Scottish Government

CHAPTER FOUR WHAT WAS THE FUNDING USED FOR?

Introduction

4.1 This section examines the funding allocated through Futurebuilders, the activities that have been supported, and the progress that has been made. It examines the range of activity initiated by each of the main funding streams.

Direct Project Investment

The Budget

4.2 The Futurebuilders Programme set out to directly invest £16m of grant funding in those social economy organisations delivering services to the public. This investment was split into two separate Funds:

• the Seedcorn Fund was initially set at £4m to be targeted at small social economy organisations, which was later supplemented by an award of £1.6m through the ESF Global Grants programme; and
• the Investment Fund, totalling £12m which was targeted at medium to large social economy organisations.

4.3 An additional £392,500 was allocated by the then Scottish Executive to a Social Entrepreneurs Fund managed by Scotland UnLtd as part of Futurebuilders.

The Investment

4.4 Overall, the Programme awarded direct investment of £17.9m to 538 separate projects. This was made up of £15.5m from the Futurebuilders budget, which was matched at source with a further £2.4m from the European Social Fund ( ESF), Communities Scotland, and UnLtd.

Table 4.1: Futurebuilders Direct Investment and Match Funding

Source: Social Economy Unit
* Includes match funding at source of £1.6m from ESF Global Grants and additional funding of up to £580,351 from Communities Scotland (£500K of which was committed up to 2005/06)
** Includes match funding of £56,831 from ESF and £187,068 from Scotland UnLtd

Seedcorn ESF Match Funding

4.5 The introduction of ESF Global Grants funding has represented a significant additional resource for the Seedcorn Fund.

4.6 An ESF award of £1.6m was made. This represents 45% of £3,555,560 worth of eligible programme delivery costs (£177,778 in staffing, overhead and evaluation costs) and eligible project costs (£3,377,782).

4.7 The figures presented in Table 4.2 show that the ESF funding is likely to support 129 Seedcorn projects to a value of £1.58m, although the full draw down of ESF expenditure will only become clear on the final completion of all projects. It should be noted that this stream of ESF Objective 3 funding cannot be used to support projects in the Highlands and Islands.

Table 4.2: ESF Match Funding of the Seedcorn Fund

Source: Social Economy Unit

4.8 ESF funding is being used constructively. It has enabled the core Futurebuilders Programme expenditure to go further, and the third round of funding approvals noted in Section 3.9 has led to the extension of some key project activities. The funding has also brought added value through the development support of SCVO staff within the Seedcorn programme.

The Awards

4.9 Futurebuilders made awards tailored for different purposes - from small grants to budding social entrepreneurs to major investments in established organisations. Awards fell comfortably within intended ranges.

Table 4.3: Average Award Size

Source: Social Economy Unit

4.10 Relative to the maximum grant size available, the Investment Fund grants were reasonably modest in scale (only 11 grants exceeded £200K, and the largest was for £400K). This reflected an attempt to spread funding across the sector and to minimise the amount of grant funding required for investment projects to proceed (on average applicants were awarded 40% less than requested).

4.11 By contrast, the Seedcorn Fund was expected to make awards of over £25K only in exceptional circumstances (guidance was clarified for Round Two). In practice, over half of all projects supported (53%) received more than this. This reflected pressure to fund additional full-time staff, within applicant organisations, to progress development ideas.

4.12 By contrast again, the Social Entrepreneurs Fund demonstrated the potential to stimulate social enterprise start-up activity for a very small initial investment; the average award size was just £2,663.

Co-investment and Leverage

4.13 Futurebuilders has been successful in bringing forward project funding packages totalling £71.6m; this included other public and private sector funding commitments to a value of £54.3m.

Table 4.4: Estimated Co-investment and Financial Leverage

Source: Social Economy Unit - TRS Database
* Includes co-financing at source from ESF and Communities Scotland
** Includes funding from reserves, earned income, private trusts, gifts, and donations

4.14 Seedcorn funding was matched by funding from a variety of sources. For every £1 of Seedcorn awards, an additional £1.77 was committed to projects from elsewhere. This is very positive given that there was no explicit requirement for applicants to secure project match funding as the fund was matched at source.

4.15 As expected, Investment Fund awards formed part of a larger funding package; for every £1 awarded through the Fund another £3.90 was committed by way of public or private finance.

4.16 In both the Seedcorn Fund and Investment Fund, the case study research and survey feedback suggest that Futurebuilders proved particularly helpful in unlocking other sources of public funding.

4.17 Investment Fund proposals held out the prospect of generating sufficient income to make loans possible. In all, 45% of the projects included loans. These were secured from high street banks as well as specialist lenders ( e.g. Social Investment Scotland, Charities Bank, Unity Trust Bank, Triodos Bank).

4.18 In a small number of cases co-investment in the form of loans came from Social Investment Scotland ( SIS). However, representatives from both the Social Economy Unit and SIS have confirmed that the SIS Futurebuilders Plus Loan Fund ² might have been more systematically linked to, or packaged with, the Futurebuilders Investment Fund.

Beneficiary Organisations

4.19 The three direct investment Funds made awards to 362 distinct organisations (some organisations received support from more than one fund) and 220 social entrepreneurs. Each of the Funds appears to have reached its intended target audience.

4.20 The Social Entrepreneurs Fund supported people with leadership potential and with entrepreneurial characteristics. Grants were awarded to 220 aspiring social entrepreneurs, including 34 young people. EKOS survey evidence suggests that these were people from diverse backgrounds (just under half were in employment prior to approaching UnLtd and almost one third were active volunteers).

4.21 As intended, the Seedcorn Fund seemed to reach small to medium sized organisations that were ambitious to increase their trading activities. Survey evidence suggests that two-thirds had an annual income of less than £500K, two in five were social enterprises6 ²⁷, and 86% regarded earned income from trading as critical to the future of their organisation.

4.22 The Investment Fund seems to have been successful in reaching larger organisations with an established track record. Application data and survey evidence indicates that, at the time of their application, 60% of assisted organisations had an annual turnover in excess of £500K and 84% had already tendered for public contracts.

4.23 Detailed size criteria and desired applicants' characteristics, however, were not made explicit. The only specific and measureable differentiating characteristic between the Funds was that Seedcorn applicants' were expected to have a turnover of less that £1m; this was not always adhered to in the selection of projects. Therefore the assessment of success in reaching the target audience is made difficult.

4.24 In many cases organisations secured more than one award, and in four cases organisations received grant funding from the three main Funds (Seedcorn, Investment, and Learning). These highlighted the potential to package support around the development needs of individual organisations.

Development Activities

4.25 Futurebuilders Funds have been used to stimulate development activity of varying scales and types.

4.26 The Social Entrepreneurs Fund used its resources to help develop an array of social enterprise start-up ideas. Small amounts of revenue funding were used to help meet the set-up and early running costs of these new ventures.

4.27 The Seedcorn Fund set out to build the capacity and trading potential of smaller social economy organisations. As expected, it provided mainly revenue support to establish or expand services.

4.28 By contrast, the Investment Fund focused on building up an asset base in the sector. It exceeded its target of committing more than 70% of resources as capital funding. The final estimated split was in fact 83% capital funding. It invested substantially in the purchase of assets (including land, vehicles, buildings, and equipment) with the potential to open up new financing options or funding streams.

Project Progress and Expenditure

4.29 Although not all projects have progressed smoothly or as anticipated, most are now drawing to a successful close.

4.30 The small-scale activities initiated by the Social Entrepreneurs Fund proved straightforward to implement. By contrast, some early difficulties and delays were experienced by Seedcorn and Investment Fund projects - in recruiting staff, setting up services, or progressing physical projects.

4.31 The challenges facing Investment Fund projects have been more pronounced. The Interim and Final Surveys have shown that over half of organisations have experienced difficulties in delivering large and complex capital investment projects. It is arguable that early and ongoing technical support may have been helpful in addressing these challenges.

4.32 Where capital funding was awarded (through the Investment or Seedcorn Fund), this investment in physical assets has largely occurred. In a small numbers of cases, due to lengthy development timetables, the doors are not yet open on new buildings/facilities or equipment is only now coming into use. For most, the challenge is now to make full use of these assets.

4.33 Not all agreed activity has been completed or funding claimed; this reflects the long lead in time for some projects and some subsequent delays. By August 2007, 91% of the funding awarded across the three Funds has been drawn down by assisted organisations. Some 110 projects are ongoing, although the majority of projects have not faced delays, and only a small decomitment of funds expected.

Table 4.5: Funding Claimed Across the Three Funds (August 2007)

Source: Social Economy Unit
* Includes three projects that were withdrawn, one that was terminated, one that is yet to proceed, and 12 that are likely to meet spending commitments fully
** Includes only four projects that have been extended due to unforeseen delays, with others having received a subsequent ESF funding allocation and will run up to December 2007

The Performance of ESF-assisted Seedcorn Projects

4.34 While many of the ESF-assisted Seedcorn projects are ongoing, all projects will have completed by December 2007.

4.35 At the point of the most recent ESF Claim (June 2007), one third of eligible ESF costs had been incurred, with £533,873 of ESF funding drawn down (45% of the £1,186,382 incurred). Based on the forecast project expenditure to December 2007, the Social Economy Unit anticipates that almost the full ESF award will be drawn down.

Table 4.6: ESF Eligible Costs Incurred to 30 June 2007

Source: Social Economy Unit, ESF Claim 5

4.36 The figures presented in Table 4.7 show that, based on the performance of the first 50 completed projects it is unlikely that the ESF Global Grants element of the Seedcorn Fund to achieve anticipated outputs/results.

Table 4.7: Reported ESF Performance to 30 June 2007

Source: Social Economy Unit, ESF Claim 5
* Figure relates to projects completed to date and eligible to draw down ESF match funding
** This target will not be reported against until the final ESF claim is made.

4.37 The actual number of ESF assisted projects assisted to December 2007 is likely to total 129 (79% of the number forecast), of which 50 have been completed to date. However, the target for the number of assisted projects was arrived at using an average grant figure of £20,000; in reality the average Seedcorn grant awarded to ESF eligible projects was £26,000. This means that although fewer organisations received funding, those that did received larger grants.

4.38 The balance between ESF eligible and non-eligible projects was also different to the original prediction, with a greater level of non-eligible applications being received than was originally anticipated. The open application process meant that identification of ESF eligibility was undertaken after project approval stage.

4.39 With the benefit of hindsight, the achievability of the key targets established for the ESF element of the Seedcorn programme could be questioned:

• the job-related target appears high - it equates to an average of almost four jobs created/safeguarded for each project, which received relatively modest amounts of ESF capacity building support; and
• the target for tenders secured was overly ambitious (as identified by Communities Scotland in its response to the Objective 3 funding award), given that the Fund was designed to support smaller organisations that might not be a position to tender for contracts for some time, if at all.

Learning Fund Activity

The Budget

4.40 The £1m allocated to the Learning Fund has been used in three ways:

• the Social Enterprise Academy was set up to provide tailored learning provision for the social economy sector;
• Learning Fund grants, of up to £2,000 per learner, were to be allocated on a competitive basis to social economy organisations; and
• a pilot initiative was established to provide capacity-building support to ethnic minority-led groups.

4.41 Each of these separate elements is discussed below.

The Social Enterprise Academy

4.42 The Social Enterprise Academy was set up to develop entrepreneurial talent and leadership in the social economy. Investment from Futurebuilders was intended to establish the Academy as a self-sustaining social enterprise within three years, and as a new source of quality learning for the sector.

4.43 The Academy has been supported in two main ways by the Learning Fund:

• directly: the Academy was awarded £273,963 to support set-up and operating costs up to 31st March 2007; and
• indirectly: the Academy received £161,704 in fee income from Learning Fund bursaries to 102 students (discussed later).

4.44 This investment has been the catalyst for expanded learning provision. The scale of provision by the Academy has doubled year on year over the course of three years. During that time it has delivered 46 separate programmes and supported 575 learners (see Table 4.8).

Table 4.8: Learning Provision through the Social Enterprise Academy

Source: Social Enterprise Academy

4.45 It has also resulted in an increasingly refined offering to learners. Training has become modularised and accredited by the Institute of Leadership and Management ( ILM). Bespoke action learning programmes are also available.

4.46 All evidence points to a high quality experience for learners:

• an independent review of progress during its first two years pointed to the development of an effective learning environment ²⁸; and
• the feedback to the final EKOS survey of Learning Fund beneficiaries has indicated that the training was relevant, flexible, well delivered, and achieving learning objectives.

4.47 It seems that the Futurebuilders investment has helped to build a robust organisation. The Academy now operates with five full-time staff and 20 Associate Tutors. The visits, interviews, and documentation review carried out by EKOS has indicated a highly capable and well-managed organisation.

4.48 The extent to which it represents a self-sustaining social enterprise is, however, debatable. During 2007/08 the Academy is likely to derive just under onethird of its total income by way of fees from learners. The remainder will depend on continuing contracts from the Scottish Government and other sources.

4.49 The ongoing and overriding challenge for the Academy is to convert interest in learning into income from learning. Its experience is that the learning culture in the social economy is not well developed and that organisations remain largely unwilling or unable to pay the market price for learning. This suggests the need for ongoing public sector intervention.

Learning Fund Grants

4.50 Learning Fund grants have largely been allocated in line with initial expectations and the budget available to the Fund. A total of 141 awards were made, to a value of £720,239.

4.51 The Fund awarded grants of up to £2,000 per learner. While this criterion was met, the average grant awarded per organisation was actually £5,108, as 60% of organisations secured multiple or packaged awards to deliver learning to more than one staff member.

4.52 Each successful applicant contributed at least 10% of the cost of the agreed learning. The Interim Survey indicates that organisations were unable to pay the full costs of the learning because they had insufficient resources to do so, or the restrictions imposed by other funders did not allow them to do so.

4.53 Grant awards were made to 121 organisations of varying shapes and sizes, all of which had to be formally constituted groups. This stipulation had the adverse consequence of debarring interested social entrepreneurs from accessing support during the initial set-up phase of their organisations.

4.54 The grants supported an array of learning activity which, as intended, focused primarily on leadership, business, and management skills. Encouragingly, the EKOS Interim Survey indicated that 92% of grants were being used for learning designed to meet business goals.

4.55 The Social Enterprise Academy has been the main provider of learning (30% of all Learning Fund awards went to its students). This occurred for two reasons: the guidance to applicants from the former Communities Scotland explicitly encouraged the take-up of learning from this source; and the Academy itself was active in helping students to secure Learning Fund bursaries.

4.56 A number of other providers were also called upon to meet training needs. This has included further and higher education institutions, private sector providers, and other social economy organisations. This reflects the breadth of organisations active in providing learning to the social economy.

4.57 The results of the Interim and Final EKOS surveys show that the learning activities have been delivered mainly in a group setting, but in a tailored way, and using flexible and supportive methods. The learning was widely regarded by beneficiaries as relevant, well delivered and a good use of time.

4.58 By August 2007, most of the agreed learning had progressed as anticipated, had been completed, or was nearing completion. Likewise, the vast majority of grant funding awarded (95%) had been drawn down. A potential underspend of £38,687 is likely, due to the decommitment of seven awards where activity did not progress, and due to 21 projects that have spent less than anticipated.

Capacity Building Support for Ethnic Minority Led Organisations

4.59 The Council for Ethnic Minority Voluntary Organisations ( CEMVO) was awarded £30,690 from the Learning Fund to pilot a Social Enterprise Capacity Building programme.

4.60 This one-year project set out to develop social enterprise skills and capacity among a small number of social economy organisations serving ethnic minority communities.

4.61 Evidence provided by CEMVO indicates that the pilot met or surpassed initial expectations, and has made an important contribution to the work of Futurebuilders. During its first year, the initiative:

• delivered targeted training to 38 people, developing skills crucial to social enterprise ( e.g. marketing, business planning etc);
• provided hands-on support to ten ethnic minority led organisations to enable them to become more self-sustaining through earned income;
• developed the capacity of each assisted organisation and helped to identify 22 potential income-generating activities ( e.g. translation services, catering, transport services, guest house, etc.);
• helped to secure funding of £257,346 towards establishing the identified trading activities; and
• began to build working relationships between assisted organisations and mainstream social enterprise support agencies.

4.62 Overall, this strand of activity reflected positive action to address the equalities dimension to learning in the social economy.

Support Programme Activity

The Budget

4.63 The Support Programme was set up with a budget of £1 million was tasked with strengthening social economy support arrangements, and enhancing the ability of the sector to access new skills and markets.

4.64 The Programme has been the catalyst for an impressive range of activity, which has been developed in consultation with sector intermediaries, and designed to fill gaps in provision or to test out new forms of support.

4.65 A breakdown of expenditure is provided in Table 4.9 and activities are discussed over.

Table 4.9: Support Programme Expenditure

Source: Social Economy Unit
* project was supported jointly by grant funding from the EQUAL in Scotland Programme and the Futurebuilders Support Programme

4.66 By value, the Support Programme has invested mainly in the information and support designed to 'oil the wheels' of the social economy and its support networks. It has invested least in encouraging new forms of finance to the sector and in opening up access to public procurement markets.

4.67 Resources have been used strategically to support emerging actions developed through the EQUAL Social Economy Scotland Development Partnership.

Public Sector Markets

4.68 Actions were taken to address the uneven playing field for the social economy in accessing public service delivery opportunities. These focused on ensuring that those buying public services would become more aware of the existence and added value of the sector, and that the sector would become better informed and equipped to tender for public contracts.

4.69 Early work was commissioned in late 2004 through Futurebuilders to form plans for an open-access database of procurement opportunities for the social economy. While this proved to be a useful consultative process, the proposal was subsequently overtaken by the introduction of a Scottish Public Procurement Portal by the Scottish Procurement Directorate. The contract to provide this is currently being tendered for.

4.70 Over a three-year period, Futurebuilders supported the production and/or dissemination of three National Guides (see box insert below) ²⁹. It should be noted that only one of the Guides was aimed directly at public sector purchasers, and its delayed introduction meant limited impact was possible during the implementation of Futurebuilders.

4.71 A number of common messages have arisen, based on user feedback from the EKOS reviews of the three Guides:

• the Guides have generally been obtained as introductory or general interest materials;
• there is the potential for a more proactive and targeted circulation of the Guides to the intended audience;
• they are viewed as "relevant", "user-friendly", and "informative", with practical aspects and step-by-step guidance usually most appreciated;
• they tend to be used "occasionally" by users and are sufficient to raise awareness and understanding of the issues;
• in many cases they have provided the impetus to take action on procurement and social impact measurement; and
• the impact of the Guides would be significantly enhanced by further detailed guidance and training to translate interest into action.

4.72 A further three-stage action research pilot was instigated during 2005 to test the relevance of Social Return on Investment ( SROI) as a tool for measuring social added value. As part of this, an advisor worked with 12 organisations to devise and implement individualised SROI measurement frameworks. Our consultations with those delivering the project have highlighted: the complexity of impact mapping; the relevance and value of SROI to some; the organisational commitment needed to use SROI; and the sustained training and support input required from specialists.

Funding and Finance

4.73 In part, Futurebuilders was introduced in recognition of the need for more investment in the social economy, and for new ways of providing this. As such, the Support Programme supported two main actions.

4.74 During 2005/06 four Finance and Funding events were commissioned to raise awareness of, and begin dialogue on, the alternatives to grant funding. Organised by CEiS, the feedback collated from the events suggests that delegates found them both helpful and informative, and provided for a good level of learning through in-depth discussion.

4.75 Also in 2005, Futurebuilders supported an EQUAL-sponsored Social Investment Scotland ( SIS) project to explore the market for Investment Capital for Social Ventures³⁰. The research highlighted two main barriers to the take-up of new financial products: the sector's aversion to risk and debt; and the continuing availability of grant funding to meet development needs. It also highlighted a lack of 'investment readiness' of organisations and concerns over the volume of any potential deal-flow for equity-like investments in the sector.

4.76 The potential identified through the research was sufficient, however, to give rise to a small pilot Social Equity Fund to be undertaken by SIS to further test demand and product design. This drew on the Futurebuilders Plus loan fund (to make equity-like investments) and funding from the Support Programme (to support patient capital investments ³¹). The effectiveness of this pilot and the overall work of SIS is currently the subject of an independent evaluation.

Information, Representation and Support

4.77 The Support Programme has funded various initiatives designed to recognise the contribution of the social economy sector, raise its profile, and ensure that it is adequately represented and supported.

4.78 In late 2004, Futurebuilders awarded support to set-up The Exchange, a Senscot initiative designed to broker support to emerging social enterprises. An independent evaluation has highlighted that the key objectives and targets for the Exchange were being achieved and that high levels of service user satisfaction were evident ³². Among the main success factors has been the open, accessible, and supportive approach to brokering support.

4.79 Following its earlier formation, the Support programme awarded funding to the Scottish Social Enterprise Coalition in October 2005. The Coalition was set up to represent, promote, and progress thinking around the social enterprise sector. Evidence provided by the Coalition indicates that, in just a short period of time, it has built a growing awareness of and momentum behind the sector. This success is attributed to the time, space and resources offered through the Support Programme.

4.80 Support Programme resources have also been used flexibly to gather intelligence on the sector, promote awareness and understanding of it, and disseminate learning about it. Collectively, these activities have made a positive contribution to the objectives of Futurebuilders Scotland. For example, it helped to introduce S2S, a high profile trade fair for the social enterprise sector.

Local Co-ordination and Support

4.81 From the outset, Futurebuilders acknowledged the importance of appropriate and accessible support for the social economy. To achieve this, Local Social Economy Partnerships ( LSEPs) were suggested as the key to: improving co-ordination across partners; facilitating local networking; strengthening local support arrangements; and unlocking market opportunities.

4.82 The Support Programme has invested a total of £225,158 to develop the LSEPs, including:

• 24 separate LSEP research, audit, and planning exercises through a Development Fund formed jointly with the EQUAL Partnership; and
• three strategic support initiatives in Fife, Edinburgh, and the Highlands, in collaboration with the former Communities Scotland Area Offices ³³.

4.83 This investment has assisted the development of LSEPs, which now cover each of Scotland's 32 local authority areas. Despite much progress, an internal Communities Scotland review of the LSEPs served to highlight the ongoing variation in focus and maturity of these arrangements ³⁴.

4.84 In some areas the LSEPs have proven increasingly effective. Here LSEPs have established a solid evidence base, formed a meaningful basis for partnership working, have established workable protocols between support providers, and are delivering a focused plan of action.

4.85 As discussed in the following section, however, the independent review of LSEP arrangements conducted by EKOS has revealed some key challenges for further development.

Key Points

4.86 The key points arising from this section are as follows:

• Futurebuilders Scotland has allocated almost £18m of funding to the social economy by way of investment in project activity, learning, and support infrastructure;
• the direct funding for start-up and development projects was invested largely as anticipated, achieving co-investment and leverage from a variety of sources;
• the funding made available to promote learning was used to good effect to introduce a new source of tailored learning provision and to enable access to learning for the sector;
• funding available to the Support Programme was used strategically, and in conjunction with partners, to kick-start improvements in the support infrastructure for the sector; and
• the activity initiated by Futurebuilders has progressed satisfactorily, although some challenges have been evident on the part of organisations delivering larger or more complex projects.