Clearly Social Angels Blog: Private Equity Finds its “Social Side
As of today, 1 April 2014 the Chair of the British Venture Capital Association (BVCA) will be Tim Farazmand, Managing Director at LDC, and a Non-Executive Director of ClearlySo. I have known Tim for about 14 years and commend the BVCA for choosing someone of his reputation, character and stature – although as a Director of ClearlySo you may think I am biased. Nevertheless, for those of us who carefully watch developments in the social impact investment sector I think this is very much a “red letter day” and most definitely not an “April fools” story. Tim has publicly stated that, “One key area I will be focussing on is social impact investment”. I think this is an extremely significant development for the broader sector and raises three important issues.
Firstly, Tim can be an advocate for the venture capital industry’s positive impact on society. Although the private activity (PE) sector was less heavily criticised than others in the financial services industry, there is no permanent immunity. Tim will be able to effectively argue the case from a position of strength and from genuine knowledge. Tim has been involved in the impact investment sector since as early as 2001 when Anthony Ross of Bridges Ventures, Tim and I tried to launch a social investment fund. He has therefore been personally and intimately involved in such perennial industry questions as, “what is a social enterprise?”, and how one measures social impact. The PE industry desperately needs a well-informed spokesperson like Tim to press its case. Venture capital does create jobs, does help to build sustainable businesses and can create other positive externalities.
Secondly, Tim is yet another “private equity guy” who has become involved in the social finance sector. This unnerves many of my colleagues in the social impact investment space for fear that the values of finance will invade the preserve of our sector. I understand and sympathise with some of these concerns; however, it will be some time before our sector is overrun by “private equity guys”. It is a small fraction who have travelled across and, given relative reward structures, few will make the journey in the foreseeable future. Nevertheless, there is a skillset which is essential to building great enterprises, and great enterprises will have the most substantial positive impact on society. As the social investment sector is relatively new, it is inevitable that the individuals with the experience in working with fast-growing companies will come from the venture capital community. We should not chastise them, but frankly we should embrace them with the skills, contacts and know-how they bring. Sir Ronald Cohen, who has been a UK PE pioneer, could never have achieved what he has for the sector – with Bridges Ventures, Social Finance and Big Society Capital – were it not for his experience.
Finally, Tim’s appointment will serve as an important bridge between the investment mainstream and impact investment. I know that Tim shares our view that social impact will become an increasingly important third dimension to all investing. It is not an asset class aspiring for a few percentage point allocation, but an alternative metric which can inform all investment decisions. Only in this way can we avoid becoming a backwater, or an investment side-show.
Frankly speaking, all investments have a social dimension. This dimension may be hard to capture or difficult to measure, but failing to try is evidence of laziness and would be a colossal missed opportunity. As more folks like Tim achieve positions of influence, we as a sector have much to play for. I suggest we seize this opportunity.