About
Purple Shoots is a responsible finance provider lending to microbusinesses, operating across the whole of Wales and parts of England including Yorkshire and the West Country. This case study demonstrates how investors can lend to CDFIs through CITR and earn a return through the tax relief.
Amount raised
Since 2014 Purple Shoots has raised approximately £370,000 from 20 individuals, with some individuals investing multiple times. This is an average of £18,500, but some individuals have invested larger amounts such as £100,000, £50,000 and £40,000. This model is flexible for both low and high net worth investors. For many of Purple Shoots’ individual investors, the additional CITR return provided the incentive to invest.
Marketing
Purple Shoots do presentations to business angel networks in Wales. Most investors come from these events or personal contacts rather than cold from the website. Purple Shoots has a brochure on their website for investors. Individual investors can invest in any CDFI lending to enterprises using CITR, regardless of legal structure. To find a list of CDFIs by region visit http://www.findingfinance.org.uk/my-nearest-lender/.
Benefits of using CITR
Investments in Purple Shoots are unsecured, so the additional return provided by CITR can improve the return for investors, given the risk they are taking with making the investment. The majority of Purple Shoots’ investors would not have invested without CITR. Purple Shoots provides an additional 5% return to the CITR 5%, however the level of return beyond of CITR that other CDFIs offer will vary. In addition to the financial return of investing through CITR, individuals will be generating social impact as well. Purple Shoots reports back to its investors with case studies of businesses it supported using their investment.
Challenges of using CITR
Purple Shoots has attempted to market investment through tax advisors, but the challenge is they are often unfamiliar with CITR so are not aware of the benefits. Purple Shoots has had more success promoting it in face to face interactions such as investor network meetings, when the relief and the social impact can be explained.
Impact
All of Purple Shoots’ lending to date is funded through CITR investment; over 330 loans and £760,000. An example of a business supported by a CITR backed loan can be found here.
Lessons learned
Purple Shoots’ experience shows that it is possible to raise significant investment from individuals through smaller amounts. In addition Purple Shoots has found that individual investors can act as ambassadors and make introductions to potential new investors, and promote responsible finance to their networks. It has an additional benefit of appealing to local investors who are keen to see local impact. Compared to other tax reliefs on the market, CITR enables investors to invest in underserved SMEs and communities through trusted intermediaries with a proven track record.