£3m investment in HCT heralds new approach to financing social enterprise
‘Social Loan’ will provide social enterprises with a flexible financing tool while linking investors’ returns to growth in turnover and social impact
HCT Group, one of the UK’s best-known social enterprises, is delighted to announce that it has raised £3m to fund the growth of its community transport businesses. It has achieved this through creating a new and innovative financing structure that provides HCT with flexibility while linking investors’ returns to HCT’s growth in turnover and social impact.
HCT Group and Bridges Ventures have designed a groundbreaking financial instrument for the sector called the “Social Loan”. The deal has been led by Bridges Ventures, with support from the Futurebuilders Fund, which the Social Investment Business manages on behalf of the Office of the Third Sector (OTS). HCT Group has been advised by Catalyst Fund Management and Research who have been working with HCT to broaden access to finance.
Previously, social enterprises such as HCT Group were restricted to traditional forms of borrowing when they wished to raise capital. This put them at a competitive disadvantage to their private sector counterparts (in HCT Group’s case organisations such as Stagecoach and First Group). This is because they were unable to offer potential investors the opportunity to share business risk and obtain potentially greater financial returns. The Social Loan allows returns to investors to increase (or decrease) in line with the organisation’s turnover.
“This won’t be the biggest deal done in corporate finance today, but it may well be amongst the most far reaching in its consequences”, said Dai Powell, Chief Executive of HCT Group. “This gives ‘proof of concept’ that social enterprises can now compete on a more level playing field in the capital markets. With innovative structures like the Social Loan, we can break down the barriers between investors seeking value and investors seeking values.”
In the benchmark deal announced today, HCT Group has raised £3m out of a total £5m fundraising, aimed at meeting HCT’s capital requirements for the next three to five years. The total fundraising is expected to comprise £2m in Social Loan and £3m in a traditional fixed rate loan.
Bridges Ventures, lead investor on the Social Loan, has invested £1m in the Social Loan and has committed to invest a further £0.5m. The Futurebuilders Fund, which the Social Investment Business manages on behalf of the OTS, has invested £1m in the fixed rate loan and £0.5m in the Social Loan. Rathbone Greenbank Investments, the Bristol based fund manager, is expected to invest in the second round.
HCT has an enviable track record of growth over the past five years. HCT Group and Bridges Ventures are confident that the second tranche of investment will also prove to be a success, with a variety of investors expressing an interest.
Rodney Schwartz of Catalyst Fund Management and Research, who has acted as advisor on the deal to HCT Group, said,
“This is a benchmark transaction. Social minded investors have proved keen to offer their support to a company of HCT’s quality and track record, as evidenced by the range of investors who are participating.”
Antony Ross, Executive Director at Bridges Ventures, commented,
“The Bridges Social Entrepreneurs Fund is pleased to announce its investment in HCT, the fund’s second investment. HCT is an exemplary social enterprise that has demonstrated a sustainable and scalable model, and we are delighted to support the next stage in HCT’s growth. Furthermore, we believe the innovation of the Social Loan could truly unlock the potential of social enterprise.”
David Brinsford, Head of Investments for the Social Investment Business, said,
“This is an excellent example of the Futurebuilders Fund providing backing for a social enterprise that wouldn’t otherwise be able to get investment. The Social Investment Business manages the Futurebuilders Fund, providing finance for innovative community schemes such as this, to develop their capacity to compete on a commercial basis.”
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Direct line 020 7281 5948
Notes to Editors
HCT Group is one of the country’s leading and most successful social enterprises. HCT has grown into an organisation with a current turnover in the region of £20m, has around 500 employees and operates from eight sites across London and Yorkshire. The HCT Group of companies applies knowledge gained through the operation of numerous community transport initiatives to a build a strong track record in mainstream bus transport, school transport, social services transport, SEN/home-to-school transport, and training and education for transport. Many of these services focus on the company’s mission to make public transport available to all.
HCT Group has been supporting people who want to work in the bus industry for five years. It has two learning centres that are located in Leeds and in Hackney, East London. More information about HCT can be found at HCT’s website (www.hctgroup.org).
Some of HCT Group’s community transport initiatives, funded by surplus profits from the company’s commercial activities, include:
• The innovative YourCar scheme, which operates in Leeds and London. This provides individuals who have mobility problems with a low-cost, accessible alternative to minicabs and taxis. • PlusBus, a local fixed route bus service for those who have difficulty accessing mainstream transport in London. • The activities of Leeds Alternative Travel. In simple terms, over the last six months, we have reinvested enough surpluses to provide nearly 17,000 passenger trips for elderly and disabled people in Leeds. The surpluses are generated by the operation of our commercial contracts in and around Leeds.
Bridges Ventures is an investment company whose commercial expertise is used to deliver both financial returns and social and environmental benefits. Bridges Ventures’ key backers include Sir Ronald Cohen, co-founder and former chairman of Apax Partners, 3i and Doughty Hanson.
Three funds have been raised to date: Venture Funds I & II and the Bridges Social Entrepreneurs Fund.
Launched in August 2009, the Bridges Social Entrepreneurs Fund is an innovative financing solution that is tailored to the needs of ambitious social enterprises. The fund has so far raised £8.5m from The Office of the Third Sector, which is part of the Cabinet Office, NESTA, Sir Ronald Cohen, Nigel Doughty, Harvey McGrath, Apax Foundation, The Generation Foundation, Lehman Foundation, Deutsche Bank and the Esmée Fairbairn Foundation. The Bridges Ventures team have also allocated funds from their profit share.
The fund invests in the form of equity-like capital, which shares in the risks but also the returns of social enterprises. Investments are coupled with hands-on advice and support to help the social enterprises realise their potential.
For more information please go to www.bridgesventures.com.
Social Investment Business
The Social Investment Business is the UK’s fastest growing social investor, managing government funds on behalf of The Office of the Third Sector (Futurebuilders) the Department of Health (Social Enterprise Investment Fund) and the Department of Communities and Local Government (Communitybuilders). The Social Investment Business closed the Futurebuilders Fund to new applicants in January after allocating its’ funds. This followed huge demand from the third sector for social finance.
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