At first sight, the keynote speaker at next week’s Small Cap Awards dinner is not the most obvious person to address a business function that’s all about celebrating the stock market successes of smaller companies. John Bird founded The Big Issue, the magazine that has for more than two decades given the homeless a chance to start earning a living and get back on their feet.
Mr Bird’s presence makes more sense when you learn that this year’s awards for the first time include a gong for the Social Impact Company of the Year, sponsored by the Social Stock Exchange, the platform that a number of social impact businesses have joined since its launch a year ago next month.
The Big Issue is the original social impact company. It has always been run as a business, with its sellers required to buy magazines from the company which they sell on at a profit. At the same time, the social impact of the company has been dramatic, providing a lifeline to homeless people and inspiring other ventures in the UK and beyond.
Social impact businesses are attracting investment from individuals and institutions enticed primarily by their financial potential, but also by the opportunity to have a positive impact on society or the environment.
The companies shortlisted for next week’s award include Ashley House, an exciting business capitalising on the demand for high-quality health and social care all around the country by developing bespoke buildings for this need. There’s the animal health business Benchmark Holdings, whose clients include Marks & Spencer and McDonald’s. Also on the list is the Good Energy Group, which is encouraging the energy industry’s customers to switch to renewables. And there’s the contemporary art specialist V22 which works with artists and educational institutions.
A study by the World Economic Forum and Deloitte underlines the attractiveness of such companies to investors: around the world, social impact businesses have raised $40bn (£24bn).
The analyst Kepler Cheuvreux expects the sector “to gain further financial credibility on the back of recent milestones towards a more conducive regulatory environment amid rising appetite from institutional investors”. While such investing emerged in private markets, the analyst believes that the more social impact businesses that list on public stock markets – and prove their value to investors – the more capital will flow into the sector.
The Social Stock Exchange says this process has begun. A study it conducted last year of the share price performance of social impact businesses over the previous three years indicated that the aggregate returns achieved by these companies came in ahead of the FTSE 100 and FTSE 250 indices.
Most of these businesses are quoted on exchanges such as the Alternative Investment Market (the Social Stock Exchange itself is misleadingly named, given that is essentially an impact assessment service rather than a trading platform). But while investing in smaller companies is often associated with a roller-coaster ride, particularly on Aim, the volatility of the stocks in this study came in below average.
Why should such businesses prosper? Well, they’re often to be found in sectors where the demand drivers are strong – environmentally linked activities, for example. For another, the interests of their different stakeholders are aligned rather than conflicting, as is so often a problem with larger businesses. And nor should we discount the goodwill many people feel towards these ventures.
Challenge posed by new pension rules
Is auto-enrolment, the new pension regime with which all employers must eventually comply, shaping up to be a disaster for small businesses?
Large companies, most of which already had pension schemes that comply with the minimum standards required under auto-enrolment, have largely shifted to the new system without difficulty over the past two years. But smaller businesses, thousands of which are supposed to comply with auto-enrolment over the next few months, are not finding the transition easy.
Research from the firm Now: Pensions suggests that 44 per cent of small business owners have not yet tried to find a scheme that will comply with the regulation, under which all staff other than those who opt out must be enrolled in an occupational pension scheme that meets minimum standards. Most are assuming their existing providers will step in, but many of these are only prepared to deal with companies of a certain size, or employees of a certain value.
Meanwhile, the Pensions Regulator has begun cracking down. The soft furnishings chain Dunelm has just won the dubious honour of becoming the first employer to be censured by the watchdog for auto-enrolment failings, having missed its compliance deadline and then paid the wrong contributions on behalf of staff.
Cloud accounting company flies high
The online accounting software group Big Red Cloud plans to raise €5m (£3m) with a simultaneous listing on the Alternative Investment Market and its opposite number in Ireland, the Enterprise Securities Market. The Irish-based business, begun in 2012, supplies small businesses in its home market and has more than 2,500 clients.
The short history of the company is testament to the way in which cloud computing technologies are enabling certain types of business to grow rapidly – though Big Red Cloud’s management team has more than 40 years of experience in the accounting software market. The cloud model enables it to roll out software products and services at scale, while working on upgrades and development.
Marc O’Dwyer, its chief executive, said the next step was to export its business model. “The UK sees 44,000 companies starting up every month, and almost all need an accounting solution,” he said. “The placing will allow us to replicate our success in Ireland in the UK and beyond.”
Small Business Person of the Week: Cassandra Stavrou, Founder, Propercorn
“I’ve wanted to run my own business for as long as I can remember, but I started out in the advertising industry.
Five years ago, I had the idea for Propercorn: everyone at work suffered the same ‘3 o’clock’ slump but if they went out and bought a healthy snack, they felt unsatisfied, and if they bought something naughty, they felt guilty – I realised there was a gap for a product that didn’t require that trade-off.
“Popcorn itself is actually very good for you; it’s the seasoning that can make it unhealthy, but our products are nothing like what you get in the cinema.
“My father died when I was 16, but one of the last presents he ever bought me was a vintage popcorn maker. Propercorn just felt like the right business for me and I quit my job very early on – I felt passionately that I could make it work.
“The food industry is full of big companies and it was difficult to get people to take a young woman seriously. People want to see a sales history before they place an order, but until you get an order you haven’t got that.
“Eventually, I got introduced to the head chef at Google in London, which serves amazing food to its staff. He agreed to stock the product – it became his most popular snack. That was the breakthrough we needed and we’ve since won orders from retailers such as Whole Foods, Waitrose and Claridges.”