Stepping Stones Fund

London’s voluntary, community and social enterprise sector organisations play a vital role in delivering services to vulnerable and marginalised groups.

The sector is going through significant change in the way it secures funding, delivers services and in the way performance is measured and paid for. Organisations now need to consider new or extended ways of generating income, how to widen their customer base, the opportunities to collaborate with other organisations and how to ensure they produce identifiable, replicable outcomes which have a true value to society.

Social investment might be an appropriate financing route for some social sector organisations which are able to generate sufficient revenue. However, there are many issues to consider before taking on any form of repayable finance and the capacity of an organisation may need to be enhanced to manage an investment.

Organisations may also need to test out new business models, to create new services and partnerships and, in so doing, develop a deep understanding of the cost bases to any such innovations and the strength of the impact they generate.

• more organisations with improved understanding of social finance as a funding strategy, its benefits and drawbacks;

• more organisations with improved skills in financial management as required to take on repayable finance;

• a greater understanding of the risk components of an organisation’s business and how these could be mitigated;

• more organisations with improved capabilities in strategic, business, marketing and partnership building skills;

• more organisations to test out alternative revenue generating models with a thorough understanding of the cost basis to these;

• more organisations, for whom it is appropriate, securing a social investment package;

• more organisations able to offer and deliver valued social outcomes consistently with a clear understanding of the factors affecting these.

Eligible organisations must be registered in the UK, serving beneficiaries based in the Greater London area, and be structured as one of the following:

• Registered charity

• Registered Community Interest Company limited by guarantee

• Registered Charitable Incorporated Organisation

• Charitable company (see the Stepping Stones FAQs for further information)

• Exempt or excepted charity

• Registered charitable industrial and provident society or charitable Bencom

Applicants will need to meet the following basic eligibility criteria in order to apply to the fund:

• Committed to solving social problems
• Serves beneficiaries of Greater London
• Has an eligible organisational structure: Registered charity; Registered Community Interest Company limited by guarantee; Registered Charitable Incorporated Organisation; Registered Charitable Company; Exempt or excepted charity; or Registered charitable industrial and provident society or charitable BenCom
• Operational for at least one year; able to produce at least one year’s audited or independently examined annual accounts
• Has funding in place for one year of operation
• Has at least one full-time or two part-time staff members
• Is seeking to develop a revenue generating activity with view of taking on social investment in the future

We ask for an introduction to your organisation and why you would like Stepping Stones funding. You will also be asked to provide additional materials to support your proposal. These are:

• A copy of your organisation’s constitution;
• It’s latest audited or examined accounts;
• A business plan for the proposed venture; and
• A copy of minutes from a board meeting where trustees have shown their willingness to consider social investment.

Applicants will be asked to select which strand of Stepping Stones Fund they wish to apply for.

We offer pre-application advice by telephone as well as running information sessions and one-to-ones throughout the year.

We will arrange a time to speak to you and discuss your proposal.

Unsuccessful applicants will be notified in writing and telephone feedback will be available on request.

We will hold open information sessions during the year, so that interested organisations can ask their questions in person.

To register your interest in taking part in a session, please e‑mail funding@citybridgefoundation.org.uk .

Applicants may seek support from intermediaries, advisors, consultants to help them deliver their goals. In this case, we will ask the applicant to justify the use of a particular organisation in their application. The Foundation does not produce a shortlist of approved providers from which to draw on, but is happy to provide a non-exhaustive contact list for applicants to approach. Relevant links are available in our Frequently Asked Questions. The Foundation reserves the right to deem a support organisation not appropriate to provide the support requested and to make alternative suggestions should this be necessary.

Our grants will be made payable to the social sector organisation, never to the agreed support provider. Invoices to this effect will be needed as proof of purchase on completion of the project.

We may support the development of products or services which will have a claim to Intellectual Property Rights (IPR). It is the obligation of the grantee to register this IP in accordance with standard commercial procedures. We will not expect to make any claim on this IP. However, it will seek to share the learning acquired from its support with the widest audience possible, whilst ensuring this does not compromise commercial confidentiality or competitive advantage of the grantee.

The Stepping Stones Fund was created in recognition of the gap between the grant finance available for organisations and the requirements of an organisation that sought to secure social investment through the City Bridge Foundation Social Investment Fund (and other funds).

Stepping Stones seeks to provide targeted support in the form of grants and risk finance to test out the viability of different propositions. In this way, the fund helps to de-risk any future investment, whether it is us, the City of London Corporation, or any other investor considering an investment.

Grants from the Stepping Stones Fund will not be dependent on being a previous or current grantee, nor on being a potential investee of the City Bridge Foundation Social Investment Fund.

The areas for support were selected after extensive consultation with a range of financiers, intermediaries and potential beneficiary organisations with an interest or experience of social investment. Several new social funds have been created in the last two years, largely with finance from Big Society Capital.

In theory, a social sector organisation which is able to present a well-tested, robust, well managed proposal to an appropriate fund manager has a realistic opportunity to secure investment. In practice, there are a variety of barriers to reaching this point and ensuring that this finance is secured.

These include:

• Transaction costs: these are disproportionately high, so the smaller ticket size of investment or lending, especially unsecured and in relatively high risk ventures, is unattractive for investors to engage with; the result is that a range of smaller social investment deals can never get off the starting blocks.

• Imperfect information on the investment risk: the investor or lender often has difficulty in pricing investments or loans under £50,000 to account for the relatively high risk and high default rate at this end of the finance market, but at a price which organisations at an early stage could consider taking on. For charities, this is exacerbated as equity is underused, and standard debt requires constant repayments from the point of taking on the loan.

• The missing value of the social impact created: except in payment by results based contracts, there is usually weak or no price integrated into the investment deal to account for the value of the social impact generated. The majority of charities need to develop their capacity to measure and report on the social impact of their programmes.

• Capital is rarely patient enough: most organisations are expected to return finance to investors within a relatively tight time period (within four years usually if invested into by a fund, and around 3–5 years if debt financed). For young organisations in an underdeveloped market, this is punishingly fast for many potential investees.

The Stepping Stones Fund is structured to circumvent or directly tackle these barriers. Monitoring and evaluation of the programme will be in part measured against objectives relating to tackling the above barriers.

Having taken extensive soundings from and within the sector, our understanding of the provision of investment readiness support is that it is highly competitive, England-wide and non-sector specific. There is plenty of scope for further initiatives to support the development of organisations’ capacity to develop sustainable business models, to take on repayable finance and to create impact. There is cross-over between grantees supported by the Stepping Stones Fund and other relevant support programmes as these schemes are complementary to one another.

The Stepping Stones Fund keeps abreast of other initiatives and carries out monitoring and evaluation to ensure that it is reacting to need, not creating it.