Telepresence on financing Social Innovation

11.12.2013 Blog

On Wednesday 11th December, Social Innovation Exchange and Tepsie hosted a Telepresence discussion exploring methods of financing social innovation. We heard a presentation from Gunnar Glänzel and Georg Mildenberger from the University of Heidelberg, exploring ‘(The future of) Generating capital flows for social innovation’ and then had an opportunity to participate in a discussion about the issues it raised.

In the presentation, based on work done as part of Tepsie Work Package 4 (Generating Capital Flows), Gunnar and Georg explained how their team had set out to explore the mismatch between the needs of innovators and the requirements of investors by conducting a survey with social innovators across six European countries. The survey explored a wide variety of issues, including the extent to which social innovators felt ready to receive outside investment and the financial instruments that were deemed suitable for funding their work. They found that less than ten percent of innovators felt ready to benefit from commercial investment, while over forty percent were willing to explore social investment mechanisms. Despite this, the overwhelming preference amongst the innovators surveyed was to receive funding in the form of grants and donations rather than loans or other investments.

Gunnar summarised the core innovator and investment needs as follows. He perceived that innovators are looking for: low cost capital, autonomy, and non-financial support. Investors on the other hand are looking for: low transaction costs, impact measurement and an adequate risk return ratio. The team looked in particular at how the availability of investment ready organisations (what they termed 'organisational manifestation') and how far framework conditions for social investment were in place ('institutionalisation') varied between the countries surveyed.

They used these two variables (organisational manifestation and institutionalisation) to create a matrix of different social investment scenarios. 

 

In the first scenario, Institutionalisation is high as is Organisational Manifestation, leading to a Social investment Boom. In the second, Institutionalisation is low as is organisational manifestation, leading to a wasteland scenario where social innovation is considered unimportant. In the third scenario, institutionalisation is high while organisational manifestation is low, leading to singular, fragmented approaches. Finally, in the fourth sceneration, organisationational manifestation is high while instituationalisation is low, leading to innovative, but not mission driven approaches.

Finally, Gunnar closed with a series of recommendations to improve the funding situation for social innovation. He recommended that market and government support for social innovation was needed to improve currently precarious income models. He also suggested that investment practices and requirements be adapted in order to finance social innovation. And he stressed a need for more co-operation between types of actors to lower capital costs, reduce risks and provide non-financial support.

Following the presentation Louise Pulford chaired a group discussion in response to the presentation. Some of the key points from participants included:

- Alex Nicolls noted the recent publication by the UK government of a consultation on social investment tax relief, which fits well with Gunnar’s closing recommendations. However, he cautioned that the government was very focused on struturing this incentive in a way to guard against abuses. This may create a rigid policy which will impact on how it is received by the investment community.

- Peter Ramsden also expressed caution about the impact of tax credits, noting how in the past they have faoured free rider behavior. He also questioned how much a tax credit policy would attract additional investment as opposed to just sucking in existing investment. And he felt there is a useful analogy in the commercial trajectory in investment we have seen in the world of microfinance, which we should take heed of.

- Olivier Boulet from the European Commission noted that while the EU has stated its commitment to the social economy, and has a number of initiatives to encourage its development, its role is to develop frameworks and it is up to the individual to decide whether and how to make this a priority. 

- Mirko Schwaerzel cautioned that we need to define who we mean when we talk about social innovators. He argued that we need a typology of actors in order for our recommendations to become more specific.

- Simon Tucker noted that the conversation thus far had been focussing mainly on social enterprises, as opposed to organisations which are innovative but grant funded; there will always be important social innovations which can only be grant funded, he argued. He also highlighted the need not to forget the problems that are faced by medium sized enterprises when it comes to accessing finance, as it is generally easier to access either very large or very small amounts of money. 

- Madeleine Gabriel from UnLtd reminded us of the human side of investment. She cautioned that many social enterprises lack the networks to give them proper access to investors, and they often fear what will happen should they accept social investment and whether this will compromise their autonomy.

SIX will be be posting audio and video from the session on their website if you'd like to hear more. Many thanks to all our participants, to Louise for chairing and to SIX for facilitating a great discussion. TEPSIE will be hosting a further TelePresence later this year looking at scaling the ecosystem to support social innovation– keep an eye on our website and newsletters for details.

Participants

Arhus, Denmark
John Rene Keller Lauritzen, Danish Technological Institute

Berlin
Mirko Schwaerzel, National Network for Civil Society (BBE)

Brussels
Marina Manzone, European Commission (DG CONNECT)

Olivier Boulet, European Commission

Jef Tavernier, European Federation of Ethical and Alternative Banks and Financiers

Eschborn, Germany
Georg Mildenberger, University of Heidelberg
Gunnar Glänzel, University of Heidelberg

London

Louise Pulford, SIX
Kine Nordstokka, SIX
Julie Simon, the Young Foundation

Rachel Schon, the Young Foundation

Anna Davies, the Young Foundation
Oliver Yoka, SIX
Simon Tucker
Peter Ramsden, Freiss Ltd
Madeleine Gabriel, UnLtd