Call for Financial Social Innovation

After reading the Manchester Bidwell Corporation HBS case study, I started to think about social enterprise replication efforts, and the difficulty that many social businesses/non-profit hybrids have in locating funding for replication. Having worked for a corporate foundation, I thought back to the grant-making process that I experienced, and very rarely were grants given out to scale innovative models. Almost all impact grants went toward demonstration projects. I then wondered how many corporate, private, or public foundations target grants toward replication? This question motivated my lengthy internet search, which proved slightly unsuccessful. I had a very hard time even finding information about replication grants, so I can imagine how much harder it is to actually apply for and receive replication funds. How could such a funding gap exist? This week’s readings were perfectly timed with my quest for replication funding; however, I still feel that a gap exists for helping scale socially innovative models.

Michael Chertok, Jeff Hamoaui, and Eliot Jamison distinguish between two types of funding: direct investors and intermediaries. While there seem to be many options for individuals or organizations to invest their own capital into social enterprises, the capability of intermediaries appears to lag behind. Conversely, intermediaries are investing other people’s money, which creates a conflict for impact investing: Can you focus on social impact over financial returns? Is there a Pareto efficient point at which you are maximizing both social impact and financial return?

In the past, the two traditional ways of financing were through foundations or venture capital. It is exciting to see and hear of new ways and methods to help finance innovation. I was especially intrigued by David’s blog post last week where he posed the question of having a charity stock market. I, too, have had thoughts about what this might look like. Would traditional investors get to use pre-tax profits from existing stock markets and use this money to invest in a social stock market? It seems from this week’s readings that social enterprise capital financing could be headed this way. Is this good for the social sector? Muhammad Yunus might argue no (see Kyle’s post from November 7).

Either way, it looks like all sectors are coming together to collaborate on how to finance these new socially innovative models. Just this past week, at the G-20 Summit in Seoul, South Korea, more than $500 million was committed to supporting the winners of the G-20 SME Finance Challenge. It is great to see that even capital financing has become a competition for innovative solutions. Definitely check out this link to see the winners and to see innovative new forms of financing. When reading through the articles for this week, did you come up with a solution for how to better finance social enterprises? Maybe one size doesn’t fit all – which sources of funding fit better with which types of social enterprises?