The Urgent Need for Inclusive Social Investment

The impact of Covid-19 and the recent cost of living crisis in the UK has exacerbated inequality for marginalised communities. Social Purpose Organisations (SPOs) represent a bright spark for economic innovation, working to deliver a more equal society.

SPOs led by founders from marginalised communities possess the knowledge, networks, and lived experience to tailor their products and services to community needs. Consequently, they generate economic inclusion, job growth, and market innovation—essential components for addressing inequality.

Combining mission, capability, and impact offers investors a compelling, undervalued investment case. Yet investment consistently fails to reach the organisations best placed to tackle societal problems.

A Social Investment Sector That Mirrors Structural Inequality

The data, whilst imperfect, presents a clear picture. Founders leading diverse organisations receive far less social investment than their less-diverse peers.

The Scale of Investment Inequality

UK social enterprise sector: Black and ethnic minority-led social enterprises apply for and receive finance at a quarter of the rate of the wider sector.

Early-stage venture sector: The situation proves more challenging in the UK’s larger early-stage venture sector, where women launch businesses with 53% less capital on average than men, whilst ethnic minority teams receive just 1.58% of UK venture funding.

Disabled founders: Studies highlight the many challenges disabled people experience accessing business finance. Emerging research suggests disabled people’s organisations experience similar barriers when accessing social investment.

Research-Based Evidence: Four Critical Barriers

To support establishing the Growth Impact Fund, Shift conducted complementary research building on existing findings. Four key themes emerged regarding the social investment sector:

1. Biased Decision-Making Through Lack of Representation

The representation within the UK social investment market leads to biased decision-making. Research participants perceived social investment as being for younger, well-educated white men. Investors themselves were predominantly white, male, and well-educated.

Impact on founders:

• Experiences of needing to ‘fit in’ during investment processes
• Bias and discrimination throughout the investment journey
• Education, identity, network, or lived experience considered disadvantages or investment risks
• Lack of relatable examples from other founders’ investment journeys
• Absence of transparency in assessment questions and criteria
• Limited access to representative investment teams

2. Inaccessible Investment Processes

The language used in and knowledge required to understand social investment creates unnecessary access barriers, preventing those without commercial or financial backgrounds from starting applications or learning about funding options.

Process barriers include:

• Jargon-heavy communications excluding non-financial professionals
• Discriminatory eligibility criteria favouring established organisations
• Requirements for specific documentation, accounts, or full-time staffing that exclude earlier-stage organisations
• Isolated, individual learning journeys about social investment
• Insufficient or unavailable pre-investment support programmes

3. Inappropriate Investment Products

Investees typically learn about social investment through existing products, predominantly loan financing. Participants shared concerns about debt, often due to personal or familial negative experiences, worries about constant repayment pressure, or negative cultural associations with debt.

Product limitations include:

• Limited understanding of alternatives to debt financing
• Unreasonable growth trajectory expectations matching early-stage venture capital
• Earlier-stage, diverse-led organisations feeling ineligible for available products
• Inability to identify investment products suited to their preferences and growth stage

4. Lack of Trust with Investors

Throughout investment processes, respondents stressed the importance of building long-term, human relationships with investors. Participants felt social investors didn’t always understand their markets or impact delivery methods.

Trust barriers include:

• Use of proxy indicators often irrelevant to circumstances or market opportunities
• Lack of transparency in decision-making processes
• Uncertainty about investment criteria and selection rationale
• Limited openness to capacity support due to weak relationships
• Difficulty asking questions or sharing challenges about investment applications or management

The Confidence Gap: Systemic Messaging

Research highlighted how systemic inequality affects founder confidence:

“Women, or people from ethnic minorities, and disabled people have had a strong message throughout their lives they are lacking. And that’s through a lack of role models. We don’t have the confidence of a privileged white man, and that can be a real stumbling block for investment.”

Acknowledging Systemic Problems in Social Investment

Our research illuminated inequality within social investment itself. We acknowledge our systems, people, and processes remain products of—not antidotes to—structural inequality. These findings reinforce conclusions from the Adebowale Commission and wider sector research.

The scale of addressing this funding gap exceeds our initial expectations. No single fund working in the sector can address this problem alone. All stakeholders must adopt different approaches to better meet the funding needs of diverse founders tackling inequality in the UK.

The Investment Case for Underrepresented Founders

Despite systemic barriers, compelling evidence supports investing in underrepresented founders:

Economic Innovation and Market Understanding

Diverse founders bring unique insights into underserved markets, creating innovative solutions that address genuine community needs whilst generating sustainable returns.

Proven Impact Delivery

SPOs led by founders from marginalised communities demonstrate strong track records in delivering social impact, combining lived experience with professional expertise to create effective interventions.

Untapped Market Potential

The systematic exclusion of diverse founders represents significant untapped market potential, offering investors access to innovative solutions and underexplored market opportunities.

Risk Mitigation Through Diversity

Diverse investment portfolios typically demonstrate lower risk profiles through reduced correlation and exposure to varied market segments and approaches.

Addressing Investment Barriers: A Systemic Approach

Overcoming barriers identified in our research requires comprehensive, systemic changes across social investment:

Representation and Decision-Making Reform

Diverse investment teams: Recruiting investment professionals who reflect the diversity of founders seeking investment.

Bias training and mitigation: Implementing systematic approaches to identify and address unconscious bias in investment processes.

Transparent criteria: Clearly communicating assessment criteria and decision-making processes to reduce uncertainty and improve accessibility.

Process Accessibility Improvements

Plain English communications: Eliminating jargon and unnecessary complexity from investment materials and processes.

Flexible eligibility criteria: Adapting requirements to accommodate earlier-stage organisations and different operational models.

Comprehensive pre-investment support: Providing accessible guidance and support throughout the investment journey.

Product Innovation and Flexibility

Diverse financial instruments: Developing alternatives to traditional debt and equity that better suit diverse founder preferences and organisational stages.

Patient capital approaches: Creating investment structures that accommodate the development timelines required for sustainable social impact.

Culturally appropriate products: Designing financial products that align with diverse cultural approaches to finance and business development.

Trust Building and Relationship Development

Long-term partnership approaches: Prioritising relationship building over transactional interactions.

Market expertise development: Ensuring investors understand the markets and communities served by diverse founders.

Transparent communication: Maintaining open, honest communication about expectations, processes, and decision-making.

The Growth Impact Fund Response

The Growth Impact Fund was established specifically to address these identified barriers through:

Dedicated focus: Concentrating exclusively on supporting underrepresented founders rather than treating diversity as a secondary consideration.

Evidence-based design: Using research findings to inform fund structure, processes, and product offerings.

Partnership approach: Collaborating with organisations that already maintain trusted relationships with diverse communities.

Continuous learning: Implementing systematic learning and improvement processes to ensure ongoing responsiveness to founder needs.

Blended finance model: Combining different capital sources to enable patient, flexible investment approaches.

Sector-Wide Transformation Requirements

Addressing investment inequality requires industry-wide commitment to change:

Policy and Regulatory Reform

Working with government and regulatory bodies to address structural barriers within investment frameworks and eligibility criteria.

Industry Standards Development

Establishing sector standards for inclusive investment practices, including diversity reporting, bias mitigation, and accessibility requirements.

Collaborative Learning Networks

Building networks of investors committed to sharing learning, challenges, and innovations in inclusive investment approaches.

Evidence Building and Research

Supporting ongoing research into effective approaches for inclusive investment, measuring both financial and social returns.

Call for Collaboration and Learning

The Growth Impact Fund team commits to learning more about different ways investment can help address identified gaps. We seek new ideas, collaborators, and critical friends to help build knowledge and improve working methods.

Areas for collaboration include:

Research partnerships: Joint studies investigating effective approaches to inclusive investment and barrier removal.

Practice development: Collaborating on innovative approaches to investment processes, products, and support mechanisms.

Network building: Connecting diverse founders with investors committed to inclusive practices and supportive relationships.

Policy influence: Working together to influence regulatory and policy changes that support inclusive investment.

Measuring Success and Impact

Success in addressing investment inequality requires comprehensive measurement approaches:

Quantitative Indicators

• Increased investment flows to underrepresented founders
• Improved application and success rates for diverse-led organisations
• Enhanced financial and social returns from inclusive investment approaches

Qualitative Measures

• Improved founder experiences throughout investment journeys
• Increased trust and confidence in social investment among underrepresented communities
• Stronger relationships between investors and diverse founders

Sector Transformation Metrics

• Adoption of inclusive practices across social investment
• Policy and regulatory changes supporting investment accessibility
• Industry-wide improvements in diversity representation and outcomes

The Path Forward: Collective Action for Change

Transforming social investment to genuinely serve underrepresented founders requires sustained, collective action across the entire ecosystem. The Growth Impact Fund represents one response to identified challenges, but systemic change demands broader commitment to inclusive practices.

Key priorities for sector transformation:

Immediate actions: Implementing bias mitigation, improving process accessibility, and developing appropriate investment products.

Medium-term changes: Building diverse investment teams, establishing inclusive industry standards, and creating supportive policy frameworks.

Long-term transformation: Achieving equitable investment flows, eliminating systemic barriers, and creating sustainable inclusive investment ecosystems.

Interested in discussing research collaborations, sharing experiences of inclusive investment, or learning more about addressing barriers for underrepresented founders? Contact the Growth Impact Fund team to explore partnership opportunities and contribute to sector-wide transformation efforts.

Legal Notice: The Growth Impact Fund is managed by Big Issue Invest Fund Management Ltd (BIIFM). BIIFM is authorised and regulated by the Financial Conduct Authority (FRN: 610618) as a small authorised UK AIFM in accordance with article 3(2) of the AIFMD to manage unregulated AIFs. The fund is addressed to professional investors only. Past performance cannot be relied upon as a guide to future performance. Investor capital is at risk. Any target is not a predictor, projection or guarantee of future performance.