Social enterprises exist on a continuum between grant-funded non-profits (driven by social / environmental need) and social purpose business (primarily profit driven), demonstrated in the figure below.
Pure Commercial Enterprise
Business Giving Portion of Profits to Charity
Socially Responsible Business
Social Purpose Business
Enterprising Arm of a Charity
The community non-profit sector
The community non-profit sector is building new innovative business models for generating earned income that helps to diversify its funding base to complement donations and government grants, and build greater self-determination. Because the needs of our communities are only growing, it is expected that the demand for social finance will only increase.
Social enterprises have emerged as enterprising non-profits from the non-profit sector (often operated by a charity, non-profit, or co-operative) and as social purpose businesses from the for-profit sector (usually privately owned, and operated on a for-profit basis).
Social enterprises support any range of issues including: affordable housing, sustainable agriculture, poverty reduction, job creation, health and home care, education, fair trade programs, micro-finance initiatives, or green energy projects.
While a traditional business generally seeks to maximize its financial profits for owners / shareholders, a social enterprise seeks a social / environmental return plus a financial return. This is often referred to as a ‘blended value return’.
How enterprising non-profits use social finance
As we work towards a more formalized and navigable social finance landscape in Canada, many trailblazing organizations are using the tools of social finance to support their mission. Ways in which enterprising non-profits finance their ventures are creative and ad hoc.
One of the most exciting aspects of solid social finance deals is the ‘fit’ between the enterprise and investor. These examples illustrate a range of different ventures with unique needs, paired with capital aligned to their specific values and goals.
This section highlights five deals in the social finance space illustrating a spectrum of relationships between investors and ventures.
Centre for Social Innovation
This social finance deal was made between theCentre for Social Innovation (CSI), Alterna Savings, and the City of Toronto. What makes this deal unique is the use of community bonds: repayable debt instruments that are RRSP-eligible.
CSI is an enterprising non-profit with a mission to catalyze, connect, and support new ideas that make positive change happen. The Centre runs an enterprise hub in downtown Toronto offering individual entrepreneurs shared working space consisting of private offices and part-time ‘hot-desks’. The tenants share board rooms, meeting rooms, a kitchen, reception services, and office equipment.
In 2010, CSI posted a community bond to renovate a second building that it had purchased in order to replicate and expand on its current space. Between two offering series, the community bond successfully raised over $1.7 million.
Click here for more information on how a community bond works.
Organic Meadow Inc.
This social finance deal was made between Organic Meadow Inc. and Investeco, a Toronto-based blended value investment fund.
Organic Meadow Inc. is the oldest and largest organic dairy brand in Canada. Its roots stretch back to 1989 when a group of dairy farms joined together to form OntarBio (now Organic Meadow Co-operative), Canada’s largest dairy co-operative. In 1995, they developed the Organic Meadow brand to in order to optimally distribute and market their products.
The environmental objectives of Organic Meadow are rooted in their ‘dedication to encouraging ecologically sound, diverse, self-reliant farm units’. Organic Meadow also has a clear social mission, ‘to build unity among farmers based on the principles of co-operation’.
Investeco made an equity investment of $1.5 million to Organic Meadow in 2004. Investeco was attracted to the co-operative’s strong relationship with distributors and the potential to grow the company with the help of expansion capital. In 2008, Investeco sold the company back to the dairy farmer co-operative, generating return on investment of approximately 400%.
What makes this deal unique is a) alignment of interest between the dairy farmer co-operative and Investeco due to the fund’s objective of generating both financial and environmental returns, b) shared confidence in the growth trends in sustainable agriculture and organics and c) Investeco’s close relationship with company management and its ability to achieve a successful exit by selling the company back to its original owner.
Pukwis Community Wind Project
This is a joint venture between the Chippewas of Georgina Island First Nation, Windfall Ecology Centre, and the Province of Ontario. What makes this deal unique is the social and environmental return combined with the investment considerations outlined below.
Pukwis Community Wind Project is a 54 MW wind farm that will include reductions in greenhouse gas emissions (15,000 tonnes annually), production of green energy (powering 7,500 homes), and the injection of local energy into the grid. The project will also serve as a highly-visible environmental education tool.
The project’s social returns will include job creation for the local First Nation members, and the broader community; plus revenue generation for existing and new First Nation programs; and community engagement in renewable energy issues.
St. John’s Bakery
This social finance deal was made between St. John’s Bakery and the Toronto Enterprise Fund (TEF), a funding partnership between United Way Toronto and three levels of government. The partners have committed over $1 million annually to the Fund since its inception. What makes this deal unique is that a grant allowed the venture to grow to become a successful triple bottom line business.
St. John’s Bakery is a Toronto-based social enterprise run as a project of St. John the Compassionate Mission, a registered charity dedicated to alleviating poverty by providing food security, employment training, and shelter to marginalized people. The Bakery was launched in 2004 as an extension of the Mission’s 20-year practice of baking bread for the community it serves.
As an enterprise, the Bakery is focused on producing high-end European-style breads and sweets, and employs people who have been outside the labour market, offering them training and a chance to progress to permanent employment positions within the Bakery or elsewhere. In addition, as part of its social mission, the Bakery supplies the Mission’s daily meal program with its products.
The Bakery also has an environmental purpose with respect to using organic and/or local ingredients in its operations, and promoting local and sustainable agriculture.
The start-up funding for the Bakery came in the form of a $35,000 grant from TEF. TEF’s parameters include a requirement that business revenues exceed $300,000. Since 2004, TEF has provided a total of approximately $350,000 in grants to the Bakery to meet its working capital and technical assistance needs.
Although the Bakery has received funding from other sources over time (with TEF’s early support providing a strong positive signal to other funders), its current funding is exclusively from TEF. This support is scheduled to decrease each year, under TEF’s three-year funding renewal program. The Bakery’s sales revenues have grown from $81,000 in 2004 to $740,000 in 2009, and it is expected to become completely self-sufficient in the next two to three years.
Atira Property Management Inc.
This social finance deal was made between Atira Property Management Inc., Social Capital Partners, and Vancity Savings Credit Union. What makes this deal unique is that the loan was conditional upon Atira’s social impact.
Atira Property Management (APM) is a corporation that provides a range of financial, administrative, and physical property management services to residential and commercial property owners throughout the Vancouver area.
The social impact of Atira Property Management links to its ownership structure. Its parent organization, Atira Women’s Resources Society (a charity dedicated to helping women and children experiencing violence), receives profits generated by the for-profit property company.
APM is also responsible for the creation of almost 100 quality jobs. A substantial number of employees are women re-entering the workforce and residents of low-income areas in Vancouver’s Downtown East Side.
Social Capital Partners, a Toronto-based blended value investment firm, invested in Atira alongside Vancity, a Vancouver-based credit union. Social Capital Partners provided $90,000 in loans in May 2005 plus $76,000 in December 2005. Both loans had five-year terms, the first one with an interest rate of 10% and the second one with a rate of 6%. A condition for both loans was that 50% of employees of APM were social hires.
THE WHAT, WHY, WHO, AND MOST IMPORTANTLY, THE HOW OF SOCIAL FINANCE IN CANADA.
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The contents of Your Guide to Social Finance is general in nature, current only as of the date of publication and is provided for informational purposes only. It is not intended to provide professional investment or financing advice. Please consult a certified professional before making any decision regarding your investments and financing.