The sector is on the brink of a "new social entrepreneurial revolution", according to Sir Ronald Cohen, chair of the G8 Social Impact Investment Taskforce.
Speaking as part of the Lord Mayor’s Charity Leadership Programme at the Mansion House in London on Thursday evening, Cohen outlined ambitious ideas for revolutionising philanthropy through impact investment.
Cohen, who was the first chair of Big Society Capital, said he was privileged to have been involved in the entrepreneurial revolution that saw start-up companies including Apple and Microsoft rise to become among the largest in the world.
Their success was achieved through technological breakthrough, but also a "novel form of financing – the venture capital industry", he said.
"When we look around us today, some of us can feel, as I do, that we are on the brink of a new entrepreneurial revolution, a social revolution," Cohen said.
"I see a rising wave of social entrepreneurship to follow the wave of business entrepreneurs."
He said the need for a novel financing response to social entrepreneurs had led to the development of the first social impact bond, signed in March 2010 with the Ministry of Justice to reduce repeat offending among prisoners at HMP Peterborough.
"Welfare states around the world are throwing up their hands, feeling they have neither the resources nor the skills to tackle social issues effectively," he said.
"Social issues seem to be extending outwards, handed unresolved from generation to generation."
Cohen said there was £100bn on the balance sheets of UK foundations and trusts, but the common characteristic of charitable social service providers was that they were small and had no money.
"I realised that the system of philanthropy based on charitable giving did not allow social organisations to grow to the necessary scale," he said. "Philanthropists give money to a service provider for two to three years, then go elsewhere, and they say ‘don’t waste any money on overheads’. Yet if business entrepreneurs had come to me at the private equity firm Apax with business plans that involved investing nothing on overheads I would have shown them the door.
"Philanthropy based on charitable giving does not focus on achieving social outcome. We need to spur innovation, bringing social organisations to the scale to meet the needs of the size of population groups they are addressing."
Cohen said there were more than 20 social impact bonds across the world, including 14 in the UK, five in the US, two in Australia and one in Holland. As well as being used to tackle recidivism, social investment was also being used to tackle homelessness, adoption, school drop out rates, and asthma in deprived areas, he said.
He said he wanted to see a world in which social organisations or entrepreneurs intent on innovation or growth could raise a social impact bond instead of considering how to go "cap in hand" to raise donations.
"Impact investment portends a real revolution, driven by innovation," he said. "It will settle over two or three decades between the $60bn of microfinance and the $3tn of venture capital and private equity. It will drive great innovation and it will come to characterise our times."