Social entrepreneurs can access resources from both the private and public sectors to address South Africa’s biggest economic, social and environmental challenges. Solange Rosa, director of The Bertha Centre for Social Innovation and Entrepreneurship, explains how they can be better nurtured.
Why is social enterprise so vital in South Africa and how can it solve some of the biggest challenges we face, like unemployment and low growth?
Social enterprises play an important dual role, focusing on both financial profits and positive social impact. They have a significant role to play in South Africa, particularly as the country emerges from the pandemic lockdowns. As we face the triple burden of unemployment, inequality and low economic growth, coupled with a limited and shrinking tax base, social enterprises have a key role to play in identifying and filling gaps that the government is unable to.
Please provide an example of a local social enterprise that is having a positive impact.
SiyaBuddy, which creates jobs while helping the environment, comes to mind. They are a recycling and waste
management company that buys waste mostly from women collectors and sells it to recycling companies. The company has created 21 jobs and supported more than 1 000 waste-pickers.
What are some of the greatest challenges to social enterprise funding?
The ‘Understanding Social Entrepreneurs in South Africa’ study, conducted by The Bertha Centre, found most social
enterprises needed funding for growth and expansion in the early stages of the business life cycle.
Among entrepreneurs who have raised funds, most had more experience prior to starting their business, have a
post-graduate education and are more likely to be male and white. Black social entrepreneurs have more difficulty raising funds, suggesting a structural barrier to raising capital beyond grants.
Challenges social enterprises in more advanced countries may not face are amplified in South Africa. Raising funding from friends and families, often possible in more developed countries, is not an option for many in South Africa. Facing resource constraints, entrepreneurs utilise innovative business models and strategies, further amplifying the actual and perceived risks for investors.
How can social enterprises access start-up funds? Why do companies shy away from funding social enterprises and how can this be addressed?
There is a shortage of early-stage funding. Added to this, investors in social enterprises take on not only
financial risk, but also social impact risk. Social enterprises therefore need to be transparent in the way they measure, monitor and report their social outcomes. Providing clear information to investors can ease the perceived risk of funding enterprises of this nature.
How can companies support social enterprises and meet their own needs in the process?
Companies have an important role to play in supporting social enterprises. The most urgent need is for start-up and early-stage funding. A lucrative area for fund managers would be plugging the gap in early-stage funding, specifically for entrepreneurs who cannot self-fund their enterprises. With almost two-thirds of entrepreneurs looking to raise between R100 000 and R3 million, this is an opportunity for investors to expand their portfolios to include smaller investments.
Black and women entrepreneurs in particular could be supported by reviewing and addressing how early-stage
funds are structured. Evidence shows companies with diverse leadership teams enjoy higher revenue and profitability. Introducing a gender and racial lens to investing can provide a positive return on investment, while simultaneously addressing inequalities.
Traditional debt and equity funding are not well suited to social enterprises. Innovative finance instruments can bridge the gap between achieving social impact and achieving return on investment. Simple structural adjustments to existing instruments will allow funders to fit the unique contexts of social enterprises. Examples like revenue-based debt and quasi equity provide the flexibility needed by social enterprises, without compromising returns for the investor.
Companies’ engagement with entrepreneurs can also be enhanced. Entrepreneurs have minimal time resources, social credit and networks, particularly young, black and women entrepreneurs. This is a barrier not only to accessing investors, but to accessing business support, mentorship and technical assistance. By connecting
their pipeline of entrepreneurs to accelerators, incubators and innovation agencies, investors can expand their own pipeline, creating a more robust and diverse portfolio.
How should non-profits approach social enterprise? Should they be adopting a more commercial model?
Because many social enterprises are registered as non-profit organisations, they lose the option of equity funding.
By shifting to a more commercial model, non-profits would not only open the door to equity funding, but also to potential revenues from government funders and multilateral organisations, allowing them to diversify their business models even further and, importantly, improve their sustainability.
Director: The Bertha Centre for Social Innovation and Entrepreneurship