Nesta launches £17.5m investment fund for early stage social innovations

Nesta launches £17.5m investment fund for early stage social innovations

News (UK)

Over £17.5m has been committed in the first round of funding to a new impact investment fund aimed at early stage social innovations, launched by Nesta.

Nesta Impact Investments, which aims to raise £25m in total, brings together Nesta’s experience of early stage venture capital and impact investment to invest in organisations developing innovative solutions to address social challenges facing the UK.  The fund will invest where there is potential for scalable social impact and financial viability. Investments will be evaluated against Nesta’s Standards of Evidence for Impact Investing, launched alongside the fund.

Nesta expects to announce a first investment early in the New Year. The fund will make investments in innovative social ventures that address core social concerns in the areas of the: 

  • Health and wellbeing of an ageing population
  • Educational attainment and employability of children and young people
  • Sustainability of communities.

Joe Ludlow, director of Nesta Investment Management, a wholly-owned subsidiary of Nesta that will manage the fund, told Philanthropy UK: "Nesta Impact Investments will be investing in higher-risk early stage innovations where it can be hard to access finance. Some people talk about a gap in investment readiness. Others about early stage investment. Perhaps they are not exactly the same thing but they are very linked. It's all about younger organisations with less proven models, products or services. They need help to scale up. This is the starting point for this fund." 

The fund will invest a minimum of £150,000 in 18 to 25 organisations (which could be charities, social enterprises or for-profit businesses with a clear social mission). They will aim to work with investees for four to seven years and want to focus on those who will be able to build the capacity to take in the region of £1.5m in total.

Ludlow added: “If we just made £150k investments, we would rapidly be dealing with a large portfolio. That's unmanageable because it isn't just money that early stage investees need. They need access to our networks and expertise too." 

Alongside Nesta, the current investors in Nesta Impact Investments are Big Society Capital and Omidyar Network.

“Nesta Impact Investments promises to catalyse a crucial, emerging sector,”said Matt Bannick, managing partner of Omidyar Network.  “We believe the focus on tech-enabled, early-stage platforms is part of a winning strategy that will help prime the pump with innovative and scalable solutions to some of society’s most pressing challenges.” 

Nick O’Donohoe, CEO of Big Society Capital said: “There is clearly a gap in the market for early stage investment in social ventures and Nesta is extremely well placed to address this. Also, the work Nesta has done on evidencing outcomes establishes a high standard for others to follow. We are very excited to be able to support this ground breaking initiative.”

Nick Hurd, Minister for Civil Society, said: "Nesta's first Impact Investment Fund is another welcome milestone in the UK's growing social investment market. We are getting increased interest from investors and intermediaries, which is exactly what we wanted to see in response to creation of Big Society Capital.  We are determined to make it easier for charities and social enterprises to access finance so that they can expand their services and develop better solutions to our social problems."

Nesta’s ‘Standards of Evidence for Impact Investing’, available online, aim to help develop tailored evaluation strategies for investees, informing further product or service development and future funding decisions.

A growing range of early stage social investment funds now include:

Big Lottery Fund Next Steps awards between £40,000 and £1m to social investment proposals that need extra funding. The funding is available to organisations acting in the role of commissioner or intermediary as well as frontline organisations who will deliver the interventions to tackle social need.

Social Investment Business Investment & Contract Readiness Fund aims to help social enterprises to expand and attract other investment. It will help them source the right financial, technical and business advice to make themselves ready for expansion. Initially the social enterprises will be given a grant of up to £150,000 to develop a proposal for expansion. Once this is ready, they will be expected to raise around £500,000 of investment.

FSE’s Social Impact Co-Investment Fund aims to enhance the supply of early-stage funding to the social impact sector. In particular, the fund seeks to encourage business angel investors to invest in viable enterprises which operate with a primary social purpose.  It offers debt funding of £25,000 to £100,000, which must be matched funded through private sources.

Big Issue Invest Social Enterprise Fund aims to provide creatively structured, medium-term growth capital to social enterprises that have the potential to have a significant social impact, and provide a financial return target in excess of 5 per cent to investors.

UnLtd Level 1 and Level 2 Millenium Awards provide grants of between £500 and £5,000, for level one, to start-up individual social entrepreneurs and grants of between £10,000 and £20,000 for social entrepreneurs with a turnover of at least £20,000.

  • Social investment
  • UK