Untapped Potential: Philanthropy and Social Enterprise
If the term ‘social enterprise’ is new to you, or if you’re still trying to decipher exactly what it means, rest assured you’re not alone. There is no ‘typical’ form of social enterprise and no single, globally agreed-upon definition.
Government and non-government organisations, entrepreneurs, academics and practitioners use a variety of specific characteristics to describe it. To add to the confusion, social enterprises are sometimes referred to as a social business, co-operative, benefit corporation, or community interest company.
There is much discussion as to whether sidestepping a definition creates a diverse and inclusive environment, or whether it puts the value and meaning of social enterprise at risk of being co-opted and misused—much like sustainability, CSR and triple bottom line.
THE RISE AND RISE OF SOCIAL ENTERPRISE
While it has been around for a while, social entrepreneurship is now well and truly entering the mainstream.
Ten years ago ‘social enterprise’ was still on the fringe, predominantly known only by discerning optimists and academics. Today, a Google search of the term returns over 6.5 million results.
In Australia, there are over 20,000 social enterprises, contributing approximately 2-3 per cent of Australia’s GDP and employing up to 300,000 Australians.
More and more people are badging themselves as social entrepreneurs, new social enterprise accelerator programs are popping up every month, and impact investing is slowly gathering momentum.
Social enterprise is becoming increasingly popular as a way of describing an important new movement in business and entrepreneurship.
SOCIAL ENTERPRISE STRUCTURE
While a social enterprise can operate as a not-for-profit, in my experience, many entrepreneurs choose to take advantage of a for-profit company structure. For-profit social enterprises are able to avoid the administrative and reporting burdens associated with a nonprofit model, as well as the complexities surrounding deductible gift recipient (DGR) status.
For some, a for-profit structure allows them to stay lean and agile and is the most accessible and suitable vehicle for fostering social innovation and finding new and better solutions to society’s most problematic challenges.
For others, the decision to trade as a business avoids adding to an already diluted charitable sector or they simply don’t have the time, capacity or resources to pursue not-for-profit registration.
Despite addressing major social issues, as for-profit social enterprises, these organisations are ineligible for funding from many grant-makers, trusts, and other philanthropic funders which can be limited to funding organisations with DGR status.
In light of the constraints, how do for-profit social enterprises with intelligent, sustainable solutions to social challenges access the funding they need to develop their ideas, test them and bring them to market?
While the impact investing community is growing and should be encouraged, it is still in its embryonic stages and acquiring such funding is almost impossible for early-stage social enterprises.
While there are a handful of corporates and progressive organisations taking the lead, equity and debt-free funding opportunities are few and far between.
My own social enterprise journey would not have begun were it not for a happenstance opportunity offering capital to an aspiring social entrepreneur to get their idea off the ground. Two years on and it is still these same types of opportunities that have helped me grow and develop Promise or Pay.
Over this time I have met countless aspiring and inspiring social entrepreneurs from around the country. They may be young, but they are some of the most driven, creative, and visionary individuals I have ever met. If you’re lacking inspiration, go have a beer with a young social entrepreneur who has a unique solution to a well-researched problem.
Despite their talent and skills, much of their potential is never fully realised due to an inability to access the funding needed to start and support their enterprise in its early stages.
As they become part of the mainstream, it is imperative that such aspiring social entrepreneurs and their promising social enterprises are, like their charitable counterparts, given the financial support they need to bring about social change and make a positive impact on the world—especially in the early stages.
Traditional charities are no longer the only way to effect social change. With social sector organisations becoming more business-like, we need to change the mindset that ‘profit’ is a dirty word.
Philanthropists have a unique and incredible opportunity to harness this untapped potential and be a driving force and facilitator in the shift towards business models that are genuinely built around a social or environmental mission.
By supporting budding for-profit social enterprises, philanthropists can play a significant role in shifting the old profit-driven paradigm of business to one that is motivated by a higher purpose.
While there are already some brave philanthropists willing to support for-profit social enterprises and entrepreneurs, there is a need for more diverse funding opportunities to nurture social innovations that have the potential to change Australia and the world.
I believe we should be trying to shape a future in which businesses still make money but place equal value on creating a measureable social impact.
And I believe that the philanthropic community can be the catalyst and driver of this widespread and transformative social change.
This article first appeared in Generosity Magazine (2 June 2016)