Canada's Social Finance Fund should pivot in four big ways, say sector leaders

With rates of COVID-19 infections slowing down in Canada, communities are beginning to reopen. Over the coming months, conversations will increasingly turn from immediate crisis relief towards longer-term recovery efforts. 

As Canada looks to pull itself out of a deep economic recession, thought to be the worst in a century, one of the recovery tools at the government’s disposal could be the highly-anticipated $755 million Social Finance Fund, which had been set to launch this year but could be delayed.

Though announced in the fall of 2018, long before COVID-19 hit, experts in the social impact sector believe that the fund could be repurposed to play a vital role in recovery. They say that by investing in organizations with solutions to systemic issues, like the care-home crisis or homelessness, growing the social finance ecosystem could help to bolster the social impact sector’s ability to contribute to the country’s recovery.  

There is a remarkable consensus across the country that “social enterprise and impact investing can be unleashed to tackle the immediate problems we face,” says Adam Spence, CEO and founder of Social Venture Connection (SVX), a nonprofit financial services firm which supports impact investors, funds and enterprises, and a partner of the federal government’s Investment-Readiness Program (IRP) – which is helping social purpose organizations prepare themselves for social finance investment. 

The government has received several calls from the social impact world to accelerate and frontload the Social Finance Fund. A number of groups of social finance intermediaries, for example, have called on Ottawa to frontload $400 million over the next two years, instead of the planned $85 million per year. 

So far, very few details have been released about how the Social Finance Fund will be designed or structured. As those conversations happen behind the scenes, we asked people across the field of social finance and social impact how could the fund’s design be reshaped to help Canadian communities build back better after COVID-19? 

How could the fund’s design be reshaped to help Canadian communities build back better after COVID-19? 

Here are four ideas for how the fund’s design could maximize impact and help social enterprises contribute to Canada’s recovery.

Post-pandemic pivot #1: Invest in community-oriented enterprises in a decentralized way 

In its report recommending the creation of a Social Finance Fund, the government’s Social Innovation and Social Finance Strategy Co-Creation Steering Group said that one of the key principles of success for the government’s social finance strategy will be “subsidiarity,” meaning decision-making should be decentralized as much as possible. “Decisions are best made by the competent authority that is closest to the issue,” the report explained.

As communities now struggle to recover from the social and economic problems of COVID-19, the principle of building local infrastructure and capacity for decision-making may be more important than ever in ensuring social purpose organizations can thrive. 

As communities now struggle to recover from the social and economic problems of COVID-19, the principle of building local infrastructure and capacity for decision-making may be more important than ever in ensuring social purpose organizations can thrive. 

Successful social finance models have “embedded community leadership, ownership and direction,” says Spence. With that focus, he says, funds can understand and support what’s happening on the ground, instead of creating “a blind pool of capital that is picking winners and losers.”

He pointed to the successful growth of Québec’s model, where more than 200,000 people work in the social economy’s 11,200 enterprises. Stewarded by Le Chantier de l’économie sociale, an ecosystem of supportive networks helped social purpose organizations to grow.

“I think the key is that the Social Finance Fund actually allows for flexibility, so that the communities are able to source capital for what they need,” says Garth Davis, managing director of New Market Funds, which manages social finance investments.

Those recovery needs will differ hugely between different communities across Canada, he says. A rural population in one province, for example, is likely to face very different economic and social challenges than an urban population in another. “The more top-down it is, the less effective it will be in responsive rebuilding of the economy,” Davis says.

Sara Lyons, vice president of Community Foundations of Canada, hopes that the government’s lens of ecosystem-building in its Investment-Readiness Program, will translate into the Social Finance Fund focusing on supporting local communities, as opposed to only huge affordable housing developments or wind farms.

The IRP is investing in the readiness of “truly community-level enterprise,” she says, like main street businesses, not for profits, and charities operating enterprise.

Post-pandemic pivot #2: Support seed-stage organizations to fill the institutional funding gap 

In the traditional business world, a frequent complaint by start-up enterprises is that there is a point in the company’s life where it becomes difficult to gain investment. Called the “seed stage,” early-stage companies often have early revenue and some investment, but can’t get the funds they need to help them grow.

According to social finance experts, the issue is very similar in the social enterprise world too. Could the Social Finance Fund help to fill the gap, especially considering the enormous constraints emerging social enterprises will feel in the post-pandemic economic recession? More than half of Canadian startups say they’ve been significantly impacted by the crisis. To  ensure that Canada has a thriving social impact sector, able to support vulnerable populations in innovative ways for years to come, the fund should support seed-stage social enterprises’ recovery, say advocates.

Even pre-pandemic, a funding gap existed. A report by the MaRS Centre for Impact Investing in 2017, which interviewed impact investors, showed that social enterprises in the seed stage can struggle to secure capital. It defined these organizations as those seeking anything from $50,000 to $1 million in funding. 

The report said these social enterprises also need the right type of investment at the right time, from equity to loans. This could include funding from the Social Finance Fund, consisting of loans from the government as well as from private and philanthropic investors. 

“Often we don’t see much [capital] that supports the middle, which is where fast-growing start-ups like us sit,” says Chenny Xia, co-founder of GotCare, a social enterprise home care platform with 13,000 frontline workers.

Xia says she hears of several social enterprises struggling to find investment between the initial ideation stage and when they are fully established, struggling to get funding in the gap which MaRS highlighted, such as for a few hundred thousand dollars. ”I often find that funds like this [offer] very small dollar amounts, then huge dollar amounts,” she says.

She argues the seed stage is the sweet spot for investors like the government, particularly in the context of supporting recovery. “You have a proven model, you’re looking to scale, but you’re not looking at a crazy 200-million-dollar scale,” Xia explains. 

These concerns were echoed by Dr. Alina Turner, co-founder and CEO of HelpSeeker, a social enterprise that uses technology like systems mapping and navigation to improve social services in communities. The types of services HelpSeeker connects users with are seeing increased demand already, and will continue to be central to societal recovery — mental health counselling and resources for domestic violence, for instance, will be in need following a period of time in which rates of mental illness and domestic violence both increased. 

She says the federal government should not only invest in fast-growing, early-stage social impact organizations, but can use other tools to then support their growth. For example, Turner says, the government has huge spending power through its procurement of goods and services. By embracing social procurement, it could not only supply capital to social enterprises but boost their demand too. A “double whammy,” she says. 

Post-pandemic pivot #3: Put equity-seeking organizations at the centre 

In designing the Social Finance Fund for recovery, it is not only important to consider who is receiving the funds, but which organizations receive a seat at the table. 

Considering that already marginalized populations have been most severely impacted by both the pandemic and its economic shocks — spotlighting the inequities that have long been present in Canadian society — if the Social Finance Fund is to be used as a tool for recovery, it will need to address inequity directly.  

And it’s about time: the social economy ecosystem has “enduring exclusionary characteristics that must change,” said Victor Beausoleil, executive director of Social Economy Through Social Inclusion (SETSI), in an email to Future of Good. 

The social economy ecosystem has “enduring exclusionary characteristics that must change.”

“Anti-black racism must be addressed in many sectors and professional disciplines, and the social economy ecosystem is one of them,” he said. SETSI is a community coalition of young professionals that aim to establish economic inclusion and equity for Canadians on the margins.

In a recent blog post entitled “From the Margins,” Beausoleil wrote that “some of our colleagues within our ecosystem are willing to listen and learn, but very few have been willing to take action,” he wrote. Like several other equity-seeking organizations, including Indigenous and women’s groups, SETSI has been funded as one of the government’s investment-readiness partners. 

Beausoleil wrote that “the desire for investment readiness is seductive,” but called for the federal government to give Black Canadians an equitable seat at the table when public dollars are committed by the Social Finance Fund, including the development of a fund intermediary specifically for the Black Canadian community.

The fund should include a more concerted effort to give diverse organizations control over how money is spent, argues Joanna Reynolds, social innovation specialist at the Centre for Social Innovation who has been working alongside SETSI. “Let’s work together to shift how resources flow into the control of diverse communities, which will benefit the field of social innovation, social finance, and social enterprise as a whole,” they say.

The Impact Response Initiative, a roundtable of more than 30 organizations which Reynolds has been facilitating, has suggested that the government increase the IRP to $150 million, from its current $50 million, over the next two years to support capacity- and skill-building organizations, with a concerted effort to build capacity amongst equity-seeking groups including Black Canadian, Indigenous and other minority-led organizations.

Diversity should be written into the design of the Social Finance Fund, Reynolds says,  both in order to improve equity and in order to find new, promising social impact organizations. “If we’re not seeing equity as an asset then we’re missing the whole point,” they say, pointing out that the fund must be “explicit about the resources that are put in place to unlock that talent and potential.”

Post-pandemic pivot #4: Invest in tackling systemic issues amplified by COVID-19

Finally, while the dramatic nature of the COVID-19 crisis has emphasized the need for action as soon as possible, the Social Finance Fund needs to make sure that the solutions it invests in are built to last. 

Turner says organizations need to be future proof in a post-COVID-19 world, such as being able to handle remote work, and have a revenue prospect that will be genuinely sustainable in the marketplace. “Do they actually have a product that the market is willing to pay for” in a post-pandemic context? 

Despite the awful circumstances, COVID-19 can be used as a “springboard” to accelerate solutions to systemic problems, says Aidan Scott, the co-founder and CEO of Speakbox, a social enterprise mental health app.

Organizations need to be future proof in a post-COVID-19 world, such as being able to handle remote work, and have a revenue prospect that will be genuinely sustainable.

While taking care to avoid knee-jerk, short-term investments, Scott says the field must seize the chance to support new innovations before the status quo sets back in. In public health, he says, for example, COVID-19 led to the rapid adoption of telehealth in remote care.

“2020 is this fantastic year of both significant tragedy – the loss of life is heart-breaking – but it has presented this incredible opportunity for change,” Scott says.

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