A social-purpose organization is a nonprofit, a charity, a co-operative, a social enterprise for-profit, or a hybrid structure with a clear social, environmental, and/or cultural mission at the core of their operation.
An organization can demonstrate a social purpose, for instance, by mapping how the core of its work contributes to the Sustainable Development Goals, or by demonstrating adoption of the Common Approach to Impact Measurement as integral to your operations. A corporate social responsibility program is not a social purpose.
Social finance intermediaries are entities that pool capital from investment sources (e.g. foundations, government, financial institutions, individuals) and deploy investments into borrowers and investees that use the investments to achieve a positive social, environmental, and/or cultural impact. Examples of some social finance intermediaries include: New Market Funds, Raven Indigenous Capital, Chantier de l’Économie sociale, Fondaction, Social Enterprise Fund, VERGE Capital, Rhiza Capital, Marigold Capital, etc.
The Social Finance Fund is a federal government initiative by Employment and Social Development Canada (ESDC) to increase the amount of affordable repayable capital available to social, environmental, and cultural mission organizations.
Social finance is repayable investment that seeks to generate a positive social, environmental, and/or cultural impact. Repayable investment is money that an organization receives upfront to carry out a project while planning to repay the money over a period of time in future. Repayable investment has many forms, for instance: loans, mortgages, lines of credit, asset financing, community bonds, social impact bonds, revenue-share agreements, equity (owning shares of a company), etc.
Organizations use repayable investment to purchase assets, to spend now in order to generate future revenue or prevent future costs, as well as to launch and scale social enterprises.
Social-purpose organizations are eligible to access the Social Finance Fund including nonprofits, charities, co-operatives, social enterprise for-profits, and hybrid legal structures.
The federal government has committed up to $755 million towards the Social Finance Fund with an expectation that the Social Finance Fund’s investments will be matched 2:1 by the private sector for a total of at least $1.5 billion available to social-purpose organizations over the next decade.
Social-purpose organizations are expected to repay the investments with a rate of return that will vary by the social finance intermediary. The federal government is expected to offer the Social Finance Fund on concessionary terms to social finance intermediaries which will allow those intermediaries to offer investments to social-purpose organizations with below-market rate return expectations (e.g. lower interest rates on a loan).
Requirements for down-payments and collateral (e.g. guarantees, assets offered as security) when accessing a social finance loan will vary by the nature of your project and the social finance intermediary. Your organization should inquire, negotiate and understand these requirements when discussing an investment with an intermediary.
Organizations access social finance through intermediaries. Examples of social finance intermediaries with a track-record of making social finance investments include: New Market Funds, Raven Indigenous Capital, Chantier de l’Économie sociale, Fondaction, Social Enterprise Fund, VERGE Capital, etc. This list is for illustrative purposes only as the Social Finance Fund has not yet begun making investments into any intermediaries.
The Social Finance Fund will be available starting in late 2020 or early 2021. The federal government will gradually increase their investment into social finance intermediaries over a period of 9 years.
The federal government has committed $755 million towards the Social Finance Fund with an expectation that it is matched 2:1 by the private sector (i.e. for every $1 of public investment, there is anticipated to be $2 of private investment). The private sector will invest alongside the government into social finance intermediaries who are responsible for achieving the matching target. Social-purpose organizations (i.e. the end-users of the social finance) are not required to meet a matching criteria.
Examples of possible private investors include:
The Investment Readiness Program (IRP) is a federal government initiative by Employment and Social Development Canada (ESDC) to strengthen organizations to participate in the social finance marketplace. The IRP offers non-repayable capital to purchase services to help social-purpose organizations and social finance intermediaries to access and manage social finance investment.
Social-purpose organizations and social finance intermediaries are eligible for the Investment Readiness Program. This includes Canadian registered nonprofits, charities, co-operatives, social enterprise for-profits, and hybrid structures that have a clear social, environmental, and/or cultural impact within Canada.
Organizations access the Investment Readiness Program (IRP) through specified IRP partners:
The Investment Readiness Program is a $50 million non-repayable capital program. The amount available per organization will vary by the IRP partner administering the non-repayable capital. For instance, Community Foundations of Canada will be offering amounts between $10,000 to $100,000 of non-repayable capital per organization per round of proposals.
The Investment Readiness Program (IRP) has begun and will end by March 31, 2021. Specific dates will be provided by these IRP partners: Community Foundations of Canada, Canadian Women’s Foundation, Le Chantier de l’Économie sociale, National Aboriginal Capital Corporations Association, and the National Association of Friendship Centres.
Eligible uses of the Investment Readiness Program (IRP) non-repayable capital are one-time or time-bound expenses to strengthen your organization to access social finance. The intention is to help your organization pay service providers to help you progress in your investment-readiness journey.
Examples of what would be considered eligible expenses include: consulting and coaching support to conduct a feasibility study or market study, services to strengthen a business plan or financial model, accounting expertise to institutionalize standard financial practices, legal services to be compliant with regulations, fundraising services to support with investor relations during your capital raise, etc.
Examples of ineligible expenses include: core programmatic costs, core operating costs like personnel and office expenses.
A common question is whether one can use the IRP to pay oneself to conduct a feasibility study or to complete a business plan, etc. As described above, the IRP intends for organizations to pay service providers (e.g. coaches, consultants, firms) to strengthen your organization. Some IRP funding partners may be open to a small percentage of the proposal being to pay in-house staff for investment-readiness coordination and project management, while other IRP funding partners will not prioritize such expenses in their approval process.
Your organization can select the service provider of your choice, though of course, the selected service provider should be capable of meeting your investment-readiness needs. Below are some helpful lists of service providers, but you are not required to select from the list:
No, by participating in the Investment Readiness Program, you are not required to subsequently raise social finance. While it is certainly the intention of the Investment Readiness Program to progress organizations to become investment-ready, it is accepted that actually raising investment may happen after multiple years or not at all.
Investment readiness does not have a rigid or strict definition—there is unfortunately no magic bullet nor recipe which if followed automatically qualifies you for social finance. Fortunately, there are common ingredients to position your organization to be attractive to investors. Some of these ingredients include a:
Consider applying to Innoweave’s free workshop to help you assess your organization’s investment readiness.
Various ecosystem mobilizers have been identified as Investment Readiness Program partners working to resolve system-level gaps. These ecosystem mobilizers include: