Entrepreneurs could gain easier access to a new source of funding once the Social Stock Exchange opens a branch in Scotland, as Peter Ranscombe reports.
Accessing finance can be a challenge for all entrepreneurs. No matter how innovative the idea or how long the entrepreneur’s track record, lenders are sometimes still reluctant to sign a cheque. One business that aims to help plug that gap in funding is the Social Stock Exchange. Launched in London by the-then Prime Minister, David Cameron, in June 2013, when the UK hosted the G8 summit, the exchange has grown from its 11 founding companies to around 40 members, which together have a combined value of £2bn.
Although there’s no single definition, a social enterprise is a business that aims to have a social or environmental impact. These aren’t all ‘knit-your-own-yoghurt’ fringe businesses either – according to UK Government statistics, there are around 70,000 social enterprises in Britain, which contribute a combined £24bn to the economy. They range in legal structures from familiar entities like sole traders and limited companies all the way through to the more exotic-sounding ‘community interest companies’ and ‘charitable incorporated organisations’.
Yet the 2015 State of Social Enterprise Survey found that 73% of social enterprises earn more than three-quarters of their income from trading, as opposed to grant funding or other sources of cash, showing these are clearly businesses and not charities.
About half of the members of the Social Stock Exchange have equity listed on the platform, while the remainder are eyeing flotations. Some members also choose to list bonds on the exchange.
Companies that are listed on the market include renewable power provider Good Energy and property group Places for People. The sole Scottish member to date is Glasgow-based ETHX Energy, which provides power from biomass plants for housing associations and local authorities, and which is considering listing either equity or a corporate bond to raise capital.
Tomás Carruthers, who was chief executive at Interactive Investor International between 2003 and 2013, was appointed as the Social Stock Exchange’s boss two years ago and has overseen an expansion of the business. Last year the exchange began to look at expanding throughout the UK by opening a series of offices, with a pilot launching on Merseyside as the Liverpool & Wirral Social Stock Exchange this June, followed by a branch in the South West of England.
The exchange is now moving into Scotland and has its eye on a base in Glasgow, from where a team of analysts and sales staff will be able to travel throughout Scotland. Sectors that are expected to be interested in the model include the North Sea oil and gas decommissioning industry, where there is a clear environmental as well as financial impetus.
“There’s a rigorous process in place for companies that want to join the exchange,” explains Mike McCudden, Scotland director at the Social Stock Exchange. Only 50% of the companies that apply to join the exchange will be accepted because they’ve got to prove that they have a genuine social or environmental impact.
“We don’t just take what they say at face value – it’s not enough for them to just be a charity or an ethical business. They are vetted by an advisory panel, which is a two-stage process.
“It’s important that we are strict about which companies can join because we run a regulated exchange, which offers a secondary market for investors to buy and sell shares in our members. Becoming a member should be like getting a stamp of approval.”
McCudden is proud the Social Stock Exchange is bringing back a ‘local’ element to stocks and shares in Scotland. “Local impact investors will be able to invest in local businesses again, with the knowledge that they are delivering a social benefit too” he says. “It’s bringing back that old stock exchange model, but with the added benefit that companies will also be able to cast their nets wider because we also have access to the London markets and to institutional investors.”
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