The 4 Ps: Financial Collaboratives for Purpose-driven Organisations
Whether you’re an established organisation or just starting out, you can’t avoid the fact that you need finance to kick things off or keep them growing.
You won’t always find a financial solution that is straightforward or simple. It’s likely you’ll need to work with multiple stakeholders on a “blended” finance structure.
Read on for Sefa’s 4 Ps (Partnerships, Passion, Pathway & Persistence), on starting a social enterprise or investing in entrepreneurial growth.
Let’s start with some definitions. The financial “Collaboratives” we are exploring involve impact debt plus a grant from government or philanthropy.
Here are two ways this can work:
Growth case: a purpose-driven organisation reinvests any surplus back into their business. As they’re mainly NFP or charitable entities, they can’t raise equity through issuing shares. As projects usually can’t be financed 100% by debt, philanthropy provides the ‘equity’ piece when the organisation doesn’t have enough cash reserves.
Start-up case: a new social enterprise or NFP spin-off has no track record and limited proof of debt serviceability. To provide more certainty of repayment to a lender and a responsible financial solution for ventures yet to prove their business model, philanthropy can give a grant or guarantee to unlock impact debt.
And now the 4 ingredients that can help make financial Collaboratives succeed:
When putting together the puzzle-pieces of various financial stakeholders, it is important to nurture strong and lasting partnerships. Each stakeholder will have a different working culture and requirements and it’s worth establishing these up front. Patience will be required to make the timeline work for all parties. You will need to invest resources into managing your partnerships, to drive the project forward and stay on top of negotiations. These partnerships can pay off more than just financially. Long-term partnerships can also provide ongoing support, networking opportunities and input into your business model.
Sefa client example: Jarjum Centre is an accessible and inclusive Indigenous preschool in Lismore offering culturally appropriate and safe early childhood education programs and care, parent and family support, and health services. Jarjum’s passionate director Maurita Cavanough has fostered community development and built strong relationships with partners working together on a project to purpose build a new facility. Partners have assisted by providing services for reduced fees or on a pro bono basis, introducing others, property and grant contributions, and donations of time or goods. If you don’t have expertise in a certain field, it can be useful to partner with professional services providers who can assist with tasks like financial structuring, project management and legal advice.
To manage the complexity of multiple stakeholders, all parties need to keep bringing their passion to the table. Remind your partners that you’re all working together towards the same social outcome and a sustainable finance solution. Sharing common goals keeps the momentum and, together with open communication, establishes a sense of belonging in the group. This is the energy that keeps Collaboratives going over many years.
Sefa client example: Tender Funerals are a social enterprise that provide affordable and culturally sensitive funerals. In 2014 Tender was featured in an ABC television documentary and the original idea started to gather momentum. The start-up received overwhelming support via a crowdfunding campaign, then the second largest in Australia. Tender Funerals took five years of work in the community, followed by two years intensive project management by Sefa, in collaboration with the Vincent Fairfax Family Foundation. This work ranged from financial modelling, to business planning and introductions to other parties. The Tender management team and Sefa built a trusted working relationship and together drove different parts of the project, with each contributor playing to their strengths.
A Collaborative can get your purpose-driven organisation onto the pathway towards investment readiness and beyond. A Collaborative focuses on solutions that make financing costs more affordable while providing the discipline and rigour to take on commercial impact debt. This proves the viability of the business model and sends a strong signal to future investors as the organisation grows and seeks additional capital.
Sefa client example: Sefa assisted in arranging a Collaborative impact lending solution for Wildlife Wonders, an eco-tourism business, to secure land in the Otways National Park. This created the track record to engage funders in conversation for funding stage two, in order to establish operations. The due diligence undertaken for Sefa debt helped smooth the way for the patient debt from philanthropy, to come in alongside Sefa.
Persistence will be required to facilitate your Collaborative. Your financial solution will take time to orchestrate and it’s important not to forget what you’re working towards. Again, it helps if you have a leader driving the project forward. The strong partnerships you have built will help to overcome barriers you meet along the way.
Sefa client example: Shopfront is a youth arts organisation offering accessible, multidisciplinary arts programs to at risk, culturally and linguistically diverse and disabled young people. Shopfront were able to secure funding for expansion of their premises after 3.5 years of working through the development application process; submitting grant applications to Commonwealth and State government, Clubs and Foundations; and collaborating with Sefa to explore a variety of loan structures appropriate to the stage of the multiyear arts funding cycle and projected rental income. As is common, project costs increased during the delayed development application and fundraising timeframe and the structure and cost of funding needed to be consequently adapted. Shopfront’s resilience when presented with bumps along the pathway was reinforced by their passionate belief in their goals and close partnerships with organisations sharing these goals.
Sefa is excited to join the NSW Council of Social Service (NCOSS) at the Investing for Good Conference 2019 on Thursday 9th May at Pier One Hotel, Sydney. The conference will bring together over 200 delegates from Government, the social services sector, philanthropy and business through an exciting, dynamic and thought-provoking program to encourage peer to peer learning.
The I4G 2019 program launched this week is organised across three distinct themes:
1) Share the journey: a series of case studies – celebrating and highlighting the roadmap to investment
2) Measuring your impact: critical skills development identifying and articulating your impact
3) Setting your business for success: knowledge building for investment readiness
The I4G Conference will conclude with an exciting and dynamic performance from Shopfront, an inclusive youth arts organisation who have effectively engaged with impact investment.