Our first workshop dived into the broader topic of developing impact investing ecosystems. Andreja Rosandić, Stakeholder Manager at the European Venture Philanthropy Association (EVPA), and our CEO Sofia Breitholtz shared practical learnings on creating a thriving impact investing ecosystem, and why that’s important for all stakeholders, including investors. We gathered the key takeaways from the discussion:
The impact economy is growing
The impact economy is on the rise, with philanthropy converging into the realm of traditional investment. Impact investors are becoming more numerous, and awareness and capital in this sector are growing steadily. An important milestone was the launch of the European Commission’s Social Economy Action Plan, which envisions that over €2.5 billion will be invested in the sector over the next few years.
Zooming into the Nordics
The Nordics are famous for their robust welfare systems and for being a frontrunner in Europe when it comes to innovation, with Sweden ranking second in the number of unicorns, closely trailing Silicon Valley. However, it lags in investing in social innovations, and developing its social economy and social finance market, particularly concerning inequality and demographic shifts.
We should recognize the economic potential of the social economy. We need other types of service providers, as the public sector can’t deliver everything, and to the quality we expect.
Social entrepreneurs have a lot of potential but they need support to develop and scale. In 2021 Reach for Change partnered with Ashoka Nordic to co-create the Nordic Changemaker Map - a health check on the Nordic social entrepreneurship ecosystem. The results showed that many social entrepreneurs are still stuck in survival mode. They struggle to make the leap from project financing to sustainable business models. Many of the over 350 surveyed social entrepreneurs share a need for more networks and knowledge-sharing platforms, as well as hybrid and flexible finance.
Look beyond the usual suspects
The boundary between for-profit and non-profit sectors is fading, opening up opportunities for impact investors from often overlooked areas like family offices, NGOs, philanthropic entities, and companies.
- Traditional NGOs and investors must rethink their financial and impact models.
- Social enterprises and non-profits can provide services to municipalities through revised social procurement policies.
- Businesses are now urged to integrate sustainability into their strategies and operations both by their customers and employees, and through the many new social, environmental, and governance standards and requirements. Brands are quickly learning that addressing these issues can significantly affect their reputation. Just using a comms message, without a real commitment to social issues can quckly cause a backlash. Authentic commitment and a measurable social impact are essential for long-term success.
We need more cross-sector partnerships
Collaboration across diverse sectors is crucial to creating new funding models that create a lasting impact. Intermediaries are essential - not only in capacity-building social entrepreneurs but also making them more visible and building bridges between stakeholders.
To inspire more action, we need more awareness and role models - stories of successful social entrepreneurs and investors, coupled with examples and insights from enduring partnerships. Additionally, each partnership must have dedicated resources and clear ownership to function effectively, along with clear impact goals and impact measurement procedures. While there are still no official global frameworks for impact measurement, many good examples and guidelines can be used, among which are those of EVPA, Social Value International, and the Swedish National Board for Impact Investing.
Pioneering Funds in Promising New Markets
In 2021, EVPA launched the Collaboration for Impact project to build the social investment ecosystem in the Eastern Partnership countries. Halfway through the project, the first impact funds in Ukraine, Georgia and Armenia are already up and running: Ukrainian Social Venture Fund (USVF), Actio, and VIA Fund. All three funds provide social enterprises with hybrid financial instruments (a combination of grants and 0% interest loans or conditionally repayable grants) and non-financial support.
The impact funds were established by local intermediary organizations with a deep understanding of the market. EVPA played a pivotal role in supporting and advising the organizations in designing and setting up the funds. The initial funding came from the EU - it allowed the funds to do their first investments and build a track record, that can bring other investors on board. The work is a testament to the effectiveness of bottom-up approaches, even in the absence of favorable legal frameworks.
Navigating Challenges in Impact Fund Creation
Creating impact funds in new markets is a complex journey with its fair share of obstacles. Oftentimes, the intermediaries who try to set up a fund will know very well the needs of the vulnerable groups in their market, along with the needs of the social entrepreneurs, but would lack the expertise to effectively manage a fund. A common mistake is underestimating the sheer amount of work and difficulties involved. Often, those involved already have full-time commitments, and establishing a fund becomes an additional responsibility. Having a dedicated fund manager with a background in economics, finance, and fundraising proves instrumental. This manager ensures the fund has a viable business model and guarantees a return on investment.
The journey unfolds in strategic steps. First, you need a crystal-clear vision of what you want to do (why, how, and for whom). Taking the time to develop your unique vision and approach is fundamental to the fund's success. Only then should you engage legal experts - when the specifics of the fund are clear, legal solutions can be found even if they weren’t clear from the beginning.
Fundraising for impact funds comes with unique challenges, different from the ones within traditional nonprofit fundraising. You have to craft a very compelling pitch deck and work on brand awareness for your fund. A key element is building long-term relationships, educating your partners, and developing an ecosystem - especially when you’re trying to do something that has never been done before. These are investments that will pay off over time.
There's still a chance to join our third and final skills-sharing workshop for impact investors and enthusiasts from the Nordics and the Baltcis. On November 7th, we'll dive deeper into the latest impact finance trends and best practices from managing an impact fund with Ruth Brännvall - CEO and Fund Manager at Impact Invest. Learn more and register here.