Guest blogger William Heath, Chairman of social enterprise and SEUK member Mydex CIC, told us today what recent changes to the SITR mean for tech entrepreneurs…
Social tech entrepreneurs are jumping for joy at the changes to the social investment tax relief (SITR) limits announced last week by the Chancellor. Why is changing a tax limit so important, and for that matter why is social tech itself so important?
Increasingly we live online. But our lives online operate according to rules coded into machines, executed without empathy or humour. These rules are devised by the companies that dominate the Internet: Google, Amazon, Facebook, Uber and a plethora of other businesses. Typically these are backed by venture capitalists who want growth, profit and exit by way of stock market flotation or sale to one of the giants of the day.
So the rules on which the colossal collective power of the Internet – and all the devices we use connected to it – operate are fixed to meet a legal and contractual obligation to maximise shareholder value. The contracts we sign to use these services – the terms and conditions – aren’t pretty, or favourable to the individual. It’s hardly surprising no-one reads them. We pay with our attention to ads, with the exploitation of our personal data and loss of privacy.
The honourable exception to this near-universal state is the social tech sector. The global free software movement. Services such as Mozilla or Openstreetmap exist for the greater common good. They do not exploit or seek to control users.
The fledgling social tech sector in the UK is full of bright ideas. Nominet Trust, which supports several, lists it’s 100 top social tech ventures including 19 entries from London. Nesta showcases examples from cancer research to open corporate data here. More established success stories include the globally recognised MySociety democracy and civic activism services. Patient Opinion carefully and responsibly brings patient stories into the bureaucratic decision-making of the NHS to great effect. Social tech can be extraordinarily effective, but it’s a long hard path. It requires not just ideas and effort, but sustained investment. And there’s pretty much zero support from conventional VC investors – the rare breed who combine investment funds with an understanding of tech and markets.
Last April we wrote about the very promising emergence of SITR, which brings the tax benefits of the Enterprise Investment Scheme to investment in social enterprises. The problem was the limit of under £300,000 per organisation: sufficient to prove an idea but nothing like sufficient rapidly to scale a game-changing business. Subject to EU state aid approval, that limit is to be changed to £5m per year up to a maximum of £15m from April 2015. That is sufficient to create a tech business ready to change the world.
Suddenly social investment in tech charities and social enterprises becomes extremely attractive to investors who want to see social impact and a good return over time. It’s perhaps sad when one realises that a tweak in tax regulations is the most exciting news of the day. But the implications of SITR for social tech and for people who use online services are profound and promising. Let’s fulfil them.