Investment funds are increasingly seen as a policy tool for the public sector to consider a range of investment opportunities that address strategic objectives, whilst bringing real benefit to people in the local area. Through our recent work helping a number of local authorities to establish local investment funds, including supporting Camden Council to establish their own Community Wealth Fund, we’ve been able to highlight some of the most impactful practices that can serve as a blueprint for public sector organisations seeking to establish their own funds.

Due to the constantly changing economic climate, and a wider backdrop of uncertainty for businesses, the public sector has recognised it increasingly needs to take an interventionalist approach to help overcome market failures and barriers to accessing finance that are holding back economic growth.

Why an Investment Fund?

An investment fund can provide equity, repayable finance, grants and also non-financial support to projects, businesses and organisations depending on need.  It can offer a new and powerful tool to address market failures, intervene and market shape, as well as unlock regeneration and growth opportunities.

We’ve been exploring how investment funds can promote economic growth and positively impact local communities. This has involved market engagement exercises, including engaging with various social impact organisations to identify best practices for successfully establishing and operating an investment fund that aligns with the needs of residents and the community.

Below are our main findings across four key areas: Establishing the fund, community participation, applicants, and the application process.

Establishing the Fund:

1. Simplify the language: Rather than using complicated and traditional finance terminology, it is important to use accessible language when engaging with the community and local businesses. Instead of asking for a “Business Plan,” ask applicants to share their story, their funding needs, and the impact they aim to achieve with the investment.
2. Flexible terms and conditions: As much as possible (and within Subsidy Control regulations), provide flexibility in the terms and conditions of finance, such as offering patient capital with longer repayment terms and interest free loans. Involving the applicant in co-designing these terms and conditions will not only empower them but also ensure alignment with their needs.
3. Support evolving proposals: Adopting an incremental approach allows applicants to join at various stages, opening the door to those that may only have an idea/proposal. With adequate support and guidance, all applicants can develop their proposals.
4. Equity vs. debt: There is a greater interest in equity funding compared to debt, especially among women and people from minority backgrounds. Consider offering equity investments as an alternative to traditional debt financing.
5. Social impact indicators and KPIs: Set out a suite of social impact indicators and key performance indicators (KPIs) and allow applicants to choose from a range of options. This allows them to align their goals with the fund’s objectives.
6. Clear expectations on returns: If the fund follows a seed funding approach, clearly communicate any expectations on returns. Providing transparency on financial expectations helps applicants make informed decisions.
7. Pilot projects: Conduct pilot projects before launching the fund to test market demand and gain insights into the potential change and impact that can be achieved. Pilots allow for adjustments and improvements based on real-world experiences.

Community Participation:

1. Building trust and engagement: Community engagement takes time and should be centred around trust. Building momentum and peer-to-peer support through mentors or community representatives who are entrepreneurs or role models is key. This process will likely be time-consuming and may require some financial resources.
2. Tailored approach to engagement: Customise the approach to engage with the fund based on the specific needs and opportunities of the community including paid roles where possible to enable a wider group of community members to have a meaningful role, whilst ensuring that the process remains accessible and supportive.
3. Decision-making approaches: Remove the peer-to-peer competition aspect by allowing organisations to opt-in or out of the decision-making process at each stage, depending on their readiness. This approach encourages collaboration and reduces unnecessary competition.

Applicants:

1. Clarity on eligibility and process: Provide clear information on eligibility criteria and the process to engage with the fund. Applicants need to understand the requirements to participate meaningfully and effectively.
2. Knowledge and understanding: Some applicants may have limited knowledge and understanding of investment/finance which can restrict their interest and applications. Offer early connections, engagement, and mentorship to provide trusted guidance and help applicants co-design their funding requests.
3. Mentorship opportunities: Offer mentorship programmes, initially provided by experienced individuals or organisations. In the long term, encourage successful businesses and entrepreneurs who have benefited from the fund to mentor new applicants, creating a cycle of support and guidance.
4. Education for young entrepreneurs: Young entrepreneurs may require education and training to enhance their skills, knowledge and understanding of the opportunities that financial support can provide. Providing targeted programs or resources can empower them to thrive in their entrepreneurial endeavours and contribute to the pipeline of opportunities.

Applications & Beyond:

1. Non-financial support: Alongside financial investment, provide non-financial support pre- and post-investment such as networking events, legal/financial advice or other technical expertise, and access to shared resources, such as equipment, and research facilities. This support is crucial to unlocking social impact outcomes and securing a pipeline of investable opportunities.
2. Business support grants: To encourage social impact, consider focusing a portion of the grant offer on the provision of business support such as funding for market research, product development, or hiring additional staff. This can help applicants strengthen their operations, overcome challenges, and maximise their potential.
3. Affordable workspace: The provision of affordable workspace can significantly unlock the potential of funded businesses and remove barriers to growth. Establishing a specific co-working space could foster collaboration and knowledge sharing. This could also become a supportive environment where recipients can connect with like-minded individuals, seek advice, and receive mentorship from more experienced recipients.

By incorporating these findings into the design and implementation of your Investment Fund you can maximise your chances of success and create a positive and sustainable impact on your local economies.

If you are interested in finding out more or exploring what opportunities the establishment of an Investment Fund might bring, please get in contact with Laura Bridges on laura.bridges@31tenconsulting.co.uk