Financing Social Enterprises

This chapter discusses funding and financing issues of small and micro social enterprises (SEs) following a systematic approach. It conducts a systematic review of the SE financing literature and proposes a systematic model to examine the SE financing ecosystem. Specifically, the chapter discusses some traditional financing sources of SEs, including internal money, donations, government grants, and conventional debt and equity and examines SEs' advantage and challenges in securing financing using these traditional ways. To address the challenges of SE financing, this chapter proposes a systematic approach of solution and discusses some new and innovative sources of financing for SEs, such as the social impact bonds and the social venture capital. It then discusses crowdfunding and its best use for various types and stages of SEs. The chapter also suggests a list of future research ideas.

Current state and latest development of social venture capital in Europe

The article aims at providing characterisation of social venture capital in Europe. The introductory part of the contribution deals with its origins and classification. The attention is devoted to various factors that have led to emergence of SVC such as existence of market gap, global crisis, monetary policy, disintermediation and financial innovations. The article also emphasises the fact that there is no unified market and, moreover, that the boundaries between social institution and traditional investors are becoming blurry. The main contribution of this article is to characterise the current state and to describe the latest development of SVC in Europe. The focus of analysis was aimed at defining the investment focus, priorities and resources of SVC. Western Europe is the main target region of SVC during all examined period, followed by Africa and Asia. In all years, top financial beneficiaries are people suffering from poverty followed by children and youth. Amongst the top five targeted beneficiaries are also people with disabilities, unemployed people and women. Whilst trend in geographical focus and financial beneficiaries is stable, focus in investment sector changes over time. Financial inclusion alongside with economic and social development currently represents top sectors that attract more than half of total investments in 2017–2018. At the same time, SVC is becoming more attractive to investors in Europe what confirms the fact that the number of organisation is rising alongside with their budgets.

Socially Responsible Investment (SRI)

The most common forms to align financial investments with ethical, moral, and social considerations are screenings, shareholder advocacy, community investing, and social venture capital funding. Screenings integrate the evaluation of corporate financial and social performances into portfolio selections. Positive screenings target corporations with sound social and environmental responsibility. Negative screenings exclude entities featuring morally and ethically irresponsible corporate conduct. Shareholder advocacy is the active engagement of shareholders in the corporate management by voting, activism, and dialogue. The majority of shareholders exercise their voting rights by proxy resolutions, in which a third party has the right to advocate for the shareholders before the corporate board. Negative shareholder activism comprises political lobbying, consumer boycotts, stakeholder confrontation, and negative publicity. Community investing describe ear-marks of investment funds for community development, but also features access to financial products and services to un(der)served communities. Social venture capital supports pro-social start-ups and social entrepreneurs for the greater goal of increasing the social impact of financial markets. This chapter explores socially responsible investment.

Social Investing: What Matters From the Perspective of Social Enterprises?

Due to a massive increase in available social venture capital (SVC), social entrepreneurs often get to choose among various financing options. As financial parameters can easily be adapted or replicated, this article analyzes how social entrepreneurs evaluate the central nonfinancial features of these funders. Based on an experiment with 44 social entrepreneurs, we assess their perception of the five most relevant criteria for evaluating investor attractiveness: business advisory, network access, information rights, control rights, and reputation of the investor. Our analysis of 1,056 hypothetical decisions reveals that the investor’s reputation is the single most important criterion and that the positive effect of support provided through business advisory and network access strongly outweighs the negative effect of oversight via information rights and control rights. These findings indicate that social entrepreneurs perceive the behavior of SVC investors as steward like rather than principal like.

Technology Licensing to Non-Traditional Partners

The commercialization of technologies arising from university research depends on the ability of technology managers to find and contract with appropriate development partners. Substantial investment is required to bring new health-science technologies to market, and when such technologies appear to have limited commercial markets it can be difficult for technology managers to find any licensee willing to invest research and development dollars. Developments in the area of neglected diseases may open up new opportunities for licensing. Over the past decade, The Rockefeller Foundation and other donors have provided social venture capital to launch a number of non-profit ‘companies’ that have collectively raised more than $1 billion from philanthropic and government donors to support product development. These public–private partnerships (PPPs) support the development of drugs, vaccines and diagnostics to address diseases that predominantly afflict the poor, such as HIV/AIDS, tuberculosis and malaria. Today there are nearly a dozen such PPPs following business models, managing portfolios of candidate products (often in-licensed from academia), negotiating in-kind support from the private sector or engaging industry through contract research and development, and using intellectual property in creative ways to harness private-sector know-how while ensuring affordability and access. Academic research institutions have many functions, including those of educating the next generation of scientists, advancing and sharing knowledge and, perhaps, even improving the world. Any technology manager who ever imagined there might be priorities beyond income generation should consider these non-traditional partners.