Funding sources for social enterprise
Because social enterprises are structured differently from a traditional charity or business, they may obtain funding from grants, investments, or a combination of both.
In recent years, a number of new, hybrid options for financing social impact organisations have also been developed, which attend both to profit motivation and to social impact.
The funding landscape
Grant funding is offered by charitable, philanthropic, and government bodies who do not expect a financial return but are instead investing in the social outcome that the social enterprise promises. Large private foundations like the Michael and Susan Dell Foundation offer grants to organisations working in their chosen areas of focus. Some organisations dedicated specifically to social entrepreneurs, such as UnLtd, also offer small grants to organisations that are starting up or scaling their operations.
Some social enterprise models may generate sufficient profits to make them attractive targets for traditional equity and debt investment funding as well. Sources of investment funding include:
- Angel investors: wealthy individuals interested in making investments
- Seed funding firms: companies that invest small amounts of early-stage capital in startups
- Venture capital funds: companies that pool and invest large amounts of money in emerging businesses
A recent development in the funding space is the concept of impact investing. The Global Impact Investing Network defines impact investment as “investments made into companies, organisations, and funds with the intention to generate social and environmental impact alongside a financial return.” This burgeoning field that has grown out of the realization that producing goods and services with a social value—such as vaccines for infectious diseases—can also generate profits for investors. One example of an impact investment group is Root Capital.
Another novel financial instrument known as a social impact bond offers a way for private investors to fund government projects and receive a monetary return if those projects succeed in creating the desired social outcomes.
For example, imagine the government wanted to reduce homelessness in a particular area. It could offer a social impact bond to investors who would use their core capacities to determine the likelihood that a particular intervention—like a cooperative housing association—would succeed. If homelessness indeed decreased, the investor would receive a monetary return from the government.
In this model, governments benefit because they save the costs associated with adverse social outcomes, and the implementing organisations (including, potentially, social enterprises) receive the funds that they need. Pioneers in this area include Social Finance UK and the Young Foundation.
There are a number of organisations that specifically aim to fund social enterpreneurs at various stages of venture development. Here are just a few of them:
- Echoing Green Fellowship (Global)
- Draper Richards Kaplan Foundation Grants (U.S. only)
- UnLtd UK, India, and other countries
- CAN Invest (UK)
- RSF Social Finance (North America)
This list of funding sources is indicative, not exhaustive. For more ideas, check out the resources linked below, and explore the availability of grants and investment opportunities specific to your country or local area.