I have been supporting a number of CICs to become investment ready over the past few months. We are finding that investors are:
Happy to invest in CICs regardless of whether they are limited by guarantee or limited by share.
Where the CIC is limited by share, the investors are not necessarily interested in holding ordinary shares, but are considering options such as redeemable preference shares (ie quasi equity investment), as well as loan finance.
The dividend cap is not an issue for investors.
The age of the CIC does not prevent investment, indeed some newly established CICs are successfully negotiating investment - in particular loan finance.
But the critical issue for investors is the exit strategy. How are they going to be bought out? How will they get their initial investment back? When will this happen?
What are other CICs that are seeking investment finding?
I'm finding that there are still a lot of investors that do not touch CICs, and even more so if they are Ltd by guarantee like mine.
I'm falling between two stools here, I think.
My business plan demonstrates that I can make this new venture within my CIC work, and work well, so I've been looking into various options for investment through a mentoring program organised through the RSA, but being a CIC hasn't been much help so far. Most people advise me to look at grant funding to get this off the ground instead.
Problem is, my business struggles to get some of the larger grants out there as, although it's giving graduates paid work in an industry that is rife with exploitation, it doesn't often come out on top when competing with other groups that can demonstate more of a social impact.
Have I just been unlucky so far?
Just to clarify here, and forgive me if this seems like a silly question... is there room for manouver in a CIC Ltd by Guarantee to give away some of its profits to investors in the same way that it would pay back interest on a loan? Can it be justified on the books? After all, we pay our employees and can still be a CIC. Sorry if that sounds really naive of me!
Yes is the short answer to your question Sharon - a Guarantee CIC is able to take out a loan and pay interest on it just like any other company, as long as the interest rate is the open market rate and the rate is broadly not linked to the profitability of the company.
It might help you to think about this using different terminology. The CIC is not giving its profits away to investors, it is paying interest on loans third parties have lent it.
Dont be too downhearted, Merism were never going to invest in you in a month of sundays! Id be interested in knowing if they would invest in you if you were a share CIC?
I look forward to talking in more detail about your individual position when we finally meet up face to face, but just wanted to say basically yes, you can offer standard loans and 'performance related' loans via your CLG. (i'll go through this in detail when we meet)
One piece of advice, always find out how much the investor you are talking with has invested with other CICs/social enterprises. It will show you if they are genuine (unfortunately a lot aren't) and also give you an idea of the type of projects they like.
Mr Rockman recently said that "Social can be used as an excuse" ...for me its a reason.
I came across another indication of what Sharon says above yesterday in a blog post from Stephen Rockman about Merism Capital.
As you may read from my now deceased colleague Terry , who founded P-CED, there is a way social business can collaborate with investment capital, though clearly the returns are not so high as Merism expects.
In the context of the CIC, or indeed our own non-dividend distributing model, I see this happening outside the social business.
Here for example in the outline of a community biomass project, I propose a community asset partnership based on an LLP structure.
Being somewhat ironic, there is another way of course.
It's a form of capitalism that works for all, although like communism, for some it works better than others.
Just follow this example and you can pay whoever you like.
Thanks, Jeff! (I think...!)
I attended the Ogunte meeting with Stephen Rockwell and it was that that prompted me to think about how I should proceed.
Ideas going about my head at the moment is converting to a CIC share model, (not that it would help with Merism) or launching this new venture as a separate entity to my CIC. The latter would be a shame as it would be nice to be a CIC that was, after a year of funding/investment (around £150K), free of external help and sustaining itself on revenue alone.
It's a shame that I can't make the CIC Invest meeting this week at Unltd but I shall be keeping an eye on what comes from that.
Sharon, What I though might be interesting in the context of what you do, is the use which has already been made in the production of a flim - The Art of Flirting
You'll find that Chris Cook in more recent presentations puts a guarantee company in the place of custodian in this kind of asset partnership.
Here he is speaking about the LLP shared investment concept
I'm pretty sure Stephen doesn't touch CICs in any form because of the dividend cap.
Jeff, as far as the "Art of Fliting" goes, are they only issuing shares, not wages? If so, this looks like something I'm actively trying to get away from. I'm trying to give creative people a means of making a living out of what they do, which is very hard to come by when so many jobs are deferred payment or "great for your CV".
Good luck to him, but I'm trying to find a different route. Eventually.
Not shares Sharon, but nths of investment in a productive asset. The investment may be labour (sweat equity) or financial. So he who invests their creative talent is recompensed in either a share of a productive asset or it's equivalent market value.
The CIC was conceived by lawyers, whereas our P-CED model came from social activism for an alternative to capitalism which served people first. It might be worth a look.
This is how we deploy it today 15 years later
Jeff, gonna play the strict moderator here! We want to keep these threads on point and ensure they relate to CIC first and foremost, im sure you'll take that with the goodwill that is intended
By all means start your own threads to discuss P-CED, that way you can link to it it any discussions without impacting on the original thread objective, this one is to discuss,trap,debate CIC experiences of actually seeking investment.
Hope youre well
Ok John I've done that. It's getting to be a major problem for me. There's a conversation going on in the Guardian right now about this subject and my comments are blocked. I tried to introduce what I gave the SE100 index as a social report when it was requested.
The reason my comments are blocked is that they don't like my comments on the sustainable business forum, after I described our work in this area, A symptom of the times.