How are Social Finance Fund recipients selected?

Doug Lui, Mandy Potter, and Sam Naylor, co-founders, Misfit Ventures. (Supplied photo.)Canada’s Social Finance Fund has been around since 2018, but the types of things it funds annually change.

In December 2024, Realize Capital Partners, one of the Social Finance Fund’s three wholesalers, announced seven new investments. We asked Lars Boggild, Realize Fund 1 Portfolio Manager, what made those organizations stand out.

The wholesaler’s point of view

Amplify Capital: Impact fund focusing climate, health and education technologies

“We were excited to support Amplify’s maturation. We considered its transition from an emerging manager category to an established fund manager category as they built their team and a larger fund base. They are efficient at integrating impact throughout their investment process.

“Another point is the large proportion of their past funds invested in women-led ventures and ventures led by people of colour. It has not been an explicit target, but the fact that Amplify tracked and monitored diversity through their investment process, as they monitored sectoral and thematic focus, was a decision factor for us.”

Hearthwood Trust: Impact fund focused on rental housing (2024)

“They build workforce rental housing for median and lower-income Canadians. We liked the combination of purpose and green housing and the scalability of the approach. They can provide a significant amount of new housing supply sustainably.

“The fact that they have different access to land pipelines across the country was another incentive to select them.”

Thrive Impact Fund: Community finance institution (2021)

“Thrive has an impressive impact track record. It has proven its ability to fill in access to capital gaps for non-profit institutions and for-profit social enterprises more likely to be underserved by conventional financial institutions in terms of access to either working capital or risk capital.”

Area One: Farm Investment (2013)

“We were enthusiastic about their model of partnership with farmers-owners. It is more equitable and less extractive than alternative models like land leasing.

“The final exit is in 20 years, and that time frame reinforces our impact thesis because it allows those operating farmers enough horizon to generate the wealth necessary to acquire their property permanently.

“We were also motivated by Area One commitment to adopt more sustainable agricultural practices.”

Regenerative Capital Group: Search fund aggregator (2021)

“They support entrepreneurial leaders in identifying and acquiring existing SMEs from retiring owners. The post-acquisition intent is to transform the operations of those SMEs to be more socially and environmentally sustainable.

“Their application raised interesting questions about how impact investing addresses the existing economy. It reminded us not just to think about the creation of novel technologies or new solutions. But how do we address incumbent businesses and make them more impactful? That was really what motivated us to engage with them.

“This is an investment where we are taking impact risk. It’s a big transformative proposition. These CEOs buy traditional SMEs, promising they will transition to some kind of impact or social enterprise. We are taking a risk that our impact objectives are not met. However, we believe the potential positive outcomes are worth taking that risk—things like impact link compensation matter. Many non-financial goals of the acquired SMEs will directly influence the compensation of the fund manager and the CEO. It was a valuable part of the value proposition for us.

“There is a chain. The Regenerative Group fund manager has to agree to the acquiring management team’s proposals regarding the goals they want to achieve. Then, that will run through an external impact advisory committee recommending the acceptance or not of those goals.”

Flowing River Capital: Indigenous private equity fund manager (2024)

“It’s a first-time fund manager based in Saskatchewan investing across Canada. They’re taking positions in lower middle market companies already indigenous-led or well-positioned in the procurement context to advance Indigenous procurement goals. They use the term “post-acquisition indigenization.

“The team motivated us. There are two Indigenous leaders and two non-Indigenous ones. It includes a long-standing former Chief who delivered remarkable economic development outcomes for its community and a former head of a large economic development corporation. They paired with two fairly experienced professionals.

“We appreciated that they are often going to co-invest with economic development corporations or Indigenous trusts working jointly to advance reconciliation efforts throughout the operations of these companies and the growth created.”

Misfit Ventures: Canada’s first LGBT VC fund (2024)

“We seized the opportunity to support a new fund manager trying to address access to capital gaps they are seeing within their community. And they are doing so with a commercially minded attitude and high integrity around the benefit to that community and the impact they would like to see.

“One thing we appreciated about the team is that in the context of the LGBT+ community, they have strong representation from multiple parts of the spectrum. It provided us with greater confidence in how they’re looking to deploy their capital in an intersectional way.

“Lastly, we like the fact that they are integrating impact. They are looking for impactful sectors or business models and being led by LGBT+ founders. That intersection is promising.”

The fundees’ point of view

We selected two fund managers to get different perspectives on the Social Finance Fund’s reach.

Area One was founded 12 years ago by Joelle Faulkner, an engineer who grew up on a dairy farm. 

“I was better at school than milking!” she laughed.

What brought her back to farmland after studying engineering, business, and law? 

“The quest for an investing model that would work for the investors while creating good environmental and social outcomes for the farmers and the community,” she said.

While Area One is working on its fifth fund, Misfits Ventures is raising money for its first close. This brand-new VC supports LGBT entrepreneurs.

“Many firms funding queer founders don’t know they’re queer because it’s not something they talk about because of the biais and the discrimination,” said Sam Naylor, one of the three Misfits cofounders. “Conservatively saying, around 8 per cent to 10 per cent of the population identifies as LGBT, but that is old data. It does not include the coming younger generation, who are more open to talking about it; almost 30 per cent identify as queer. However, less than 0.5 per cent of VC funding goes to LGBT identified founders,” he added.

Area One helps farmers grow their activities, which always implies additional land, said Faulkner. 

“They are all fourth or fifth (generation)-family farms. The owners want to grow because their kids are returning, and they need opportunities,” said Faulkner.

This fund chose to scale deep investing in a handful of farmers for up to 25 years, instead of scaling wind and reaching a large number of farmers investing less in each farm and for a shorter period.. 

Since 2013, Area One has invested between $300,000 and $20M  in 50 farms in Ontario, Manitoba and Alberta. After ten years, the farmer usually buys back 30 to 50 per cent of Area One equity investment. The rest is repurchased after 20 to 25 years.

These farmers are partners. 

“Our team is not only financially savvy, we are agriculture savvy. A third of the Area One team is in the field, working with the farmers to help them improve their operations and the land and deploy regenerative practices,” said Faulkner.

What do these two different funds get from the SFF investment? And what do Realize Capital Partners and the SFF get from these investments?

It is a two-way street, said Faulkner. The fundees gain new capital, and the wholesalers and the SFF should see some positive returns, too.

“Realize investment gives Area One credibility to the social outcomes we are creating. That is very helpful to attract future financial investors who want to ensure that even though they’re investing from a financial return perspective we are creating social outcomes,” said Faulkner, noting that  Area One aims at 8 to 12 per cent returns annually.

“Realize and the SFF are trying to prove that you can get excellent financial returns alongside social outcomes. Area One fits in that bucket. So, they give us the seal of approval that we deliver both, and I’m hoping to get them the returns that make them successful to keep them growing.”

For a new fund manager like Misfits Ventures, the money is “significant because we can’t do anything without money in this space,” said Naylor. But that is only part of the story.

“As more individuals identify as queer, it is timely to create investment vehicles for them. Not all LGBT people have children, and many do not have ties to their families. They will be looking for outlets for their wealth,” said Naylor.

Queer founders are in every industry, but there is a social impact lens trend among them, added Naylor. He gave examples of health, healthcare, biotech, life sciences, climate technology, and co-ownership models. 

“Many queer people are estranged from their family, so they do not get support for the down payment. Collective property models are a solution,” said Naylor.

During the diligence process, Misfits Ventures shared its data room with Realize. 

“We track metrics like the number of jobs created but queer founders, the number of patents, and the wealth creation. It’s called lavender data,” said Naylor. 

He added that investing in Misfits Ventures will allow Realize and the SFF to integrate lavender data alongside data on investing in women, folks of colour and Indigenous people.

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