK ‘Growing the Social Investment Market’ report did not include community shares and charity bonds. This has caused us to go back and fully review the comparability of the two market estimates.

One of the challenges is the ICF report involved surveying around 100 investors, but was only reported in aggregate and we do not have sight into the underlying transactions. We know the vast majority of investments came from 10 investors. Our 2016 estimate included 60 investors, which we believe captures the most significant parts of social investment today. In 2016 we have sight into most of the underlying transactions (to improve transparency much of this is publically available in our deal-level data). 

We have laid out our review of the investors in the two data sets, and now lay out our adjustments by product area below:

 

Charity bonds

2016 estimate: £55 million

In ICF report for 2011/12: unknown

Comparability: We have reviewed other data from investors involved in Charity Bonds and confirmed there were £3.1 million of issues in 2011/12.  It is possible given some of the organisations in the ICF survey (e.g. Triodos and Esmée Fairbairn) that some of these transactions were in the 2011/12 numbers such as Bristol Together’s bond issue. Nevertheless it is likely the majority were not so to be prudent we have added the full £3.1 million to the £20 million estimate.  

Confidence: We are relatively confident we have now included all charity bonds in both years.

Conclusion: There has been significant growth in the segment of 18x.

 

Community Shares

2016 estimate: £30 million

In ICF report: unlikely

Comparability: Using Community Share Unit data we have estimated deal flow in 2011/12 to be £7.7 million (since data is only available for 2011 and 2012, we have taken 75% of 2011 and 25% of 2012 to compare to the 2011/12 ICF period). We have added this £7.7 million to the market size estimate for 2011/12. 

Confidence: Given the CSU data we are relatively confident in the data here.

Conclusion: Growth has also been significant here of 4x.

 

Equity-like capital

2016 estimate: £6.5 million

In ICF report: £4.7 million

Comparability: There are 8 investors in our numbers. Of the three who were investing in 2011/12 (BGV, Barrow Cadbury, NESTA) all are also included in the ICF report. There are a number of organisations in the ICF report which we have not included in our 2016 estimate that could be making equity investments today. We therefore believe the numbers are at least a fair comparison.

Confidence: This is an area where definitions of a social enterprise are an ongoing debate, and while we believe the definition of a social venture in the ICF report is similar to the one we are using in 2016 both are open to interpretation. There are also a number of investors known to us (for example incubators) that we have not surveyed in 2016 in the interests of time and proportionality. It is also likely there are significant equity impact investments in social ventures that are taking place away from both sets of numbers, either individuals or other institutions. Overall we have low confidence in this number fully reflecting activity in this market.

Conclusion: Growth here is unknown, but has likely been lower than in other areas.

 

Non-bank lending

2016 estimate: £64.9 million

In ICF report: £27.7 million

Comparability: Initially we compared the 2016 estimate to the £10.8 million unsecured number in the 2011/12 report as we know the majority of the 2016 deals to be partially secured or unsecured - and we then removed any 2016 deals we knew to be fully secured. In reality though the distinction around security is not always clear, so we have felt a more conservative comparison would be to use all non-bank lending in the 2011/12 report against all non-bank lending in 2016. All the specifically listed lenders in our 2016 estimate are either in the ICF report or were not investing 2011/12. There are some gaps in the remaining responsible finance lenders but we believe we have captured any who were making significant investments in either 2011/12 or 2016. We have laid out the full comparison of organisations included in the two data sets.

Confidence: This is another area where there is likely to be significant social investment activity away from our surveys, such as from individual supporters or local authorities. Nevertheless from conversations with charities and social enterprises we believe we have captured a high proportion of non-bank lending activity.

Conclusion: We believe growth here has been around 2-3x.

 

Profit with purpose

2016 estimate: £34.8 million

2011/12 estimate: unknown

Comparability: Two of the four managers in our 2016 survey (Mustard Seed and Abundance) were not investing in 2011/12. Triodos and ClearlySo are both in the ICF survey, but we are not sure if their 2011/12 deals in this segment would have been included. We are also aware of some transactions that took place in 2011/12, such as Café Direct and Triodos Renewables. Given this uncertainty , we think it is best to remove the full £34.8 million from the comparison with 2011/12.

Confidence: This is another area where the definition of profit with purpose makes exact market sizing difficult. We have included it in our overall market sizing as we believe it is an important part of the market, but it is likely we have not captured significant areas and are underestimating its size.

Conclusion: Our data is too incomplete here to accurately assess change.

 

SITR

2016 estimate: £3 million

2011/12 estimate: none

Comparability: As Social Investment Tax Relief did not exist in 2011/12 we can be confident on this comparison.

Confidence: Our data is based on surveys, so likely will not capture every transaction.

Conclusion: Growth from a standing start

 

Social Impact Bonds

2016 estimate: £2.3 million

2011/12 estimate: £2.1 million

Comparability: We believe the relevant organisations are in both data sets so these numbers are comparable.

Confidence: While this is an estimate across multiple funders we believe it captures the majority of the deal flow

Conclusion: There has been little growth between these two years, though pipeline has picked up significantly in 2017.

 

Social Property

2016 estimate: £130 million

2011/12 estimate: none

Comparability: This segment has been largely established by these investors such as Resonance and Cheyne and we believe was not available to charities and social enterprises in 2011/12. 

Confidence: We have tried to capture the investments here with significant impact intent, such as Resonance’s Real Lettings Fund for St Mungos, or Cheyne’s Social Property Fund. Other investments are now emerging such as Civitas Social Housing which we have not included as the impact intent is less clear. Again depending on definitions it is possible we are underestimating the growth here.

Conclusion: This is a new area catalysed by social investment which is experiencing significant growth.

 

Post these adjustments we believe the most comparable data points to compare the growth in non-bank capital will be £47 million in 2011/12, and £291 million in 2016, a 6x increase.  We lay this out in the table below.

 

BSC 2016 estimate of deal flow £m

ICF 2011/12 report

BSC 2016 estimate adjusted for comparability

ICF 2011/12 report plus adjustments for comparability

Charity Bonds

55.0

-  

55.0

3.1

Community shares

30.2

-  

30.2

7.7

Equity-like capital

6.5

4.7

6.5

4.7

Non-bank lending

64.9

27.7

64.9

27.7

Profit-with-purpose

34.8

 

-  

 

SITR products

3.0

-  

3.0

-  

Social impact bonds

2.3

2.1

2.3

2.1

Social property

129.5

-  

129.5

-  

Other

 

2.1

 

2.1

Total non-bank capital

326.1

36.6

291.3

47.4

In our impact report we have also compared total market size including social bank lending, so we again need to compare the composition of the two data sets:

Social bank lending

2016 estimate: £304 million

In ICF report: £165 million

Comparability: The lending in both 11/12 and 2016 is almost exclusively from Charity Bank, UTB and Triodos. The question is if our inclusion of profit with purpose lending is comparable to the social venture definition in the 11/12 report. We have attempted to review their 11/12 accounts and believe the orders of magnitude in the ICF report are in fact comparable to their total lending. We therefore think the two data sets are largely comparable.

Confidence: There are some other banks that aim to achieve social impact with their lending, though from conversations with charities and social enterprises we believe our data captures the most significant ethical lender options. A further consideration is the significant mainstream bank lending to charities and social enterprise – which we first highlighted in our social investment market compendium in 2013 (p27) and was further expanded in David Floyd’s 2016 report. We have not included this as we are estimating where both investors and investees are focused on social impact.

Conclusion: Social banks have roughly doubled their lending in the period, and likely increased market share against mainstream banks. 

 

We therefore think the best two numbers to compare overall social investment market growth are:

2011/12: £213 million (ICF report plus community shares and charity bonds)

2016: £595 million (total market estimate minus non-bank profit with purpose)

Or, a total market growth of around 3x.

As we have discussed any market sizing exercise is always an estimate, and it is likely both estimates are understating the amount of social investment that is taking place. We hope though post these adjustments the 2011/12 and 2016 estimates are comparable, and estimates of market growth are conservative. We would be interested to hear any thoughts on the methodology we have used and how it can be improved.

We are also working on a number of fronts to make the current data we are capturing more accessible to others to see how social investment is being used across the country. In addition to our deal-level data, and publishing of impact metrics being collected, in the coming months we will be publishing data visualisations on how our capital is reaching frontline organisations including analysis on the range of revenue models it is supporting.  Looking forward we are working with Access and DataKind to try make our data sets more comparable to others, such as Big Potential and 360 giving.

Do get in touch with us if you would like to be involved in future projects around social investment data.