Investment Readiness Critical for Social Enterprises

A lack of investment-readiness is hindering growth in financing and investment access for Australian social enterprises, presentations at a Sydney conference have revealed.

It was a theme that consistently emerged across sessions at The Social Marketplace, which brought together social enterprises and prospective investors this week to explore the potential for an impact investing market in Australia.

The issue spearheaded discussion at a session facilitated by Rosemary Addis, Social Innovation Strategist at Australian Department of Education Employment and Workplace Relations, where it was evident that investment readiness was stymieing the ability of social enterprises to access funds offered through emerging Social Enterprise Development and Investment Funds (SEDIF).

“There’s a job to do in developing a pipeline of investible social enterprises,” Addis said of SEDIF, which is intended the fill the gap between grants and financing by banks.

The funds were developed following a $20 million funding injection by the (former Labor) Federal Government in 2011.

SEDIF fund managers, including Belinda Drew from Foresters Community Finance, Emily Martin from Social Ventures Australia and David Rickards from SEFA said they were inundated with requests for financing form social enterprises but that the proportion that were suitably prepared to go through the pipeline were small.

Martin said Social Ventures Australia had received inquiries from over 100 social enterprises but only one third were investment-ready.

A key issues was a lack of business planning and strategy, she said.

“They might be at the conceptual stage, and they approach the fund, but they’re not sure about financing and structure. As an investor, these are the things I need to know to make an informed decision,” she said.

She also spoke of a culture of grants that was hindering the uptake of new financing models like SEDIF.

Of the social enterprises approaching them who were not investment ready, she said at least 80% were more interested in grants rather than financing.

Belinda Drew said for the Foresters fund to help build capacity in future, there was a need to triple its size.

“We’re not sustainable currently,” she said. “We are years away from being sustainable.”

She was optimistic about the future.

“I think there’s a lot of pipeline out there – the numbers between us in terms of enquiries”

They may not all be investable now, she said, “but it doesn’t mean they won’t be in the future.”

Martin said the process of applying for investment was a valuable one.

“For each person having to pitch for investment, it changes their mindset around business planning. If you want someone to give you money, you have to tell them what’s in it for them as opposed to I want money because I’m doing something good for the world.”

Drew said the process provided the opportunity to encourage social enterprises to go away and make their pitch better.

“In our organisation, it is not no forever, its just no for now. They’re not easy conversations. Many of the conversations we’ve had are extremely difficult and really quite emotional.”

Addis acknowledged both the value and difficulty in financing social enterprise.

“Early stage investment…can actually be enough to shift people from shifting and talking to acting,” Addis said.

“It’s hard work, and nobody expected it would be otherwise.”

Paul Steele of The Difference Incubator provided an investor's perspective on the risk and redress issues that made investment-readiness critical to attracting financing.

“In reality we don’t like taking risk. We put a lot of time and effort to put in place right measure to ensure risk is managed.”

“Particularly in this sector, there’s a sense of not asking for help to get there [investment readiness] before asking for investment’.

Social designer at Knode Ingrid Burkett also urged the audience not to forget the investor’s role.

“I think we need a bit more of a fine-tuned understanding so we can really develop the supply and demand of investment-readiness.”

“We need to talk much more about the demand side but also how do we develop a demand-led market.”

“It’s not just about investment readiness, it’s also about investor readiness to engage in investment that is trying to deliver an impact,” she said.

Matching appropriate capital with social enterprises able to use it effectively was a key action point going forward, she said.

She suggested looking at impact investment through a broad lens, acknowledging all stakeholders in the space nationwide.

“If we’re going to talk about investment readiness, we really need to talk about it in the context of an ecosystem of investment,” she said.

She said peer-to-peer systems of developing investment readiness, such as networking, mentoring and training, were not well developed in Australia.

Drew agreed.

“The peer-to-peer process normalises your experiences in the business, so it’s enormously valuable,” she said.

She said a new approach to capacity building was needed.

“In our experience and in our observations…we often approach capability in a deficit space not a strength space,” Drew said

“There’s an opportunity to start rethinking that a little bit. A strengths-based approach compels us to be more analytic and diagnostic.”

She suggested looking at ways to promote understanding of the architecture of capacity and capability.

“We can scaffold the bits that are weaker, find ways to plug it,” she said.

The conference, hosted by The Centre for Social Impact and convened by Sandy Blackburn-Wright, former Head of Social Innovation at Westpac, concluded yesterday.