Over the years of making impact investments across the arts, culture and heritage sectors within our three loan funds, the following questions come up time and time again:
- How do arts organisations use impact investment?
- What are the different ways of generating income in the sector?
- How do arts organisations repay the investment?
Case studies can be a good way of illustrating individual investee stories, but addressing these wider questions might help us see the bigger picture more clearly. In doing so, we hope to fire up imaginations around the transformative potential of this relatively new kind of finance.
The first question can be answered in terms of use-case and spending. In other words, the business need or purpose that the investment supports, and how the organisation spends the money it receives. From our experience, use-cases can be divided fairly neatly into four categories illustrated in the table below.
| Category | |
|---|---|
| Cashflow management | To ensure that the organisation has enough cash to make payments as they fall due. This need might arise from funding being payable in arrears, seasonal dips in cashflow or unexpected events (e.g. loss of a contract). |
| Expansion of existing income streams | To expand existing income-generating activities, for example to a new region. |
| Development of new income streams | To create a new income stream or start a new business venture. |
| Development of new funding models | To develop new ways of raising funds within the sector – this might sound quite abstract so please see the examples below for more detail. |
Often, these use-cases overlap in a single investment. One example might be an organisation borrowing to finance a capital project such as the acquisition and renovation of a building. It might use part of the investment to manage cashflows associated with renovation (such as paying contractors in advance when the related project grant is only receivable on completion of the work), and part of it to buy the property itself, through which it will one day be able to lease out space, which will either be a new or existing income stream (depending on whether the organisation has prior experience of leasing out space).
In terms of spending, impact investment can generally be used to pay for anything from staff salaries to supplier invoices, bills to buildings, new tech to licensing fees. It can be a pretty flexible tool!
To answer the second and third questions, we’ve mapped the use-cases to some examples across our portfolios, commenting on the income model for that organisation and the source of repayment. You can click through to the in-depth case studies to find out more
| Use of investment | Example | Income model
(Correct at the time of investment) |
Source of repayment |
|---|---|---|---|
|
Cashflow management
|
Central School of Ballet managed its cash while undertaking a capital project. | Earned: student fees, shorter courses and hire income.
Grants/donation: government grants and individual giving. |
Earned income & fundraising |
| Expansion of existing revenue stream | Pinc College scaled up its operations and widened its reach. | Earned: contracts with local government & schools. | 100% earned income |
| Development of new revenue stream (self-produced content sold commercially) | Soho Theatre set up a digital content subsidiary and produced a pilot run of digital comedy content. | Earned: box office, bar, rental income.
Grants/donation: ACE, other trusts & foundations, individual giving. |
Earned income & fundraising |
| Development of new revenue stream (transfer of existing IP/content into a new format) | Birmingham Royal Ballet re-imagined its iconic production of The Nutcracker for alternative venues. | Earned: touring, orchestra rental, co-production fees, classes.
Grants/donation: ACE, local government, individual giving. Theatre tax credit. |
Mostly earned income |
| New funding model (a fund that allows cultural assets to be preserved in perpetuity) | Music Venue Properties launched a pioneering initiative bringing grassroots music venues into community ownership. | Earned: rental income. | 100% earned income; possibility for refinancing |
| Expansion of existing revenue stream (retail offer) | Migration Museum developed its online gift shop capacity and expanded its digital audience. | Earned: sales & consultancy.
Grants: trusts & foundations, individual giving. |
Mostly earned income |
Building on the examples above, it’s clear that impact investment can be a versatile tool for arts organisations, supporting everything from day-to-day operations to ambitious new ventures.
The diversity of income models – from purely earned income to mixed funding streams combining commercial revenue with grants and donations – demonstrates that there’s no one-size-fits-all approach to repayment. What matters is finding the right match between an organisation’s needs, their capacity to generate income, and the type of investment they take on.
For arts organisations considering impact investment, the first step is to identify which use case best matches their situation and then explore how their existing or planned income streams could support repayment. Whether you’re managing cashflow, expanding existing work, developing new revenue streams, or pioneering innovative funding models, impact investment could be the key to unlocking your organisation’s next chapter.
Find out more about our Arts & Culture Impact Fund, which provides loans of between £150k and £1m to incorporated organisations, here.
