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Strasbourg Conference on Social Entrepreneurship Social Entrepreneurs: Have your say! January 2014 European Social Investment Market Dr. Wolfgang Spiess-Knafl Civil Society Center (CiSoC) Zeppelin University Selected results of the ex-ante evaluation on “Imperfections in the Social Investment Market and options on how to address them” for the European Commission The Financing of Social Enterprises What is different? 2 Source: Spiess-Knafl (2012) Jan 16-17th, 2014 The Financing of Social Enterprises What else is different? Financing Structure Can the social enterprise repay the investment after a few years? No Yes Can the social enterprise pay a certain sum (interest, dividend) in each year? Yes No Donations 3 Equity Capital („Patient Capital“) Can the social enterprise pay a certain sum (interest, dividend) in each year? Nonrepayable Hybrid Capital Equity Capital Source: Achleitner, Spiess-Knafl, Heinecke, Schöning & Noble (2011) No Debt Capital (Interest-free loans) Yes Repayable Hybrid Capital Debt Capital Jan 16-17th, 2014 Mezzanine Capital Social Investment Market There is already a (small) Ecosystem 4 Institutions in the Traditional Capital Markets Institutions in the Social Capital Markets Commercial Banks Value Banks Investment Banks Social Investment Advisers Stock Exchanges Social Stock Exchanges Venture Capital Funds Venture Philanthropy Funds Investment Funds Social Investment Funds Research & Rating Agencies Funding Consultancies Source: Spiess-Knafl (2012) Jan 16-17th, 2014 Who are the actors? Venture Philanthropy Funds (Selection) Fund Country Assets Selected Investments Ilses weite Welt Germany € 15.7m UK £ 300m Rock your life Parlamentwatch Auto 22 Cloud.iq Historic futures Abakus NL n.a. Autest Loco Tender Concordia Italy € 10m Fraterniti Sistema Personal Energy Ecodair France € 5.5m Ethical Property Fonciere Chenelet 5 Source: Spiess-Knafl & Jansen (2013) Jan 16-17th, 2014 Who are the actors? Value Banks (Selection) Bank Country Assets (in billion Euros) Alternative Bank Switzerland Switzerland 1.0 Banca Popolare Etica Italy 1.0 Crédit Coopératif France 14.9 Cultura Bank Norway 0.1 Ecology Building Society UK 0.1 GLS Bank Germany 2.7 Merkur Cooperative Bank Denmark 0.3 Triodos Bank Netherlands 5.3 Total 6 Source: Spiess-Knafl & Jansen (2013) based on data of the Global Alliance of Banking on Values 25.4 Jan 16-17th, 2014 Who are the actors? Crowdfunding Platforms 452 Crowdsourcing Platforms worldwide USD 1.5bn raised > 1mn campaigns in 2011 Thereof > 650,000 in Europe Types of Platforms Equity-based Lending-based Reward-based Donation-based | 66% of donation-based and reward-based project generate less than USD 5,000 | 80% of equity and lending-based projects raise above USD 25,000 7 Source: Crowdsourcing (2012) Jan 16-17th, 2014 Social Finance Background Missing link between return and risk | No relationship between risk and return as in “classical investments” | Trade-off between financial and social returns | Typically, internal financing is preferred to debt to equity investments Missing pecking order Divergent return expectations 8 | Grant as a “cheap funding source” changes things | Investors might have different return expectations | Conflicts can arise concerning the overall strategy of the social enterprise Source: Spiess-Knafl & Jansen (2013) Jan 16-17th, 2014 Social Investment Market What could be better? Missing secondary market for equity investments Missmatch between sustainable and needed investment sizes The matching of supply and demand | No secondary market for equity investments (yet) for a number of reasons | Debt capital is widely used | Funds need to reach a certain size to become sustainable | Few social enterprises need large investments (at the moment) | Long way to access finance for social enterprises | Lack of “investment readiness” | Funding is often based on single financing period of 3-7 years Lifecycle cooperation | Little cooperation between different social capital market participants 9 Source: Spiess-Knafl & Jansen (2013) Jan 16-17th, 2014 Social Investment Market Key Recommendations 1. Increase the capital base (direct investment and signaling effect) 2. Facilitate lending for social enterprises by reducing the risk for capital providers 3. Support capacity building in the social investment market 10 Source: Spiess-Knafl & Jansen (2013) Jan 16-17th, 2014 Dr. Wolfgang Spiess-Knafl Civil Society Center (CiSoC) Zeppelin University Friedrichshafen Am Seemooser Horn 20 88045 Friedrichshafen