Bringing funding to social enterprise

Rod Schwartz is Chief Executive at ClearlySo, Europe’s leading impact investment bank. ClearlySo helps enterprises and funds with a positive social and/or environmental impact raise capital from its extensive network of individual, family office and institutional investors. Today, he’s pushing on an open door, but it hasn’t always been plain sailing.

Rod Schwartz had no intention to become an entrepreneur. He reluctantly agreed to take over a friend’s business temporarily while they recovered from a sporting accident and then proved adept at raising capital: “By the time he came back to work, he said ‘how can you leave now?’. He could be persuasive, so I stayed.”

It was a far cry from his early career, which had been firmly entrenched in the cut and thrust of the City. He started out as an equity research analyst for PaineWebber, before running Lehman Brothers equity business in Europe. He joined Paribas (now BNP Paribas) in 1994, where he was head of the financial institutions business, a move into investment banking that was to prove useful later on.

While at Paribas, his team raised capital for a number of tech-enabled financial services companies. One team member became very excited about an idea he and Rod had developed together, which identified the potential opportunity for smaller niche financial companies to run rings round their larger competitors.

“My colleague wanted to write a book about it, sought my help to publish it; then said he wanted to start a business on the back of it.” The colleague asked Rod to join him at his new venture, Catalyst, but he dismissed the idea saying he didn’t want to be an entrepreneur.

That would have been the end of it had it not been for the unfortunate – or fortunate, depending on the perspective - sporting injury mentioned earlier. Rod’s former colleague asked him to caretake his business while he recovered. “How could I say no?” he says.

As it turned out, Rod was good at it, raising £25 million while his friend was away (and £15 million more after he returned). He was eventually persuaded to become CEO: “There were plenty of times when I wondered why I’d agreed to do it. That said, things were going pretty well, and it was a boom time for niche financial services. However, by mid-1999, I wanted to do something more societally beneficial; something my kids would be proud of me for having done. We started to explore it. Could we raise funds for social investment?”.

This was 1999. Social investing was a niche pursuit at best, and he admits they were way too early:

“We could see it in the air, but in 1999 no-one was interested in what we now call impact investing.”

The group considered a fund to invest in organic food, education, cleantech, even hiring the services of former Liberal Democrat leader Paddy Ashdown at one point, but mostly, he says, they were unable to find sufficient investors.

He looked to have a more direct impact, becoming chairman of Shelter. However, ultimately, he found the charitable sector inefficient and structurally flawed. Then he met two women who had achieved the apparently impossible: they had a vast impact, disrupted a sector in need of change, while making money for stakeholders.

Anne-Marie Huby and Dame Zarine Kharas were the founders of Just Giving. Early investors had made around twenty times their money, while the platform had helped to facilitate $6 billion in charitable giving. At the same time, it had lowered the cost of funding from 23% of donations to 5%. This was the type of business he wanted to back.

“This was such a cool business. It created significant disruption in a sector that really needed it. From that point on, I wanted to find and help 100 Just Givings. I knew the financial services fund was ending, and that the City and I were finished with each other.” He was Chairman of Just Giving for three years.

He began to create conferences, recognising that social investment conferences tended to provide a lot for funders, policy wonks and government officials, but not much for the social entrepreneur.

“At the time I thought that I’d do a conference giving social entrepreneurs real usable content. This grew and grew and started to create spin-offs – one of which was socialinvestments.com – which became ClearlySo.”

Rod’s conference business was eventually shut down – ultimately it couldn’t generate enough revenue to cover its costs. However, by this point, the market had started to move towards his way of thinking. Big Society Capital had been launched by the then Conservative government, designed to facilitate growth of social investment in the UK.

Ultimately, he recognised that the sector needed a new investment bank, aimed squarely at social investments to help companies to raise money. “Entrepreneurs who struggled to pay a conference fee, were more than willing to pay us a percentage success fee if we raised them capital.” There was no market, so he had to create one. “I called all my rich friends from my prior life in finance. They came along to meet social entrepreneurs.

Think of it as social investing speed dating, which is what we called it. While the early companies were very exciting, it was hard work and not highly remunerative.”

Today, ClearlySo facilitates around 30 investments per year and gets around 95% of its capital from institutional investors. “We’re the world’s leading placement agent for this type of investment. We are the largest impact investment bank. After 20 years, we’re finally pushing on an open door.”

“Investors really have changed their behaviour. Now there isn’t a fund manager in the world who isn’t thinking about sustainability or impact. There’s no-one who won’t give us a meeting. It’s becoming the mainstream, though whether it will be quick enough to save the planet, I can’t say. To my mind, it feels like impact has finally become the third dimension for investors (alongside risk and return). It’s a shame it has taken so long.”

DISCLAIMER
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.