The role of intermediaries & multi-source financing

Intermediaries
When I search for the main funding source of social enterprises and projects, I was disappointed that most funds come from individual support or governmental support. Impact investing has difficulty in raising funds in a large scale. I asked myself, what's the major difference between the process of financing of a social enterprise and a private company? Why is the investment model in the private sector so successful?

I came up with this I believe to be one of the answers: the world of business has formed its norm, with customers and manufacturers on both ends, and agencies like investment companies as a key intermediate link, managing large amount of cash flow.The customers buy products, the manufacturers focus on producing better products...The investors developed to be experts in sensing the change of market trends, identifying prospective projects and making swift moves. Investors as a large group play an important role in fostering business to thrive and therefore attracting even more producers and money into the business.

Of course, individual and government money can make a difference. But fragmental funds would never be as powerful as large-scale money from investors or investment companies as a group. These money interweave into a cash-flow network and sustain the development of the whole industry.

The social enterprise practice is more and more similar to how we used to operate private companies. Now for social enterprises, we have impact investing, social impact bonds, social finance initiatives, etc. But the impact of intermediaries are neglected to a large extent.

The Social Innovation Fund awards federal grants to grantmaking institutions ("intermediaries"), which provide the grantmaking mechanisms to deliver Social Innovation Fund dollars locally. These organizations have a track record of identifying, supporting and investing in the growth of promising community organizations.[1]

There are  organization serving as intermediaries in the social enterprise industry, but their influence is rather small and in limited areas:

To date, twenty intermediary organizations have been awarded funding –11 in 2010, five more in 2011, and four in 2012– to implement programs in three priority areas: economic opportunity, healthy futures, and youth development.

Multi-source Financing
I recommend this article from Stanford Social Innovation Review which provides extra information than the reading we already read "The Funding Gap":
Gaps in the Impact Investing Capital Curve

http://www.ssireview.org/blog/entry/gaps_in_the_impact_investing_capital_curve

It pinpoints the cruel truth: Indeed, capital appears to be thinnest precisely where it is needed the most: to prime the pump of innovation and deal flow. But more importantly, it indicates that social enterprises probably need to find supporting funds from different sources in different phases of the innovation cycle.

There're various sources of funds: Commercial Investors, Established Foundations, Development Institutions and Banks, High Net Worth Individuals, etc. Most of them don't have incentive to provide early-stage funds for innovations. For example, commercial capital will not normally test water for something risky, so it'll only come in during the later stages of scaling up impact investing industry sectors (and it recently did this for microfinance); it is unlikely, however, to fill the gap in funding needed in for innovators and infrastructure. Foundations are said to have limited capability of providing funds, development institutions lack incentive to provide start-up money as well.

Question here:
We need to think about how we can develop and grow the intermediaries in SI&E, and let them play a critical role to propel social innovations initiatives. If commercial investors or bureaucratic agencies are less possible to get involved, can more and more social enterprises act as intermediary investors to help identify prosperous projects and allocate money to proper projects, given that they are more familiar with the SI&E arena?

[1]Social Innovation Fund, <http://www.scalingwhatworks.org/partners/social-innovation-fund>