Financing Social Innovation — International evidence 1

SOCIAL ENTREPRENEURSHIP NETZWERK DEUTSCHLAND E.V.

CENTRE FOR SOCIAL INVESTMENT (CSI), UNIVERSITY OF HEIDELBERG

Financing Social
Innovation
International evidence
01. January 2022

Heidelberg University, Max-Weber-Institute for Sociology

Centre for Social Investment (CSI)
Bergheimer Str. 58 | 69115 Heidelberg, Germany
gorgi.krlev@csi.uni-heidelberg.de

Social Entrepreneurship Netzwerk Deutschland e. V. (SEND)

Schiffbauerdamm 40 | 10117 Berlin
info@send-ev.de

Authors and suggested citation

Gorgi Krlev, Sina Sauer, Katharina Scharpe, Georg Mildenberger, Katrin Elsemann, Markus Sauerhammer

Krlev, G., Sauer, S., Scharpe, K., Mildenberger, G., Elsemann, K. & Sauerhammer, M. 2021. Financing Social
Innovation – International Evidence. Centre for Social Investment (CSI), University of Heidelberg & Social
Entrepreneurship Network Deutschland e.V. (SEND).

Consulted experts

Country Expert Organization

Canada Tonya Surman Centre for Social Innovation, Toronto › socialinnovation.org

Adam Spence SVX Invest for Impact, Oakville › svx.ca
Finland Mika Pyykkö Centre of Expertise for Impact Investing (until 31.07.2021) › t1p.de/4qbu [tem.fi],
Finnish Brain Association (since 01.08.2021), Helsinki
France Stéphanie Goujon Le French Impact, Paris › le-frenchimpact.fr
Irene Valdelomar Le French Impact, Paris › le-frenchimpact.fr
Italy Prof. Giulio Ecchia University of Bologna › t1p.de/4efs [unibo.it]
Prof. Mario Calderini TIRESIA Politecnico di Milano, Mailand › tiresia.polimi.it
Netherlands Astrid Kaag Brabant Outcomes Fund, Province Noord-Brabant › t1p.de/m63l [brabant.nl]
Portugal Filipe Almeida Portugal Social Innovation, Lissabon › t1p.de/qfyp [inovacaosocial.portugal2020.pt]
Spain Dr. Lisa Hehenberger ESADE Entrepreneurship Institute, Barcelona › t1p.de/vg99 [esade.edu]
Laura Blanco SpainNAB, Spanish National Advisory Board for Impact Investment › spainnab.org
Sweden Truls Neubeck Save the Children, before Ideell Arena, Stockholm › ideellarena.se
UK Cliff Prior Global Steering Group for Impact Investing (GSG), London › gsgii.org
Dr. David Neaum Big Society Capital/Good Finance, London › bigsocietycapital.com
Julie Hutchison abrdn Investment Charities, Edinburgh › abrdn.com/discretionary/uk/charities
Prof. Geoff Mulgan University College London, London › t1p.de/iwzs [iris.ucl.ac.uk]
Germany Christina Moehrle Roots of Impact, Frankfurt › roots-of-impact.org
& FASE Finanzierungsagentur für Social Entrepreneurship, Munich › fa-se.de
Martin Jung IFB: Hamburgische Investitions- und Förderbank, Hamburg › ifbhh.de
Michael Unterberg IFB: Hamburgische Investitions- und Förderbank, Hamburg › ifbhh.de
Europe/International Irene Basile OECD Centre for Entrepreneurship, SMEs, Regions & Cities, Paris › oecd.org/cfe
Priscilla Boiardi OECD Development Co-operation Directorate, Paris › t1p.de/b8rg [oecd.org]
Anja-Nadine Koenig European Venture Philanthropy Association (EVPA), Brussels › evpa.eu.com
Caroline Lentz European Microfinance Network, Brussels › european-microfinance.org

This study was financially supported by the European Union

and BMW Foundation Herbert Quandt.
About CSI
The Centre for Social Investment (CSI) of the University of Heidelberg is an interdisciplinary institu-
tion. We actively promote research, teaching and practice transfer. Working towards the sustainable
development of society through the interaction of civil society and the social economy with market
players and state actors plays a key role for us. Central topics of our work are social innovations,
social entrepreneurship, impact investing and impact measurement.

About SEND
The Social Entrepreneurship Netzwerk Deutschland (SEND) is connecting social enterprises across Germany, to
strengthen them and give them a common voice. SEND is building important bridg-es of the sector to politics, civil
society, the welfare economy and commercial economy to drive positive change and to improve the framework for
social innovations. With a (constantly) grow-ing network of currently over 800 members, SEND is working towards a
society in which all peo-ple benefit from progress.
We do so through what we call: #GemeinsamWirken! (Working and having impact together)

Our work is supported by the following cooperation partners:

Why this
study
matters:

“Access to finance is one of the greatest

difficulties for social enterprises. Given the huge
challenges we face as a society, the time has
finally come that social and ecological criteria
receive more attention in the institutional support
of innovation so that we can scale the impact of
social innovations.”
― Katrin Elsemann, CEO Social
Entrepreneurship Netzwerk Deutschland e.V.
 “The transformation towards sustainability
consists of many smaller transformations.
To achieve these we need innovative
entrepreneurs and investors. These actors
need more capital to actively support their
innovation efforts. Compared to other
countries Germany still has a lot left to
do. The next federal government must put
specific financing and support instruments
for this target group at the top of the
political agenda.”
― Dr. Frank Niederländer, Chair of the National Impact Investing
Initiative / Board member BMW Foundation Herbert Quandt

“In contrast to other European countries,

Germany still has no target group-specific
financing and support instruments for
social enterprises. Such instruments would
increase the dynamism of the German social
entrepreneurship space and would help it
contribute profoundly to innovative solutions
that benefit society, as is already the case in
other countries.”
― Karsten Löffler, Executive Director of
the German government’s Council of
Advisors on Sustainable Finance
Executive Summary

In recent years, social innovations have received

significant recognition in Germany across political
parties, policy areas and ministries. However,
there is still no holistic strategy for financing and
supporting social innovations. This is different in
many other countries.

The recommendations presented in this report are based on an exploratory

and comparative study, which systematically assessed the experiences made
with such support structures in 10 countries and by 3 international organiza-
tions. More specifically, the study is grounded in in-depth interviews with 23
experts. The countries considered in this report exhibit a wide variety of eco-
nomic and welfare systems, so that the condensed experiences across coun-
tries can be transferred to Germany with significant validity. Other countries
internationally may benefit from this report, too.

In Germany there is currently not only a restricted amount of fi-

nancial resources that social innovators could benefit from—the
finance which is available also often fails to meet the needs of this
target group. At the same time, the mobilization of both, public and
private capital is low.

Against this background, effective financial support

for social innovations should pursue 4 strategies:

1. Individual and static support measures are insufficient.

The promotion of social innovation must have a process
orientation that has the entire development cycle of
social innovations in view.

2. The funding must be adequate for different types of social

innovators and their respective business and revenue models.

3. Non-monetary support and networks for the dissemination of

social innovations should play a central role.

4. Social and ecological impacts must be assessed in a holistic

fashion and should be established as core decision criteria
within the economy and society.
Financing Social Innovation — International evidence

A complex financial architecture to promote social

innovations is necessary to achieve these strategies.
8 policy instruments can be used to shape this Closely linked to the political instruments
financial architecture: are 5 financing vehicles that are already be-
ing used successfully in different countries
1. Pooling of accelerator grants and that could serve as best practices for
[to focus on organizations instead of projects] Germany.

2. Tax incentives or premiums for impact

I. Accelerator loans & grants
[to promote non-market-oriented social innovations]
II. Blended non-market finance
3. Guarantees
[to balance out risk-reward-impact profiles] III. Social Impact Bonds or Outcome Funds

4. Pay-by-result principle IV. Community Bonds

[to promote the maximization of impacts V. Blended market finance

instead of the minimization of costs]

5. Local Community Investments

Accelerator loans and grants as well as blended
[to enable citizens to invest in social innovations]
non-market finance, primarily aim at leveraging phil-
anthropic capital in order to help non-market social
6. Social procurement & quasi-market building
innovators realize their full impact potential. The
[to create income streams for organizations underlying idea is to use existing financial resources
and exit options for investors] more effectively.

7. Opening up existing programmes Social impact bonds or outcome funds can stimu-
late innovations in established fields. They promote
[to make instruments of established innovation
effective problem solving and prevention instead of
support available to social innovators]
standard service provision.

8. Vouchers for capacity building and networks Community bonds can help to anchor social innova-
tions locally and to increase citizen‘s identification
[to create an ecosystem that is essential
with social innovations.
for the scaling of social innovations]
Blended market finance helps create an investment
case for commercial investors who do not invest in
social innovations due to high levels of risk or the
lack of an exit option. In order to enable an exit, this
financing vehicle may have to be combined with the
creation of quasi-markets that can generate income
streams for social innovators.

Our study not only develops the concrete recommendations just summarized,
but it also clearly shows how similar political instruments and financing ve-
hicles have been used successfully in other countries.

Germany has the opportunity to benefit from our systematic analysis of

these experiences as well as our implementation plan for the effective
support of social innovations. The country now has the chance to act as a
vanguard and role model internationally, if it implements these measures in a
timely and coordinated fashion.
Contents

I. — p. 10 II. — p. 12

Why do we need to Challenges in financing

think about financing social innovation
social innovation?

III. — p. 14 IV. — p. 16

Strategies for Financial architecture

designing solutions and policy tools

V. — p. 22

Financing
vehicles
VI. — p. 30 VII. — p. 34

International Call to action

evidence

VIII. — p. 35 IX. — p. 35

Glossary References and

more information
I.
10

Why do we need to
think about financing
social innovation?

We are facing immense societal challenges in

Germany and globally, which cannot be solved
through technological innovations alone.

Instead, we need sustainable and socially oriented solutions, that is innovations with and
for society. Such social innovations need adequate financial support. Promoting social
innovations would not only enhance Germany’s development towards a socio-ecological
market economy, but also help renew the German welfare state and contribute to a di-
verse, lively and pro-active society.

In May 2020, the German Bundestag adopted a motion to promote social innovations for
the very first time. Another important step towards establishing social innovations as a
policy priority was the Social Innovation Strategy (› t1p.de/ttsd [bmbf.de]) developed and
published by nine federal ministries in August 2021. The strategy lays out some central
goals and options for promoting social innovations. Beyond that, however, there is no ho-
listic approach to financing and supporting social innovations.

Social innovation, social entrepreneurship and impact:

Social entrepreneurs are entrepreneurs who seek to produce social value and benefit by
means of entrepreneurial action. They develop new solutions to societal problems and are
therefore important drivers of social innovations. The effective support of social innovations,
therefore, needs to take the funding needs of social entrepreneurs into account. However,
social entrepreneurs are far from the only relevant actors that “do” social innovation. Indi-
viduals, established organizations and networks play a central role. If governments are inter-
ested in social problem solving and impact, they would do well to recognize and support this
diversity and richness of social innovators and support their entire ecosystem and collective
impact orientation. Supporting these effectively requires an ambitious and multi-dimen-
sional financial architecture.

“Given existing and future societal challenges

such as demographic change, social cohesion,
climate change and digitization, we need
approaches that go beyond technical solutions.
Social innovations have a big potential to
contribute to sustainable solutions.”
― Motion adopted by the 19th German government
“Promoting social innovation more intensely and
using their potential more efficiently”
Financing Social Innovation — International evidence 11

Such a financial architecture

needs to address three goals:

1. Helping innovative ideas take off

2. Growing innovations with high impact potential

3. Introducing an impact and innovation perspective

into established systems

Recent data show that 90 percent of social enterprises see at least one substantial fi-
nancial barrier for their organization, for example: lack of patient capital (long duration),
lack of adequate start-up finance, lack of adequate growth finance, or difficulties in
using public grant finance or subsidies (see DSEM 2020/21 › t1p.de/7ogr [send-ev.de]).

Many countries across the globe already have public structures and processes for
financing social innovation in place, which can serve as examples for Germany. In our
explorative research project, we analysed a wide range of international evidence from
10 countries and 3 international organizations. In particular we conducted in-depth
interviews with 23 leading national experts to develop propositions on how to best
finance social innovations. [1]

We would like to remark that the countries considered represent a wide range of dif-
ferent economic and welfare systems and that our recommendations are always based
on impulses that came from various countries which shared similar challenges or had
developed similar solutions. The caveat that experiences from other countries cannot
be transferred to Germany, which is often voiced in political discussions about this
subject, is therefore effectively addressed in this report.

While our analysis of challenges and recommendations of how to solve them focus
explicitly on Germany, many prompts can be applied to the situation in other countries
as well, including those for which we gathered evidence. We therefore hope to provide
guidance for policy makers and ecosystem shapers globally through this report.

[1] We are mostly referring to finance or financing instead of investments, because we draw on the full
range of potential financial support for social innovators, including equity, debt, mezzanine, or grant funding.
II.
12

Challenges in
financing social innovation

Supporting and financing social innovation is not an

easy endeavour and substantially more complicated
than financing commercial innovation. Particular
challenges that the effective provision of finance
needs to consider are located on two different levels,
namely that of the social innovators, and that of the
financing landscape.

To set up target group-specific financing and funding instruments, it is important

to differentiate between different types of and phases in the development of social
innovators (see Figure 1). There are non-market and market-oriented types as well
as hybrid types that lie in between the two. Each of the phases and types come with
specific needs, which we explain in the following. We also discuss current deficits in
the financing landscape for social innovations in Germany.

In this chapter it is becoming evident that approaching the topic from a commercial
venture capital lens, which thinks in terms of “investment per venture”, is hardly
useful. The support of social innovation is more akin to the public research and
development (R&D) support for commercial innovation—and yet it differs in
important ways from the latter as we explain here.

Pre-Seed Seed Growth Unleashing the

impact potential
1a

2a

3a

3c
2c 3b

1c
2b Non-market types
Hybrid types
Market-oriented types
1b

Figure 1 Innovation funnel: Phases and types of social innovators

Financing Social Innovation — International evidence 13

Specificities and requirements Deficits in the financing landscape

of social innovators [2] for social innovations

Life-cycle Availability
Social innovators need a substantially longer time on First, there is a lack of social mission driven inves-
average to break-even or build a self-sufficient busi- tors, and if providers of finance have a philanthropic
ness model than commercial innovators. Financing orientation, the provided funding is not aligned along
needs are likely to shift as organizations evolve (from the development phases on the innovation funnel. The
pre-seed to growth), whereby only ventures with a seed phase is critical, especially for the non-market
commercial legal form and market orientation (3b.) and hybrid types of social innovators, which often slip
currently draw on the full spectrum of finance (based into the so called “valley of death” due to a lack of
on DSEM 2020/21 [› t1p.de/7ogr] data about the use tailored finance (2. phase in Figure 1). Second, social
of finance by social enterprises). Non-market organ- innovators often do not represent an attractive risk-re-
izations are only able to draw on a small fraction of turn-impact profile for investors. While the may offer a
available finance (1a.-3a.). high impact potential, the associated risk is often also
high or the expected financial return too low. This is
Income and financing models why we need tailored measures to enable more target-
Selling socially innovative products and services is a ed growth funding (3. phase in Figure 1).
source of revenue to for example social enterprises. In
contrast to commercial firms, however, social enter- Long-term orientation
prises typically internalize external effects on socie- The financing landscape mostly focuses on relatively
ty, which makes equal market access more difficult. short-term financial support rather than a long-term
Therefore, many social innovators always depend on orientation at developing social innovators and social
hybrid income or financing sources, which may for ex- innovations throughout their life-cycle. This hampers
ample include public subsidies, donations, or revenues the unleashing of the innovations’ full impact potential
generated on public quasi-markets (1a-c). (goal direction of Figure 1).

Knowhow Impact orientation

Social innovators focus on creating social value and The social and ecological impacts of financial invest-
impact. This is why they need different skills and ments are becoming more important on financial mar-
competencies than managers of more mainstream kets. However, they as of yet do not serve as central
organizations or commercial entrepreneurs. Established criteria in actual decision making. This is because in-
start-up support logics, however, are ignorant of these vestors and innovators both have difficulties operation-
assets. They ignore long-term considerations about alizing it, despite a large amount and variety of impact
externalities, hardly understand innovations that aim measurement tools and efforts at standard setting.
for systems change and the huge variety of actors that
promote social innovation (entire innovation funnel of Ecosystem
Figure 1). On the other hand, because social innovators Available finance mostly orients at individual mar-
are primarily purpose or social-impact-driven, they may ket-oriented organizations with the potential for
lack financial management skills as well as awareness substantial financial returns. The financing landscape
of financing options and their specificities. is not designed to promote social innovation ecosys-
tems and processes. Such an ecosystem should not
only comprise the full diversity of social innovator
types presented in the innovation funnel (Figure 1), but
should also extend to collaborative structures between
those and market actors, policy makers, institutions in
higher education and civil society.

[2] As mentioned before social enterprises are only one

relevant actor of social innovation, but their challenges are
proto-typically for the wider challenges of the field.
III.
14

Strategies for
designing solutions

Holding the challenges and priority areas above

against international experiences in financing
social innovation results in four strategies that the
public provision and promotion of finance to social
innovators should respect.

1
Process orientation instead
of individual measures

First, the financing of social innovators needs to be seen

as a process rather than a static system. This means
the financing must take the potential life-cycle of social
innovators and its different stages into account (pre-
seed, seed, growth). Only that way, we can ensure that
2
Financing all different types
of social innovators

The revenue or financing models of social innovators

vary strongly in their composition, a circumstance which
leads to very different expectations of monetary returns.
One of the main reasons is that many social challenges
do not offer a straightforward business case, whereas
we promote many innovative ideas, while making sure social innovations may offer a tremendous direct or in-
that organizations with the highest impact potential re- direct return to society. Also, the beneficiaries of servic-
ceive special attention. es are often not able to pay for services themselves, so
It is important to realize that there are different fields of that there needs to be some cross-subsidization logic,
social innovation where new models will typically have that is a third party such as the state or philanthropic
the character of pre-seed ideas, because the fields are organization is paying for the service.
particularly challenging or neglected (for example social
inequalities), while others will quickly develop, or by de- This is why social innovators often mix grants, donations,
fault possess a growth option (for example green tech). or service provision on state regulated quasi-markets
It is also important to stress that some social innovators with market income. Generally speaking, there is some
may evolve along these stages over time. Especially for potential for evolution towards market revenues, but a
those operating in the challenging fields just mentioned, substantial share of social innovators will continue to
it is essential that providers of finance ask themselves operate on such hybrid income or non-market income
the question: “Who will take over in the next phase?”, structures. This means that while types and phases are
in order to ensure continuous thriving of the social inno- partly related, the life-cycles stages of social innovators
vation. Overall, the evolution of social innovation takes do not always co-evolve with their income types. If the
a long time, this is why social innovators need patient political priority is on creating the greatest impact—and
capital with long duration, initial grace periods or flexi- so it should be—non-market social innovators should
ble interest or return expectations. not be disregarded but provided with tailored financial
support that responds to their specific needs.
Financing Social Innovation — International evidence 15

“None of the great challenges of our time such as climate

change, digitization or an aging society can be mastered through
technology alone. Such challenges require [...] social innovations.
[...] The High-tech-Forum therefore advises the federal
government to develop a strategic approach for stimulating social
innovation and to mobilize policy action across policy fields.
Social enterprises, that is organizations which create social value
through means of entrepreneurship, should be strengthened
because they are driving forces of social innovation.”
― Final report of the Hightech-Forum,
commissioned by the German
government

3
Non-financial support
and networks

The support of social innovators does not only need to

be multi-pronged with regard to providing different fi-
nance in different ways for different types of organiza-
tions and different stages. It also needs to provide more
substantial non-monetary support than we typically see
4 Developing a holistic
perspective on impact

Fostering social innovation is not an end in itself. Instead,

it is a means to promote more effective problem solving
and prevention for society. This is why it is intricately
connected to fostering social impact. Unfortunately, and
despite much progress on the side of available tools and
in financing commercial businesses. In-kind support, in frameworks (see for example the Impact Management
some of the countries we studied, was even seen as Project › impactmanagementproject.com) managing for
more essential to social innovators than financial sup- highest impact is still not widely established.
port. The biggest needs for support lie in four broad ar-
eas: (1) knowledge about different types of finance and To establish impact as the key decision criterion in or-
the opportunities and obligations associated with these, ganizational management and financing decisions alike,
(2) business/organizational model innovation to find a we will need incentives for achieving impact. These
sustainable (if mixed) income model, (3) impact meas- should be accompanied by the tailored adaptation of
urement, management and reporting. A fourth and inde- impact criteria and a process of organizational learn-
pendent area is the build-up of networks with scaling ing in this regard, which is needed because of the new-
partners from the public sector, the social economy, or ness and great diversity of social innovations. In con-
the market to diffuse social innovations across systems. sequence, impact measurement, management and
reporting require continuous exchange between the
social innovators and finance providers, and ideally a
transparent sharing of experiences made in this collab-
oration. The legal requirement for all types of organiza-
tions to report on their impacts would provide a huge
push towards prioritizing impact. From an ecosystems
perspective, changing the public sector’s own procure-
ment principles towards “buying social” or “buying for
impact” would not only incentivize the impact orienta-
tion of those the state buys from, but it would flag the
importance of creating impact across society.
IV.
16

Financial architecture
and policy tools

A well-crafted financial architecture that

employs specific policy tools can help fund
social innovation effectively and mobilize
private capital.

In this chapter we aim to explain the tools that are essential within the fi-
nancial architecture and their functions in reference to social innovations.

The aim of Figure 2 is to provide a comprehensive overview of the archi-

tecture and to outline how different spheres of action need to be con-
sidered in conjunction. For example, the innovation funnel that marked
different innovator types and development phases is reimplemented in
a different way at the top of the figure. At the bottom of the figure, we
highlight the roles played by a variety of private and public actors that
can and should co-engage in supporting social innovation. [3] The differ-
ent types of finance these are able to provide in their co-engagement are
also displayed and range from grants to equity.

Eight different policy tools are highlighted and will be explained in more
detail below. How these are connected to specific financing vehicles is
discussed in Chapter 5. Here we only allude to these financing vehicles
by numbering and naming them, and by illustrating and locating them via
graphic schemes.

[3] The location of private investors marks their earliest points of

potential engagement. They could however engage in the full range
of engagement opportunities to their right (marked by the arrow).
 Non-market Hybrid Market-oriented

Social
innovators Pre-Seed Growth

Seed

8. Vouchers
Capacity building & networks

Grants Debt, long-term, low or variable interest 7. Opening existing programmes

Types of finance
Mezzanine/convertibles

Equity, late or no exit (e.g., silent partnership), exit via transition perspective

I.  II. 
Accelerator loans/ Blended non-market

Figure 2 Financing architecture for social innovation

grants finance 2. Tax incentives (or premiums)

Financing V.
vehicles 3. Guarantees Blended market
finance

III. 6. Social procurement &

4. Pay-by-Results
SIB/ quasi-markets
Outcome funds
IV.
1. Pooling of accelerator subsidies Community Bonds

5. Community Investments
Policy tools

Incubators/accelerators → Venture Philanthropists → CSR → Investment funds → Pensions funds → Venture capital funds →
Private Foundations → Impact Investments → Family Offices →
investors
Retail banks →

Impact funds (ESF, dormant assets)

Public actors (Investment banks) Municipalities Investment banks

State bank foundation (KfW) Retail banks (channeling public funding)

Private finance Public finance Citizens Overlap

17
IV. Financial architecture and policy tools 18

1. Pooling of 2. Tax incentives

accelerator subsidies: or premiums for impact:
There is a large number and variety of individual prizes, One reason for a poor mobilization of private capital for
acceleration programmes and pitch competitions. These social innovators with very high impact potential is that
stimulate the vibrancy of the social innovation field, but the degree of experimentation and thus the risk of fail-
also result in problems. First, such a fragmented land- ure is also high, so that funders face the risk of not being
scape produces high friction costs for social innovators, able to claim a success. A second reason is that while
who need to apply over and again for relatively small impactful, some social innovations may not be consid-
amounts of money. Second, acceleration programmes ered new enough by private funders, who are often in-
are often designed after the example of commercial in- terested in signalling their role as vanguards of positive
cubators and run from 3 months to 1 or 2 years at max- change, which is impossible if the perceived degree of
imum, which might be insufficient for social innovation newness is too low. A third reason is that especially in-
ideas to come off the ground and social innovators to dividual philanthropists or smaller institutions may not
get to a proof of concept, for example. Third, any such want to channel their investments into a small number
support typically refers to single projects rather than of relatively big investments and instead seek diversify
whole organizations and may thereby block the evolu- their portfolio in favour of a bigger number of smaller
tion of more holistic solutions, which typically evolve investments.
over time and independent of original project ideas.
The state could encourage private engagement by
Private funders, for example big corporations or offering preferential tax treatment of such invest-
private foundations should consider pooling resourc- ments. Such tax cuts should be linked to impact
es, which can be used to provide long-term support criteria to help differentiate impactful from less
to organizations rather than short-term support to impactful investment types. Instead of tax cuts,
projects. The German state bank foundation (KfW the state could choose to pay a premium ex-post,
Stiftung) could choose to do the same and thereby once certain impact criteria are met (see also pay-
serve as a role model for private foundations. by-results). By leveraging private finance through
substantial public co-investment, the state could
Another option for state involvement would be to level out individual portfolio considerations. Such
moderate such a long-term oriented process by public co-investment would effectively function like
defining relevant assessment criteria, ideally togeth- a guarantee and reduce the level of risk that private
er with social innovation actors, for how to channel investors must bear.
subsidies and investments into social innovations. It
could thereby provide some direction in how to de-
sign and govern co-pooled fund structures. Finally,
it is quite common that state banks provide non-re-
payable subsidies for research and development
purposes to commercial enterprises. They could
engage in similar support for social innovators.
Financing Social Innovation — International evidence 19

3. Guarantees: 4. Pay-by-results principle:

Another reason for an overall lack of finance for social A substantial share of the provision of social services,
innovation is that risk-return-impact profiles of investors including efforts at problem prevention, happens on
do not match those of the social innovators who may highly regulated quasi-markets. They are usually gov-
receive the finance. Risk may refer to potential financial erned by the primacy of cost-efficiency in the provision.
loss, but also to impact risk, that is expected positive This principle is important to remain accountable to tax
effects not materializing, or even time, that is the social payers. The downside is there is little room for contin-
innovation taking very long to mature and sustain itself. uous innovation and almost no room at all for radical
innovation.
The state could issue guarantees to mitigate these
problems. This may happen in the literal sense, that Social impact bonds or outcomes funds are based
is the state takes first loss in case of defaults, or by on the pay-by-results principle and pursue the idea
way of co-investment, for example via state-owned of attracting private capital to finance such innova-
investment banks. Guarantees or guarantee-like tion and impact-oriented action. Instead of financing
structures are relevant to both, blended non-market a priori, the state repays private investment plus
finance and blended market finance, although there a premium in case pre-defined impact criteria are
is a different composition of private investors in- achieved, so that the private capital bears the risk
volved. The more commercially viable the options to of the innovation. Impact criteria are usually pre-de-
invest in social innovation become, the more could fined, but can be adapted, which for example was
the first loss function also be taken over by venture often the case during the COVID-19 pandemic. The
philanthropists, foundations or family offices. These principle serves to distribute risk and to simulta-
would be co-investing with commercially driven neously promote the impact orientation of involved
investors such as venture capital funds, pension actors.
funds, or even retail banks.
IV. Financial architecture and policy tools 20

6. Social procurement
5. Local community investments: & building public quasi-market:
There is hardly any possibility for citizens to invest in Some social innovations will be able to establish them-
social innovators other than crowd-funding, where the selves as a market product or service that is fully com-
investment often remains limited to the very early phase mercially viable. However, many will require a long-term
of a venture. Ways of institutionalizing and extending the perspective that can only emerge via active state in-
ideas underlying crowd-based funding (pooling of re- volvement. For example, even debt with low or variable
sources, risk diversification etc.) are important, not only interest and a very long duration will need to be repaid
to extend the available amount of finance but also to at some point. Equity investments are altogether unlike-
strengthen the link between citizens and social innova- ly, if investors do not have an exit option at all.
tors, or in fact make citizens co-innovators.
The state could engage in two ways to address these
Locally oriented community bonds, for example to challenges. First, market building by the public sec-
support social innovators in a local urban neigh- tor for the mid- to long-term, for instance through
bourhood or rural region, would provide a vehicle for implementing an innovation as part of the standard
place-based innovation. Municipalities could seek to system of social service provision, can help social
structure such investment opportunities and poten- innovators establish a sustainable and market-ori-
tially co-invest. [4] ented income model. This is needed to be able to
use debt, equity or mezzanine finance. Second,
social procurement is a more universal mechanism
the state could apply, which would establish impact
and social and ecological criteria as core criteria in
public buying decisions. It would not only provide
social innovators with new ways of establishing mar-
ket-based streams of income, but also increase the
impact orientation of organizations across societal
sectors.

In addition to the specific types of public funding already mentioned, there are
several alternative sources of public finance, which could be used finance social
innovations: (1) existing ESF funds of European funds for regional development,
(2) dedicated social welfare budgets to promote innovation in (social) service
provision, (3) dormant assets, which have been used for public social invest-
ments in a number of countries internationally (see a recent policy proposal on
using them in Germany › t1p.de/veeww [send-ev.de], a legal scoping assessment
on its feasibility has recently been completed on behalf of the German govern-
ment). These funds allow for different sector or geographic focuses, and align
with priority areas defined by the sustainable development goals (SDGs).
Financing Social Innovation — International evidence 21

7. Opening existing programmes: 8. Capacity building & networks:

Not all strategic policy options would require the ap- Providing financing alone will not lead to a boost in the
plication of new tools as described above. Germa- social innovation space. Instead, we need coordinated
ny has a number of established funding schemes to efforts at capacity building and network formation. This
support start-ups such as the KfW preferred-interest applies on both sides, that of the social innovators and
loans channelled through retail banks (for example that of the potential investors as well as intermediaries.
ERP-Gründerkredit StartGeld). However, most of these Such capacity and skills building do not only have direct
programmes explicitly exclude organizations with pub- educational benefits, but may prove an effective tool for
lic-benefit orientation from applying for these kinds of mitigating financial risk as well as impact risk (impact
support. Besides, the share of social entrepreneurs who not materializing or innovations having unintended con-
use so called EXIST-scholarships for start-up founders sequences).
appears to be relatively low. [5]
Vouchers for dedicated upskilling, as often used to
A first and relatively simple measure that policy support commercial innovators, would be an effec-
makers should consider is including non-market tive instrument. Similar offers should be made to
social innovators as eligible for established fund- social innovators. However, the skill sets required
ing programmes. Second and more importantly, the by social innovators are not only very broad but also
public sector should consider reforming assessment specific, for example they lie in the area of impact
criteria used to make funding decisions to better measurement, which as of now matters much less
reflect the complex properties and requirements of for commercial entrepreneurs. Due to this circum-
social innovators. One example is that success in stance the skill building process for social inno-
crowd-funding campaigns [6] should be considered vators would benefit from using the expertise of
one element of a proof-of-concept, which is not es- potential match-making organizations (for example
tablished practice in due diligence checks performed impact hubs, accelerators, or social entrepreneur-
by banks to date. Another area that is in need of ship networks but also more mainstream economic
reforms is the state aid law, which regulates which development units or innovation centres), which
organizations may receive funding from state-owned can establish links between social innovators (or
banks and up to which amount. Social enterprises investors) and the providers of training. Besides,
should be explicitly included and the stimulation the public sector, ideally in collaboration with retail
of social innovation should be established as a key banks, should initiate trainings for investment and
priority. bank managers for them to better understand the
complex challenges which social innovators face as
well as their particular funding needs.

For a market to work, finance providers need to

cater to an entire industry or ecosystem, not only
individual organizations. A “second layer” of rep-
resentation of the social innovator scene through
meta-organizations or via new institutions could
help raise its prominence towards the evolving
financing landscape. Furthermore, if state support
measures generally addressed the social innovation
ecosystem rather than individual organizations, this
would promote the evolvement and fortification of
network structures which are essential for unleash-
ing the collective impact potential of social innova-
[4] The “90/10” solidarity funds in France build on a similar logic but channel
employee savings and commercial investment without explicit involvement tors. It would also position social innovations as a
of public finance, which is why they are not treated in detail here. See:
https://www.finansol.org/_dwl/Study-On-2090-10-20Funds-20Finansol.pdf beacon for the economy and society.
[5] See: https://dserver.bundestag.de/btd/18/109/1810907.pdf
[6] For example, 13,6% of social entrepreneurs use
crowdfunding according to DSEM 2020/21.
V.
22

Financing
vehicles

Five different financing vehicles are associated with

the policy tools outlined before. These vehicles have
been applied in different ways in the countries we
analyzed for this study. This is why they can serve as
best practices for Germany.

Figure 3 displays the structure of these financial vehicles,

which appeared in the financial architecture only sche-
matic sketches. In the following chapter, we explain what
specific characteristics the vehicles have, list in which
countries they are being used and showcase how this is
be-ing done.

“The mission of social entrepreneurs is to find new

solutions for the common good. They are therefore
important drivers of the reinterpretation of the values that
constitute the social market economy within a complex
and rapidly changing world. To improve their framework
conditions the council of advisors suggests developing a
social innovation strategy, opening up existing financial
instruments and introducing new ones as well as fostering
social innovation and social start-up centres.”
― Council of advisors “young digital economy” of
the German Ministry of Economic Affairs
 I. II. III. IV. V.
Accelerator Blended non- SIB/Outcome- Community Blended
loans/grants market finance Funds Bonds market finance
[process & [risk reduction, potentially [risk shift, pay- [local focus] [first-loss capital/guarantees, exit
organization focus] impact premium, tax incentive] by-results] through long-term perspective]

PRIVATE [Pooling] › Foundations PRIVATE (different risk- Municipalities State Philan-

return-impact tranches) banks thropy
› Vent. Philanthropists
› Foundations
› CSR › Foundations Philanthropy / CSR
› Vent. Philanthropists
› CSR › Vent Philanthropists
PUBLIC › CSR COMMERCIAL
Financing Social Innovation — International evidence

INVESTMENT
› ESF › Family Offices

Figure 3 Financial vehicles for social innovation

› Social welfare budget › Investment funds › VC
› Regional budgets › Retail banks Citizens › Pension funds
Share of private-public finance

PUBLIC [municipalities] › Retail banks

› State foundation
› State investment banks
Social Procurement /Quasi-markets

+/0 State premium

Grants Grants Compensation Shares in/loans Profit sharing

Subsidies according to impact to local initiatives options

Forgiveable loans Loans (without/

flexible interest) Long-term debt Patient equity

Vinnova Power-Up Portugal Social Sitra Brabant Community Bonds des Big Society Capital
Scotland Innovation Outcomes Fund Centre for Social Innovation

Private finance Citizens

Public finance Overlap
23
V. Financing vehicles 24

I. Accelerator
loans/ grants

Purpose

― More effective pooling of resources

― Ideally moving from short-term project-oriented

to long-term organizational support

― Combining grants or forgivable loans with a process-

oriented acceleration programme

Life-cycle phases
Especially pre-seed, also seed

Logic
The larger share of finance would come from private sources, such as foundations, venture
philanthropists or corporates seeking to provide support to social innovators as part of
the corporate social responsibility (CSR) initiatives. This could be combined with a sub-
stantially smaller share of public funding to form a pool of finance. State foundations such
as KfW Stiftung or the state banks, which exist in every German federal state, in analogy
to their provision of subsidies for commercial innovation could contribute to the public
funding.

International examples
Vinnova Sweden, Power Up Scotland, Portugal Social Innovation

Power Up Scotland represents a good example of such a multi-sector

approach, where among other partners Big Issue Invest co-invested with
the University of Edinburgh, while the Scottish state issued guarantees,
and Aberdeen Standard Investments provided pro-bono skills building to
local social enterprises. Vinnova in Sweden set up a largely grant-based
scheme to finance social innovation in civil society organizations. Portugal
Social Innovation initiated a dedicated skills-building fund.
Financing Social Innovation — International evidence 25

II. Blended non-

market finance

Purpose

― Risk reduction and increasing appeal for private

investors though public co-investment

― Potentially combined with premiums or tax incentives

for impact-oriented investing

Life-cycle phases
Especially seed

Logic
The key principle is to leverage private investment by means of substantial public co-in-
vestment, or other incentives such as tax cuts or premiums. Sources for such public in-
vest-ment could be ESF funds, a re-channeling of social welfare budgets for stimulating
innovation in social service provision, or regional and municipal budgets to support local
innovation.
The types of involved private finance providers would largely mirror that of the accelerator
loans/grants. However, in the seed stage of social innovators public investments need to
be more substantial. This is especially since the mobilized support should have a long-
term orientation and the risk of financial loss would be higher so that risk-return-impact
profiles would need to be smoothed out by the public sector. The main types of finance
are repayable loans, ideally with flexible interest and long-term option of converting these
into equity. In addition, social innovators should be provided with working capital.

International examples
Portugal Social Innovation

Portugal Social Innovation provides 70% of public leverage to private in-

vestments and thereby finances social enterprises and non-profit organ-
izations. The funding is predominantly sourced from ESF sources.
V. Financing vehicles 26

III. Social Impact Bonds/

Outcome funds

Purpose

― Risk shift to private investors, while providing outcomes-based

re-payment (plus premium) by the public sector

― Promoting outcome and impact orientation

Life-cycle phases
Seed and growth

Logic
The basic idea of social impact bonds is to mobilize private finance for promoting innovation, and to
outsource public risk. At the same time, SIBs represent a shift in the provision logic from compensating
providers and/or investors based on (a) services provided to (b) results achieved. Only when pre-defi-
ned impact criteria are met, do investors receive a repayment of their investment, plus a premium. The
mobilized investments typically do not go to single organizations but to partnerships of provider, who
based on a combination of expertise hope to contribute to more effective problem solving.
Individual local social impact bonds have been criticized for having very high setup and administrative
costs, which is why outcomes funds that provide an umbrella to finance several initiatives are becoming
the preferred alternative. The range of potential private investors is wide and spans from foundations to
retail banks, who will typically have very different individual risk-return-impact profiles and could thus
meet the financial requirements of different types of social innovators. A pooling of resources across
different risk-return-impact tranches may help lever the overall amount of capital further.

International examples
Brabant Outcomes Fund Netherlands, Portugal Social Innovation,
Sitra Finland, local SIB initiatives in many other countries

The Brabant Outcomes Fund in the Netherlands and Portugal Social

Innovation have established smaller scale funds and bonds that grew
bottom-up. Because Portugal Social Innovation was not able to pay pre-
miums from ESF funds, the state established tax incentives for priva-
te investors. Sitra in Finland instead launched a number of large-scale
outcomes funds especially for preventative actions such as lowering the
occurrence of Diabetes Type 2 in the Finnish population.
Financing Social Innovation — International evidence 27

IV. Community
bonds

Purpose

― Local, place-based citizen or crowd-investment

Life-cycle phases
Seed and growth

Logic
Investment opportunities for citizens in social innovation are limited to non-existent.
One vehicle for opening such opportunities is the setup of local community bonds
that foster place-based investing into social innovations that are located in one’s
neighbourhood or region. Citizens could for example acquire a share in a building to
be acquired by a social enterprise to establish a new cultural hub. A structured fund
could also provide loans to several local social innovators. Citizen investments might
be leveraged by municipal investments, or by co-investments from local philanthro-
pists or local businesses.

International examples
Centre for Social Innovation bonds, Canada

The Centre for Social Innovation in Canada has issued a number of

such bonds, mainly for asset-based social innovation activities.
V. Financing vehicles 28

V. Blended
market finance

Purpose

― Risk reduction for private investors through public

first-loss capital or guarantees

― Enabling private exit for equity investments

through establishing a long-term perspective

Life-cycle phases
Growth

Logic
Some social innovators succeed in building models where impact and profits are fully
in line. Finding private investors for such models is typically not a major challenge.
However, many social innovators, even if ready for growth, offer below market or no
financial returns, or contain a high amount of risk both, of financial failure and im-
pact not materializing. Blended finance that taps a variety of financing sources can
be effective in making such investments attractive to the widest possible range of in-
vestors, spanning as far as pension funds or venture capital funds. Even participation
of retail banks and a subsequent offer of individual investments to customers are a
viable option.
However, this requires a pooling of finance with different risk-return-impact profiles to
get to a balance, which individual investors would not be able to achieve when invest-
ing on their own. Guarantee-type or first loss functions could be performed by public
investments of state banks or by private philanthropic capital. Such vehicles would en-
able the provision of long-term debt with flexible interest, mezzanine finance, patient
equity or profit-sharing options. Social procurement or public quasi-market building
may provide effective exit options for private investors if social innovators are unable
to sustain the model through standard market mechanisms.

International examples
Big Society Capital UK, Canada Fund-of-funds

Big Society Capital UK has been designing variants of such vehicles

for a number of years. Canada is in the process of setting up a Fund-
of-funds, which is meant to channel investments into a variety of
SDG areas.
Financing Social Innovation — International evidence 29

In addition to the portrayed financing vehicles,

non-monetary measures of support are essential
to the promotion of social innovations.

Adapting existing and

creating new institutions

Purpose

― Ecosystem building

Life-cycle phase
Life-cycle phase

Logic
Ecosystem building requires political ownership of the issues and a national leader, ideally
an independent institution that can broker between all involved actors, increase transpar-
ency and collaboration in the field, and identify priority areas for action. The EU-Programme
for Employment and Social Innovation (EaSI) was built around some of these principles.
The foundation of a separate innovation foundation for social innovations, which fosters
non-market as well as market-oriented models would be a good opportunity to provide
targeted support.

International examples
Le French Impact, EaSI programme of the European Commission, Sitra Finland

Le French Impact is the most prototypical institution performing all these functions,
including the early involvement of policy makers in investments to enable legal or in-
stitutional changes, if and as they become necessary over time.

Some parallels may also be drawn to the UK

where the function is distributed across a variety of actors such as Big Society Cap-
ital and its sister organization Good Finance that focuses on knowledge building and
transparency, or the national innovation foundation Nesta. Local, federal or national
innovation challenges that bring together a variety of stakeholders to identify the most
pressing societal problems, offer an experimentation space, and serve to jointly devel-
op potential solutions, can help structuring adequate funding vehicles and channelling
the finance. Sitra in Finland has engaged heavily in impact modelling to identify pri-
ority areas for investment, for instance by estimating socio-economic costs that can
be avoided through investing into innovative approaches to prevent problems from
occurring.
VI.
30

International
evidence

There are many established strategies of how to

foster social innovations financially in and outside
Europe. Our concrete examples of financing
programmes in seven different countries show how
social innovation can be promoted in a holistic way.

All our recommendations are based on our analysis of 23 expert interviews that we
conducted in the summer of 2021. We talked to representatives of international organ-
izations, more specifically to the OECD, the European Venture Philanthropy Association
(EVPA), the Global Steering Group on Impact Investing (GSG) as well as experts in some
countries that are only in a state of emergence of a wider financial support system for
social innovation (Italy and Spain). These interviews yielded general recommendations,
which were not related to a specific funding programme.

The other interviews focussed on the specific experiences of further countries with
their established funding programmes. [7] Here we intend to provide a brief portray of
each programme and compare them across a number of dimensions, which we high-
lighted as essential for arriving at the financial architecture and individual financing
vehicles we proposed. Table 1 provides an overview of the comparison. The relevant
dimensions include: target groups, life-cycle stages, types of finance provided, risk
management, and impact orientation in the existing programmes. The table and sec-
tions are arranged by complexity and multi-facettedness of the instruments applied
(in ascending order from left to right).

The overview shows that the principles on which the individual programmes act are
very different, but that they also exhibit a significant number of shared traits. Our
financial architecture and its corresponding policy tools and financing vehicles are
based on a composition of the most promising components we were able to identify.

[7] For Canada we focus on the planned Fund-of-funds, since the community bonds, while a valuable
local initiative are not an established scheme. Le French Impact while a major initiative is not a dedi-
cated funding scheme, which is why it is it is not listed separately in the table.
 Sweden UK / Scotland Netherlands Finland UK Portugal Canada

Brabant
Programme Vinnova Power Up Scotland Sitra Big Society Capital Portugal Social Innovation Social Finance Fund
Outcomes Fund

From base funding to Local social enter- Bottom-up impact Reform of the wel- Building an impact
Principle Designing an ecosystem SDG-oriented investing
innovation funding prise support evolution fare state investment market

Founded 2001 2018 2018 1967 2012 2014 Planned

Initiator National government Local initiative Regional government National government National government National government National government

Approx. EUR 1 / 17 Mio.

SEK 55 Mio. GBP 990000 EUR 64 Mio. GBP: 115 Mio. EUR 150 Mio. CAD 755 Mio.
Financing Social Innovation — International evidence

(1. round/planned,
volume (2017-2019, public) (2020, public+private) (2020, public) (2020, public) (2014, public) (planned, public + private)
public + private)

Life-cycle All stages, Pre-seed, All stages, All stages,

Growth Growth Growth
focus one vehicle seed different vehicles different vehicles

Civil society Civil society Social service Market-oriented From civil society From civil society
Target groups Social enterprises
organizations organizations providers social enterprises organizations to SMEs organizations to SMEs

Variety of types of 1. Capacity building programme

Low-interest loans finance, market-orient- Fund-of-funds,
Initially classical 2. Pooled grants
Types of (after successful ed. Sister organization variety of types
Grants Social Impact Bond, Outcomes fund 3. SIBs
finance completion of (Access Foundation) of finance
accelerator & pitch) then outcomes funds
for non-market social 4. Social Innovation Fund (market-oriented)
enterprises (Equity and Debt)

Rechanneling of civil
Public funding Regional ESF, national and Dedicated national
society funding into State guarantees Welfare budget Mainly dormant assets
sources government budget municipal funds funding
innovation funding

Big Issue Invest,

University of Ed-
Private Initially only founda- Commercial inves-
- inburgh, pro-bono Full range of investors Full range of investors Commercial investors
investors tions, later also banks tors
consulting by cor-
porates

Duration Variabele 3 years 3-7 years Variabele Variabele Up to 10 years Tbd

Government
Risk allocation Government Private investors Private investors Shared risk Depending on financing vehicle Shared risk
(first-loss)

Ex-post assess- Mutual agreement,

Impact criteria Not prominent Pre-defined Mutual agreement, Mutual agreement, Tbd
ment and reporting adaptable

Table 1 International financing programmes

31
VI. International evidence 32

Vinnova, Sweden
“From base funding to innovation funding”
The programme of the Swedish innovation agency Vinnova represents a shift from a large
amount of unconditional base funding to civil society organizations in the context of the
Nordic welfare state to a dedicated fund promoting innovative action. Financial support
typically comes in the form of grants. There were several initiatives at capacity building to
promote innovation and impact orientation in social innovators through dedicated training
and other non-financial support, but these element are not as integrated as in the pro-
grammes in many other countries.

Power-Up Scotland, UK/Scotland

“Local social enterprise support”
The Power-Up Scotland programme is strongly focused on social enterprises, typically
within a specific local context. After a mentorship phase of 3-4 months start-ups are
pitching their progress and may then receive low interest loan funding to put their projects
into practice. The state was mainly involved as the provider of first loss guarantees and
credibility to the private funders, in particular the well-established social investment fund
Big Issue Invest and the University of Edinburgh that chose to invest a share of its substan-
tial financial endowment. The non-financial support provided, especially pro-bono work by
Aberdeen Standard Investments and a law firm were regarded, were regarded as almost as
important as the provided finance. The prominent local or regional focus was regarded an
asset for engaging all involved stakeholders.

Brabant Outcomes Fund, Netherlands

“Bottom-up impact evolution”
The programme of the Dutch province of Noord-Brabant strongly pursues a bottom-up ap-
proach. In a first round of funding the regional government of Noord-Brabant engaged 4 en-
terprises and 3 investors and channelled € 1 Mio through social impact bond contracts. The
second round, which is currently being prepared, aims to provide € 17 Mio. through an out-
comes fund that does not only work on pay-by-results principles, but also provides loans
and working capital to social innovators. Impact/outcomes criteria, are usually pre-defined,
but they may be adapted during the duration of the financing, which was necessary in par-
ticular due to the COVID-19 situation. The aim of the involved public and private funding
partners is to help the enterprises achieve their impact. The involved actors from public
administration also see the fund as a means to implement learnings and establish new
decision criteria into public administration, and thus as a tool for institutional change.

Sitra, Finland
“Reform of the welfare state”
The programme is based on the impetus of reforming welfare provision in Finland. Instead
of addressing challenges after they occur, Sitra seeks to promote preventative action. The
innovation aspect mainly stems from brining actors together, who would usually not work
together, for example private commercial fund managers and coalitions of social service
providers. Rather than following the logic of locally embedded impact bonds, Sitra tends to
launch tenders with a cross-regional or national remit. Because these are typically sizeable
investments and the state is ready to pay a substantial premium when pre-defined impact
criteria are met, so as to prevent public welfare expenses in the future, the programme
mainly attracts commercial investors who seek near or at market rates of financial return.
Financing Social Innovation — International evidence 33

Big Society Capital, UK

“Building an impact investment market”
Big Society Capital was the first programme globally for social innovation, social enter-
prise and impact that used funds from dormant assets to build up an impact investment
market. It channels finance into a wide variety of vehicles that are based on principles of
asset pooling and co-investment to engage private investors. The major share of Big Society
Capital is dedicated to supporting enterprises that generate a minimum level of market
income. However, it also supports non-market social innovators through its sister organ-
ization Access Foundation. A remarkable additional component is Good Finance, which
focuses on knowledge building, exchange and increasing capacity in the sector. The main
goal is to raise awareness among potential investees about financing options as well as
the potential opportunities and drawbacks that these options are associated with. Impact
goals are typically defined on a case-by-case basis, but through its long years of operation,
the programme is moving slowly towards more standardization of impact criteria.

Portugal Social Innovation, Portugal

“Designing an ecosystem”
Portugal Social Innovation is probably the most comprehensive and multi-pronged pro-
gramme that currently exists. While the Portuguese state initiated it in a top-down ap-
proach, it contains elements of flexible adaptation and covers the entire life-cycle and
different types of social innovators. There are: a separate skill building programme, a grant
programme that tries to lever private philanthropy through a public co-investment share
of 70%, and several individual social impact bonds. There is also a social innovation fund
that provides debt and makes equity investments into social innovators, whereby the pub-
lic co-investment is not above a 40% share. The main source of public finance is the ESF,
whereby some additional national and municipal funds have been mobilized too. Because
ESF funds do not allow for premiums to be paid to investors, the Portuguese state estab-
lished a 30% tax cut for impact-oriented co-investing. The programme’s objective is not
only to finance single organizations, but to support the emergence of a social investment
market as well as an ecosystem for social innovations. Impact criteria are essential, but are
very much subject to negotiation between the involved parties.

Fund-of-Funds, Canada
“SDG-oriented investing”
The programme in Canada is only in the process of being set up. The Canadian state seeks
to make a substantial investment, by which it hopes to leverage even more private capital.
Estimates of exact shares and overall magnitude differ, but the projected overall amount
is at least CAD 750 Mio. of combined public and private investment. A blended fund-of-
funds fed from these sources is then meant to channel finance into more specialized and
individual SDG-oriented funds. Some share of the available finance shall also be dedicated
to capacity building, networks and advancing investment readiness. While the programme
seems to aim to employ a variety of financing vehicles and could thereby provide social
innovators with different types of finance, the programme is strongly market-oriented. Im-
pact criteria are likely to be SDG-grounded, but there is no specific information yet.
VII.
34

Call to action

Germany and other countries have the opportunity to

benefit from the experiences of established funding
programmes for social innovation across the globe. The
needs and challenges which social innovations face are
clear and there is no perfect response to them. However,
any effective solution will need to take the complexities
of supporting social innovation seriously.

We believe the comprehensive financial architecture, policy

tools, financing vehicles as well as forms of non-financial
support we propose represent a well-rounded package of
measures, which are not only realistic but also offer high
impact potential. We hope policy makers will choose
to put them into practice in collaboration with a wide
variety of stakeholders, who are needed to bring social
innovation to fruition.
VIII. IX.
35

References and
Glossary more inormation

Accelerator Seed phase Finland UK

Targeted support programme Second phase in an organi- Sitra Global Steering Group
for start-ups zation’s life-cycle, in which › sitra.fi for Impact Investing
organizations often provide a Annual Report 2020 › gsgii.org
Blended Finance
proof of concept › t1p.de/61bs [sitra.fi]
Financing structures that use Big Society Capital
public finance to leverage Quasi-markets › bigsocietycapital.com
France
private finance (Social) service provision that
Le French Impact
is contracted on a competiti- Annual Report 2020
EaSI › le-frenchimpact.fr
ve but state-regulated market › t1p.de/4oyo
EU-programme for employ-
ment and social innovation Social Impact Bonds (SIB) Canada [bigsocietycapital.com]
(EaSI), more information Public-private partnerships Social Finance Fund
› t1p.de/0z4k [canada.ca] Good Finance
to finance organizations or
First loss › goodfinance.org.uk
networks with high innovation
Designates the amount of an Netherlands
or impact potential; private International
investment which is exposed Brabant Outcome Funds
investments are only repaid Entwicklungsfinanzierung
first to any loss suffered on a › t1p.de/m63l [brabant.nl]
(with a return) if pre-defined Blended Development
portfolio of assets Report of first
impact goals are met Finance Capacity Building
ESF investment round
Social procurement Programm
European Social Fund, more › t1p.de/9sjm [brabant.nl]
Public contracts are issued › ibf-uzh.ch/education
information › t1p.de/3zj1
and buying decisions made Scotland B-Briddhi Impact Ecosystem
[ec.europa.eu]
based on social and ecolo- Power-Up Scotland Building Programm
Mezzanine finance gical instead of cost criteria; › t1p.de/n5v6 [bigissue.com] Bangladesh
Hybrid type of finance that colloquially referred to as Impact Report 2020 › sie-b.org
combines debt and equity “buying social” of “buying for › t1p.de/s42l
capital impact” [bigissueinvest.com] EU
European Social Innovation
Dormant assets
Sweden and Impact Funds (ESIIF)
Funds held by financial ser-
Vinnova › esiif.de
vice providers that have not
› vinnova.se
been touched for a certain OECD
period of time and where the Social Innovation
Social Impact Investment
contact to the original owner in Sweden Report
2019, Report
has been lost › t1p.de/oczk
› t1p.de/43fe [oecd.org]
[vinnova.se]
Outcome Funds Innovative Development
SDG-Social Bonds
Fund to finance multiple ini- Finance Toolbox
› t1p.de/jqdb
tiatives based on the pay-by- › t1p.de/fke50
[responsability.com]
results principle (see below) [kfw-entwicklungsbank.de]
Pay-by-results Spain
Private capital invested into Financing needs of social
certain projects is reinves- enterprises in Spain, Report
ted by the state, if certain › t1p.de/ebij [esade.edu]
pre-defined impact criteria
Portugal
are met
Portugal Social Innovation
› t1p.de/qfyp
Pre-seed-phase
[inovacaosocial.portugal2020.pt]
First phase in an organizati-
on’s life-cycle, typically befo- Social Impact Bonds Studie
re the organization is formally › t1p.de/6l1y [fi-compass.eu]
established