Social Investments in the Long Tail

 

An example of a power law graph showing popularity ranking. To the right (yellow) is the long tail; to the left (green) are the few that dominate. In this example, the areas of both regions are equal.

Over the last few years VPF has been testing the waters of social investment. Whilst not explicitly one of our grant-making criteria, a high proportion of our charities have tended to demonstrate the ability to generate a return on investment.

The sums we have invested are not large - £450,000 in total in three organizations with two of these investments for only £50,000. Such small investments would not have been possible without the ability to use the pro-bono skills of our financially-literate member community (the cost of legal and financial expertise would have smothered any benefit) and the preparedness of our investment supporters to contemplate losses*.

It started us thinking - could there be numerous investment opportunities available to interested parties that simply do not see the light of day because the costs of execution are too high?

It turns out that the power law graph above is a fair representation of the potential social investment market – a discussion of the ins and outs of what constitutes this market is for another time. It is clear though that there are numerous sources of ‘social investment’ but the only organizations really able to take advantage of those funds tend to be the largest, and most likely the least in need (i.e. large charities and housing associations can and do source funding from traditional private sources). If this is true, then the social investment market will not fulfill its potential until finance is made available to those organizations that cannot afford to tap into the infrastructure currently being erected by the likes of Big Society Capital and others.  

Half of the demand by total is effectively ignored. To solve this, the social sector needs to move away from decision-making algorithms and toward human judgment. Perhaps using the VPF model as a starting point.

*Big Issue Invest, Helios, Danson Foundation, Risman Foundation, GEM