The Social Finance Gap

Explaining the social finance gap:

Funding that is currently provided by the social finance market can be characterised as “impatient” finance. Either through debt products which require an immediate repayment schedule as soon as funds are made available, and often over a relatively short period of time. Or, through equity offered by providers who are seeking to make capital gains and who therefore require high growth investees and a realistic opportunity to exit their positions, usually within 5-10 years.

While both types of capital impose different requirements on recipient social enterprises in terms of use of company cash, it remains the case that only those businesses which can fulfil the requirements of lenders or equity investors to achieve risk-adjusted returns within a fairly narrow period of time will be successful in obtaining any funding at all, let alone funding which is best suited to the nature and development stage of the enterprise.

However, looking at financing needs from the perspective of the social enterprise, what is actually required in order to fund early-stage, community-based, innovative social enterprises is risk capital that is sufficiently patient that it will support and develop a financially sustainable enterprise, even in very challenging market conditions.

We call this “builder capital”.