Guest blog: Designing targeted social investment ─ themes arising from the Growth Fund evaluation

27 January 2022

The Growth Fund Team at The National Lottery Community Fund (NLCF) considers the themes arising from the second Growth Fund evaluation update report, and what impact repayable finance is having on the wider social investment market.


The Growth Fund is facilitated by an innovative partnership between The National Lottery Community Fund and Big Society Capital, delivered by Access—The Foundation for Social Investment (collectively known as the Programme Partnership). It aims to address gaps in the social investment market and support voluntary, community and social enterprise (VCSE) organisations across England to grow and create social impact in their communities.

It was launched in 2015 with the aim of addressing specific gaps in the social investment market in England—to deliver unsecured loans and grants of up to £150,000. In particular, the Growth Fund was established to increase the availability of small, high-risk, unsecured loans to VCSE sector organisations to build their resilience. We asked Ecorys and ATQ Consultants to undertake an evaluation of the fund. Here, the Growth Fund Team at The National Lottery Community Fund considers the themes arising from the second Growth Fund evaluation update report , and what impact repayable finance is having on the wider social investment market.

The Growth Fund set out as a test and learn programme, and whilst it is hitting a sweet spot in the middle of the wider social investment market, it isn’t entirely where our intended targets were.  We know drivers to supply social investment opportunities remain strong and demand for social investment does exist, but the intelligence is immature. We need to understand the full picture regarding the demand by VCSEs, in order to better draw conclusions about its impact and benefit in the longer term for them and the social investment sector. 

The evaluation reveals that, pre-pandemic, the Growth Fund produced the largest growth area of social investment, accounting for a third of deals in 2019. Though we are finding that more medium sized charities (with prior use of debt) are accessing finance through it, both the average size of investment and the size of VCSEs receiving the investment are smaller than the wider market. There are also indications that:

•There is a tendency by some of those involved to over-estimate immediate demand for social investment by VCSEs.  Whilst this is the case, we’ve also seen anecdotally that the structure of the Growth Fund may also have influenced demand verses drawdown

•Demand for some sector-specific or more niche funds was also lower than originally anticipated

•The high-quality support from lenders to VCSEs (especially when their investment readiness has been problematic) plays an important part in the overall picture of success

Indeed, one of the Growth Fund’s biggest challenges is supporting new and specialist social investors to operate financially viable investment funds. It will be exciting to see if our work influences and encourages wholesale investors, other than Big Society Capital, such as donors, foundations, and trusts, to enter the investment market as a provider of capital on a significant scale.

A key issue that any such investors must come to terms with however, is that the financial support is a contribution to—not the sole cause of—the wider impact of an investee’s business.  Whilst demand-side intelligence also needs to be developed, research over the years confirms that investment products are mainly needed for covering cash-flow shortfalls and supporting business infrastructure or revenue generation activity.  

Unlike grant funding, the relationship between the social impact activity and the investment is not direct. The purpose of the finance is to build business resilience and revenue opportunity. So, while social investment may not be seen as directly funding service delivery resulting in tangible social impact, it can be used by organisations on the basis that they will be in a stronger position to deliver impact.  

Investors will need to consider where and how assurances of these broader social impacts will come from given that any resilience-building initiative for VCSEs is dependent on a range of external factors, for which it can be difficult to build a counterfactual.

The measurement of impact has been identified as something of a “tension” within the evaluation. However, it's encouraging to see that VCSEs who have benefitted from Growth Fund investment so far, believe that it was an effective route—and sometimes, the only one available—towards increasing their financial resilience.  What is less clear from the evidence we have is whether this resilience is due to the blended offer that includes a direct grant to a VCSE organisation—as some cited the grant element as a nice ‘bonus’ rather than a necessity—or from other things within the market.

The successes of the programme are discussed further in the Growth Fund update report 2 and having made over 600 deals and providing over £40m of investments, it’s fair to say there is demand for this type of finance.  It’s also clear that by taking on board the learning from this evaluation, the sector could design a range of products to meet the needs of all VCSEs, and to continue to fully embed the benefits of blended finance in the wider sector.


Growth Fund Team, NLCF