HCT repayments mark social investment milestone
HCT Group ("HCT"), the social enterprise bus operator that uses its surpluses to provide community transport services and training, has achieved another significant social sector milestone by providing a full and successful exit for the social investors who backed it in 2010.
HCT has been a pioneer in the social investment space: the 2010 round, which raised over £4m from a group of investors led by Bridges Ventures ("Bridges") – was one of the biggest social investment rounds to date – and supported HCT’s ambitious growth plans and helped it compete with private-sector providers.
Bridges, a specialist sustainable and impact investor, invested in HCT via its Social Entrepreneurs Fund, an innovative vehicle established to address the funding gap often faced by fast-growing social enterprises looking to scale. Its investment primarily took the form of quasi-equity, an innovative type of 'Social Loan' with repayments dependent on the company meeting its growth and impact targets.
The capital enabled HCT to achieve a step change in its growth, allowing it to deliver more impact at scale. It has since almost doubled in size and exceeded all the social impact and commercial targets of the investment, and achieved total income of £45.4m in 2014/15.
Since raising its first round of social investment, HCT has created more than 350 jobs, while supporting a further 390 individuals to obtain jobs in other companies as a result of the training or education it has delivered. It has increased commercial passenger numbers at a time when many other bus operators have seen a decline. It has provided over 1.1m passenger trips for disadvantaged individuals and used its surpluses to create new routes and services based on community need, mitigating barriers to access and reducing isolation for some of the most vulnerable in society.
HCT has demonstrated to commissioners that it can deliver positive social impact alongside high standards of service, and has been able to win commercial contracts – proving that an impact-driven approach can be a source of business advantage.
Dai Powell, Chief Executive of HCT Group, said:
"We have always believed that we have a high-impact and scalable model; we have a compelling offer to commissioners delivering great services and making a real difference to the communities we support. This investment has really allowed us to capitalise on our model and by returning 7% to our investors, we have shown that social finance works. By tapping into the right combination of capital and resources from social investors, we have been able to build a strong platform for future growth and generate more impact. Our competitors are not other bus companies; they are loneliness and social isolation.”
Bridges has been actively involved with HCT since its investment, particularly in supporting management's efforts to further strengthen the board and develop its impact measurement and reporting.
Antony Ross, partner and head of social sector funds at Bridges Ventures (and a trustee of HCT since 2010) said:
"This has been a trail-blazing deal for the social sector. HCT has shown that it is possible for social enterprises to work with mission-aligned investors to achieve more impact at scale – and that it is possible to structure these investments in a way that allows social investors to get their capital back so they can re-invest in other social enterprises. We're delighted that the Social Entrepreneurs Fund has, as we hoped, been able to play a part in proving this concept. What's more, the experience has taught us a great deal about the kind of patient, engaged capital that these organisations need long-term in order to grow – and about how to structure these investments. We will continue to be a huge supporter of HCT's work, and we hope to collaborate on other projects in the future."
Notes to investors
HCT Group (www.hctgroup.org) operates a range of transport services including commercial bus routes in London and the Channel Islands, school bus routes and Park & Ride services. It uses its surpluses to provide community transport services for those unable to use conventional public transport due to mobility difficulties, and SEN transport and travel training. Surpluses also fund the delivery of additional training programmes for the unemployed or those with few or no formal qualifications. In 2010, it raised a total of £4.1m of social investment from Bridges, Big Issue Invest, Futurebuilders and Rathbones.
Bridges Ventures (www.bridgesventures.com) is a specialist fund manager focused exclusively on sustainable and impact investment, with offices in London and New York. It invests in high-impact SMEs, properties and social sector organisations that can generate superior returns for both investors and society as a whole, focusing on four key impact ‘themes’: health & wellbeing, education, sustainable living and under-served markets. It manages almost £600 million across its Sustainable Growth, Property and Social Sector funds.