Financing social enterprises and the demand for social investment

Abstract

Social investors are supplying increasing amounts of finance to enterprises combining social and commercial objectives although these social enterprises are still more likely to seek bank finance, suggesting that social investors should focus on market gaps which are more likely to occur for smaller, younger social enterprises that lack track record and collateral. Social enterprises offer innovative ways of combining social and commercial objectives and are only slightly less likely to seek repayable finance than other small and medium-sized enterprises (SMEs), with younger social enterprises being more growth oriented and also more discouraged from borrowing. Where social enterprise borrowing takes place, it is almost three times more likely to be from commercial banks, rather than specialist social investment lenders that are more likely to invest without requiring collateral. Social investment lenders should therefore focus their offer on finance gaps left by banks, notably in earlier stage social enterprise development, rather than compete for existing commercial bank market share.

Blockchain and other innovations in entrepreneurial finance: Implications for future policy

“…They address the financing needs of innovative SMEs in mature and emerging markets (notably in respect of VC developments in Nigeria (Ekanem, Owen, & Cardoso, ) and Estonia (Owen & Mason, ), and in developing early stage financing theory for innovative enterprises (Owen, Deakins, & Savic, ), and those with different forms of ownership, found in Scott and Hussain's examination of owner‐manager intersectionality, focusing on gender, ethnicity and social class, and Lyon and Owen's survey of social enterprise. The papers also examine new innovative forms of finance, notably in terms of new approaches to using Blockchain technology in the music and creative industries sector (O'Dair & Owen, ), crowdfunding in the micro‐brewing sector (Mac an Bhaird et al, ), new forms of social enterprise, social impact finance (Lyon & Owen, ), and new approaches to VC and public–private co‐investment in equity finance in mature (Owen, Mac an Bhaird, & North, ) and emerging markets, including smaller, more peripheral economies (Ekanem et al, ; Owen & Mason, ).…”

“…Lyon and Owen () consider the rise of social impact finance in the UK and the UK government's policy response to perceptions that social and environmental mission‐driven enterprises in the UK are different from mainstream private ventures and in need of specialist forms of repayable finance. Making use of the Social Enterprise UK dataset, the UK's largest suitable database, they find that the vast majority of social enterprises use mainstream bank finance and, conforming to Teasedale, Lyon, and Baldock (), are broadly similar to mainstream for‐profit ventures.…”

Unlocking finance for social tech start-ups: Is there a new opportunity space?

“…Lastly, similarly to high tech start-ups (Phillips, 2002), a relevant role can be played by incubators; they contribute to the development of the social tech start-ups by supporting capacity building, in terms of managerial and financial expertise that are generally poorer in social ventures than in other for profit organizations (Conathy, 2001;Fraser, 2007;Lyon and Baldock, 2014;SEUK, 2015;Von Zedtwitz and Grimaldi, 2006).…”

The new youth sector assemblage: reforming youth provision through a finance capital imaginary

“…Second, by emphasising retrospective payment, it has increased youth service providers' demand for investment to provide sufficient operating capital. This demand for capital is fulfilled through arrangements that include provision of repayable loans both by mainstream commercial creditors, retained surplus schemes, owner investments, formal partnerships or mergers with larger entities, as well as specialist social investment vehicles (Lyon and Baldock 2014). These capital demands increase the costs and consequences of failure for providers, simultaneously promoting the financialisation of the new youth sector and binding providers even more closely to pre-specified performance goals.…”

“…If the social outcome improves, the government commissioner repays the investors for the initial investment plus a return for the financial risks they took. '(Social Finance 2016) While demand among suppliers for repayable social investment capital from specialist providers has been relatively low(Lyon and Baldock 2014), social investment markets have significantly expanded in recent years and high profile trials of Social Impact Bonds for youth provision are being conducted in cites in England supported by the National Youth Agency(Powell 2016). Although distinct from payment by results mechanisms, such investment vehicles also serve to constitute risk in terms of the failure to realise a return on investment, and then distribute that risk away from the state to provider and private investors.These funding relationships drive important effects on the organizational morphology of supply within the emergent youth sector.…”