Understanding Social Investment Due Diligence

What is due diligence?

The thought of a long drawn out due diligence process can sound a scary prospect when thinking about approaching a social investor. What exactly is due diligence?  We define due diligence as assessing information of a company from a legal, financial, commercial and managerial standpoint to further evaluate their potential as an investee. This process involves taking appropriate care before signing the dotted line let alone making an investment.

The approach taken by Big Issue Invest is to work in collaboration with potential investees. Our process is based on getting to understand the challenges and opportunities facing each individual organisation. A good reminder when the due diligence process becomes frustrating and time-consuming, particularly for small social enterprises, is to remember that our approach is focused on reducing barriers in the long run so your social enterprise won’t have to circle back to the same issues time and again.

When does it start?

A key part of the process is getting to know who the drivers are of an organisation. Due diligence can start once contact with a social investor is made. A more formal approach would be to start reviewing information after  a formal application is made.

How long does it last?

We are often asked how long the due diligence process lasts when seeking investment. Applicants are always keen to know the time cost of seeking an investment. The process can take as little as two weeks and as long as six months. At Big Issue Invest we take an approach which is proportionate to the nature and size of the investment. We’ve had feedback from our clients telling us that the formal process of due diligence is frustrating and time consuming, however others have stated they found the process robust and useful. We are always trying to find a balance between these two aspects of our work.

What information do you ask for?

We ask for information which enables us to understand the people and the organisation. This includes looking at past performance, plans for the future and the social issues being addressed. The types of information we need to start the due diligence process include:

• Management Accounts
• Financial Statements
• Social Impact Reports
• Contracts
• Background Information on Directors and Staff
• Legal Contracts
• Financial Forecasts

Is it like applying for a grant?

No. Confusion between applying for a grant and seeking social investment is one of the biggest causes of frustrations for applicants. Grants are administered in a completely different way to repayable finance. For example, at Big Issue Invest we always come out and visit organisations before we invest and meet the directors, staff and beneficiaries.

How do I prepare?

The best way to prepare for applying to Big Issue Invest is to ring for an informal discussion. A member of our team will talk through our requirements and give a clear outline of our processes and information requirements. A good place to find general information and guidance about social investment is www.goodfinance.org.uk. This website has a lists of support advisors and social investors.

For more questions on if your company is suitable for investment please go through our simple application.