Blended returns combine financial and social returns and are at the heart of Canada’s $755 million Social Finance Fund. You have a few options when selecting a business structure that will provide blended returns and set you up to access social financing:
- For-profit structures like socially responsible corporations
- Co-operative social ventures
- Non-profit organizations and co-ops
- Charities, and social purpose businesses
Whichever path you choose, remember that incorporation will affect your governance structure and your ability to secure investment and other types of funding. It also may preclude you from accessing certain kinds of investment. For example, non-profits cannot offer share capital and will typically need to look to debt financing. And a for-profit that values social return over financial may be a hard sell to traditional investors.
Whether you decide to incorporate as a for-profit company, a non-profit, or a co-op, demonstrating both financial and social returns will be a requirement if you intend to seek social finance investment.
The purpose of a corporation is to generate financial returns. Looking at different types of corporations on a spectrum, you’ll find “pure” commercial operations on one end. The only thing those shareholders and investors care about is making money. They will not care about a social impact report.
Next, we have the socially responsible corporation. It’s hard to find a company in 2023 that doesn’t at least pretend to have a corporate social responsibility policy… because branding and reputation. Lockheed Martin? Even they “give back” to the community by training underprivileged youth so that they may someday, uh, work on hypersonic missiles and fighter jets.
If we keep moving to the right of the diagram, at the end we find that even charities can start a social venture, as long as it aligns with its mandate and strict government regulations.
While demonstrating financial and social returns sounds like a lot – and it is a bigger job than non-social-purpose companies have – the benefit of social finance is that it is structured to be easier for mission-driven organizations to access and manage. So, for example, you will get lower interest rates, more flexible repayment schedules, and possibly zero-interest recoverable grants. Work with investors or funders who fundamentally understand this.
If you can demonstrate solid financial returns, equity investment from a social investor may be possible. But you will have a hard time capturing the interest of a venture capitalist (VC) without the potential for a very high return on investment.
You may be thinking, “We probably won’t be able to generate a financial rate of return at or above market.” Hey, that’s okay! You can focus on investors and partners who will structure a deal with you that isn’t equity-based, like low-interest loans or royalties — or Weird Ghosts’ SEAL agreement