Five learnings from investing in social entrepreneurship

Sofia Breitholtz, CEO of Reach for Change, reflects on the key learnings from their social entrepreneurship programs in Europe and Africa and the conversations with various stakeholders and investors which we’re hosting.

Since 2010, Reach for Change has been empowering local social entrepreneurs to develop innovative solutions that improve the lives of children and youth. We provide a range of entrepreneurship training and support programs for social entrepreneurs in different stages of development, as well as programs for youth and female economic empowerment, and entrepreneurship boot camps. In addition, we work for an improved social entrepreneurship ecosystem through advocacy work, convening stakeholders and influencers, and awareness raising around social entrepreneurship.

Reflecting on the conversations with team members, social entrepreneurs, partners, and various stakeholders in our different markets in Europe and Africa which I’ve held over the last year, a few key and common highlights stand out:

1. Social entrepreneurs have an important role to play

Of course, social entrepreneurship is not a panacea – it is not always applicable or the best remedy for every situation. However social entrepreneurs show us the diversity of ways to tackle problems.

Investing in social entrepreneurship pays back many times in terms of impact, and can help reduce public expenditures. They can adapt fast and enable quick response when crisis strikes – an example of this is the response of social entrepreneurs in Ukraine after the Russian invasion, which Petro Darmoris talked about during our Partnering for Change event in 2022. They can build resilience in local communities affected by humanitarian and ecological crises – something Jakob Wernerman – Director of Humanitarian Assistance at Sida – and David Collste – researcher at Earth4All- highlighted during the insightful conversation we hosted with them. Entrepreneurship skills can help reduce inequalities, create jobs, and increase income, as our work in Ethiopia and Ghana shows. Social entrepreneurship might be the missing link that has the potential to help us reach the SDGs.

2. We need to align better on the definition of social entrepreneurship

In some countries, public institutions define a social enterprise as an NGO, enabling access to the labor market for vulnerable groups. Sometimes, for an organization to gain legal status as a social enterprise, it has to cover the requirement for a certain number of people with a disability to be hired and for the organization to reinvest all its profits in the social cause. Others, especially private investors, consider social entrepreneurship a business that seeks both financial profit and social impact. Some go as far as believing social entrepreneurship to be an oxymoron, arguing that all businesses impact society.

At Reach for Change, we put emphasis on the social entrepreneur – the person, as well as the innovation, rather than the legal form. We’ve seen numerous leaders in our portfolio who offer effective solutions where systems fail within various SDGs – not only inclusive economic growth but also healthcare, education, reducing poverty, climate change, affordable energy, and many more.

As social entrepreneurship is gaining momentum, a more all-encompassing definition and a common understanding among stakeholders are needed. It’s key to ensure that the policies and investments created within the social economy sector can benefit those who can make the best use of them and prevent impact washing.

3. Social entrepreneurship is much harder than regular entrepreneurship

Social entrepreneurs face an inherent challenge – that often their customers are not their beneficiaries. This means that they have to come up with innovative and complex hybrid business models and at the same time manage and prove their impact.

Nonetheless, investors’ evaluation of social entrepreneurs is quite similar to that of regular companies – they must have a viable business model, good market opportunity, scalability, and a strong team. Venture philanthropists are more likely to have a higher tolerance for lower initial profitability and greater risk tolerance if a solid impact case is present. Still, social entrepreneurs are in a very challenging situation.

4. We need blended capital and capacity-building support

We need a variety of flexible and hybrid financial instruments in order to cover the needs of both early and later-stage social entrepreneurs. Our experience shows that seed funding which social entrepreneurs can use as they see best fit is very crucial in the early stages of development. It can help with the test and pilot phase, create evidence for the potential of the solution, and help set up an initial team and operations. It will de-risk further investment and will serve as a catalyst for attracting private capital in the early-growth stage. Still, a combination of philanthropic funding and impact-first investments, especially in developing markets, is much needed. We need to educate and nurture investors and build awareness about the expectations they can have toward social entrepreneurs.

A crucial part of that process is providing various capacity-building programs, which can help social entrepreneurs develop sustainable business and financial models, measure and prove their impact, and build the team, contacts, and visibility they need to succeed. The EU just adopted a new Social Economy Action Plan. One of the highlights is the importance of intermediaries – not only capacity building, but building bridges with other sectors, making social entrepreneurs visible to the clients. Coupling that with the capital is the magic mix. A small amount of capital can make a big difference. However short-term funding and planning won’t get us anywhere.

5. We need cross-sector partnerships to develop the ecosystem

At Reach for Change, we’ve been working on the supply side of social entrepreneurship for over a decade, focusing on capacity development for proof-of-concept social entrepreneurs, supporting them both with business and impact management. Soon we started realizing, we were preparing them… but for what? In many places, the ecosystem isn’t developed enough to support their further development. That’s when we decided to put efforts also into ecosystem development activities – looking into additional funding instruments, working in partnerships, and advocating for enhancing the regulations and legislation for social entrepreneurship.

It’s a win-win situation. On the one hand, social entrepreneurs have proven they are more than capable of not only delivering social services but also improving them through their innovations. On the other hand, it’s a way of turning public institutions into important clients for social entrepreneurs, making their business models more sustainable.

Social entrepreneurs also need the right policies in order to thrive. In Sweden and Bulgaria, we’re part of consortiums co-creating National Competency Centers for Social Innovations through funding from the EU, making sure innovators have support from a strong network of cross-sector stakeholders. In Ghana, Ethiopia and Latvia we co-established social entrepreneurship associations, which are having a very positive impact. One entrepreneur’s voice is not so strong, but many pointing at the same problems and needs are powerful. Otherwise, it’s a very lonely journey.

Curious to find out more about our work? Visit our website: reachforchange.org

Skrivet av:

Sofia Breitholtz, CEO Reach for Change