Strasbourg Conference on Social Entrepreneurship Social Entrepreneurs: Have your say! January 2014 European Social Investment Market Dr. Wolfgang Spiess-Knafl Civil Society Center (CiSoC) Zeppelin University Selected results of the ex-ante evaluation on “Imperfections in the Social Investment Market and options on how to address them” for the European Commission

Jan 16-17th, 2014 The Financing of Social Enterprises What is different? 2 Source: Spiess-Knafl (2012)

Jan 16-17th, Source: Achleitner, Spiess-Knafl, Heinecke, Schöning & Noble (2011) What else is different? The Financing of Social Enterprises Can the social enterprise repay the investment after a few years? Can the social enterprise pay a certain sum (interest, dividend) in each year? NoYes Donations Equity Capital („Patient Capital“) Non- repayable Hybrid Capital Equity Capital Debt Capital (Interest-free loans) Repayable Hybrid Capital Debt Capital Mezzanine Capital No Yes NoYes Financing Structure

Jan 16-17th, 2014 Social Investment Market There is already a (small) Ecosystem 4 Institutions in the Traditional Capital Markets Institutions in the Social Capital Markets Research & Rating Agencies Funding Consultancies Investment Banks Social Investment Advisers Commercial BanksValue Banks Investment Funds Social Investment Funds Venture Capital Funds Venture Philanthropy Funds Stock Exchanges Social Stock Exchanges Source: Spiess-Knafl (2012)

Jan 16-17th, 2014 Who are the actors? Venture Philanthropy Funds (Selection) 5 FundCountryAssetsSelected Investments Germany € 15.7m Ilses weite Welt Rock your life Parlamentwatch UK £ 300m Auto 22 Cloud.iq Historic futures NLn.a. Abakus Autest Loco Tender Italy € 10m Concordia Fraterniti Sistema Personal Energy France € 5.5m Ecodair Ethical Property Fonciere Chenelet Source: Spiess-Knafl & Jansen (2013)

Jan 16-17th, 2014 Who are the actors? Value Banks (Selection) 6 BankCountryAssets (in billion Euros) Alternative Bank SwitzerlandSwitzerland1.0 Banca Popolare EticaItaly1.0 Crédit CoopératifFrance14.9 Cultura BankNorway0.1 Ecology Building SocietyUK0.1 GLS BankGermany2.7 Merkur Cooperative BankDenmark0.3 Triodos BankNetherlands5.3 Total25.4 Source: Spiess-Knafl & Jansen (2013) based on data of the Global Alliance of Banking on Values

Jan 16-17th, 2014 Who are the actors? Crowdfunding Platforms Crowdsourcing Platforms worldwide USD 1.5bn raised > 1mn campaigns in 2011 Thereof > 650,000 in Europe Types of Platforms Equity-basedLending-basedReward-basedDonation-based |66% of donation-based and reward-based project generate less than USD 5,000 |80% of equity and lending-based projects raise above USD 25,000 Source: Crowdsourcing (2012)

Jan 16-17th, 2014 Social Finance Background 8 Missing link between return and risk |No relationship between risk and return as in “classical investments” |Trade-off between financial and social returns Missing pecking order |Typically, internal financing is preferred to debt to equity investments |Grant as a “cheap funding source” changes things Divergent return expectations |Investors might have different return expectations |Conflicts can arise concerning the overall strategy of the social enterprise Source: Spiess-Knafl & Jansen (2013)

Jan 16-17th, Missing secondary market for equity investments |No secondary market for equity investments (yet) for a number of reasons |Debt capital is widely used Missmatch between sustainable and needed investment sizes |Funds need to reach a certain size to become sustainable |Few social enterprises need large investments (at the moment) The matching of supply and demand |Long way to access finance for social enterprises |Lack of “investment readiness” Lifecycle cooperation |Funding is often based on single financing period of 3-7 years |Little cooperation between different social capital market participants Source: Spiess-Knafl & Jansen (2013) Social Investment Market What could be better?

Jan 16-17th, Source: Spiess-Knafl & Jansen (2013) Social Investment Market Key Recommendations 1.Increase the capital base (direct investment and signaling effect) 2.Facilitate lending for social enterprises by reducing the risk for capital providers 3.Support capacity building in the social investment market

Dr. Wolfgang Spiess-Knafl Civil Society Center (CiSoC) Zeppelin University Friedrichshafen Am Seemooser Horn Friedrichshafen