Financiación de empresas sociales: equilibrio entre impacto social y rentabilidad financiera.

FICHA DE TRABAJO #

FINANCIACIÓN DE EMPRESAS SOCIALES: EQUILIBRIO ENTRE IMPACTO SOCIAL Y RENTABILIDAD FINANCIERA.

Cristina Martinez-Acitores

Organización: Beyond Suncare

ESCP Europe

Facultad: Campus de Madrid

Departamento: Management

Contactar con Cristina

Social Entrepreneurship, Social Enterprise, Hybrid Typology, Social Financing, Social Investing, Impact Investment.

PROBLEMA ENCONTRADO Y FINALIDAD DE LA SOLUCIÓN

The main goal of this paper is to design a financing model for social enterprises that seek to reach financial profitability while delivering social impact. To do so, the thesis will focus on analysing financing decisions and business models from already launched social enterprises, by performing quantitative research using an online questionnaire, several theoretical-practical courses provided by professional experts and secondary data sources.

LECCIONES APRENDIDAS

Analyzing final results, together with questionnaire implications, the following recommendations are given:

5.1 Financing Sources

Entrepreneurs should find long-term investors that are aligned with their social mission, provide business skills support and do not represent a threat to their capital control. Considering the complexity of the current landscape, diversifying financing sources along business development is highly recommended, reducing risks and increasing available opportunities:

• Idea Phase: Bootstrapping is considered the most appropriate financing, considering the low capital needs at this stage (<5k€), together with highly flexible requirements.

• Creation Phase: Reward crowdfunding and Fools Family and Friends are considered the two sources most appropriate at this stage. Even though they would provide small financing capacity, they could increase brand awareness and be used as a small market pilot, testing consumers’ interest.

• Launch Phase: Business Angels or Venture philanthropy are regarded as the best capital sources to launch the business. These would bring the social entrepreneur very valuable business skills, high financing speed and flexible conditions that would match his requirements. Also, soft loans provided by financial institutions (ie the European Investment Fund) are seen as an attractive alternative, offering very good financing conditions, brand reputation and less demand from competitors (not widely known in Spain).

• Growth Phase: Impact Investment is found to be the ideal financing at this stage, since it could help the social enterprise to implement its growth strategy, supporting with business skills and industry networks. It is important at this point to access financing that values its social mission but also helps the company to improve its financial profitability. Capital control could be secured by accessing quasi-equity vehicles, that mix debt and profit-sharing mechanisms. Also, Equity crowdfunding and crowdlending platforms with a social focus could be attractive alternatives, although they usually result in higher costs and longer time consumed.

• Maturity Phase: Financing needs at this point could be more similar to traditional commercial approaches. Soft loans provided by the Instituto de Credito Oficial (ICO) could be a suitable option to secure capital ownership while incurring in low costs.

5.2 Profit Distribution mechanism

Findings coming out from the study of current social enterprises suggest that, the suitability of profit allocation models depends on the type of enterprise we are analyzing. Therefore, different mechanisms are recommended to different organizational structures:

• SE offering a product or service that is the solution to the social problem: since this type of enterprise has already integrated its social mission in the business model, our recommendation is they use a “Non-Monetary” mechanism. This will strengthen even further its social mission, while preserving its financial profitability.

• SE integrating the solution to the social problem in its value chain: since this type of enterprise integrates the solution in the value chain, we believe it might be more appropriate a combination of “Expense + Non-Monetary” mechanism. This strategy will allocate additional investment that solving the social problem might require, while not compromising a big portion of profit distribution.

• SE offering a product or service as a funding mechanism for its social mission: given the separation between commercial activities and social projects that characterizes this business typology, it is advised to implement a mechanism that allows this division while preserving the social purpose. A “Social Dividend” scheme that distributes the majority of dividends to sustain the social mission is found to be the best option. This mechanism can be adapted to business needs, providing more financial flexibility. Also, it will help to communicate more effectively the social mission in the beginning, ensuring the social purpose is not weakened over commercial profitability, but aligned with it.

5.3 Communication Strategy

ABSTRACT #

Over the last decades, the presence of social enterprises has grown extraordinarily, fostered by a combination of rising economic inequality, increasing market awareness and a switch in philanthropic funding models. Social enterprises aim to maximize social impact the same commercial businesses try to maximize profits. They lie between traditional philanthropic organizations and commercial enterprises, operating under a “hybrid” organizational model. One of the biggest challenges they face is accessing financing capital. They often face great difficulties due to their operational limitations, including profit-sharing mechanism, high-risk profile, lower income potential and complex governance structures.

The main goal of this paper is to design a financing model for social enterprises that seek to reach financial profitability while delivering social impact. To do so, the thesis will focus on analysing financing decisions and business models from already launched social enterprises. Quantitative research was performed using an online questionnaire, several theoretical-practical courses provided by professional experts and secondary data sources. Research analysis showed that social entrepreneurs are facing the same challenges other entrepreneurs do, while also addressing the need to proof investors their economic profitability, delivering innovative social solutions and measuring their social impact. This paper recommends that social entrepreneurs find long-term investors that value their social mission and can contribute with professional business skills to succeed in their venture. Different profit distribution mechanisms are suggested depending on the social enterprise typology, including non-monetary rewards, social dividends and expense allocation. Social enterprises should also consider their hybrid identity to communicate their project, assigning overall the same relevance to their social mission and business competitive advantage.

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