Yesterday, the The Ontario Nonprofit Network (ONN), an incubated project at the Centre for Social Innovation (CSI) and the Social Venture Exchange (SVX), an initiative of Social Innovation Generation (SiG) at MaRS, jointly released the first ever Social Finance Census 2010 which dug into the social finance needs and readiness of nonprofits, social enterprises and business to undertake social ventures. Executive Report
The Census data on 250 social ventures, from nonprofits to social purpose businesses, demonstrated a mature and growing sector that is innovative and entrepreneurial. However, the ability of these ventures to tackle social and environmental problems is constrained by limited access to capital, legal and regulatory barriers, and other resource needs. In total, capital need is estimated at $170 million for the profiled ventures.
“The increased public profile of social enterprises and social purpose businesses in recent years corresponds to a real growth trend,” said Lynn Eakin, Interim Network Director of ONN. “But we also have a long tradition of social venture activity in Ontario.”
According to the research, nearly half of the social enterprise and social purpose business respondents started operations in the past five years. Additionally, one-third of nonprofit respondents without social enterprise activity have plans to start a new venture in the next two years. This recent growth comes in a sector that is also quite mature. One in five social enterprises has been operating for over 25 years, and one in four social purpose businesses have been operating for over 10 years. Social venture activity has become very important: 86 per cent of nonprofits with social enterprise activity indicated that they are trying to earn more of their revenues through such activities. For one in four of the nonprofits with social enterprise activities, such activities contribute more than 50 per cent towards the parent nonprofit’s operating budget.
“Despite recent growth, social ventures have significantly inadequate access to capital, preventing them from effective start-up, growth, or continuation of their operations,” said Adam Spence, Manager, Special Projects, SiG@MaRS. “As a result, there are tens of millions in unmet capital need for ventures that could be tackling our most pressing social and environmental problems.”
Social ventures reported that a major barrier to success was access to capital: approximately 80 per cent of social purpose businesses, 75 per cent of social enterprises and 70 per cent of nonprofits currently not engaged in social enterprise reported that access to capital is a significant challenge. The impact of increased access to capital could be tremendous. For example, 80 per cent of social purpose business respondents stated that they could more effectively achieve their mission with improved access to capital for growth, infrastructure, or working capital.
The majority of social ventures need additional capital in the next two years: 66 per cent of nonprofit social enterprises and 61 per cent of social purpose businesses. Fifty seven (57) per cent of nonprofits without social enterprises need capital to start-up a venture in the next two years. The demand for capital is significant. The aggregate average capital need amongst survey respondents is estimated at $170 million. This only represents a portion of capital demand in Ontario, as survey respondents represent a sample of social ventures in the province.
There were also interesting trends in the individual level of capital need and desired source of financing. Half of all capital need was for individual amounts of between $50,000 and $1 million. In addition, approximately half of all nonprofit respondents and 70 per cent of social purpose businesses would be interested in pursuing debt financing. Over half of the social purpose businesses stated that they would be willing to issue public or private equity to meet capital need.
“We could create a tremendously positive impact for our community with a relatively small investment,” said Alex Kjorven, Development Manager at ACCESS Community Capital Fund. “Our impact is not limited by our vision, our business plan, or our track record, but by our inability to access funds from mainstream sources.”
Beyond financing, Census respondents reported on barriers and other resource needs. Other highlights of the report’s findings include:
- Half of all nonprofits selected one or more legal and regulatory considerations as barriers to engaging in social enterprise
- Greater certainty regarding the application of legislation and regulation that govern social enterprise activity is needed for 65 per cent of all nonprofits (62 per cent for those currently pursuing such activity, and 66 per cent for those not yet pursuing such activity)
- Forty eight (48) per cent of social purpose businesses reported the lack of financial market intermediaries to facilitate the flow of capital as a major barrier
- For over 45 per cent of all nonprofits, lack of business development support is an important barrier to social enterprise activity
- Eighty-three (83) per cent of social purpose businesses, 63 per cent of nonprofits with social enterprise and 65 per cent of other nonprofits are interested in social and/or environmental measurement tools to measure the impact of their work.
The Census follows the release of the Canadian Task Force on Social Finance, a blue ribbon panel that offered seven key recommendations on building the social finance marketplace in Canada.