The power of participative finance in impact investing

The lack of suitable financial instruments adapted to the specificities of social enterprises stands as one of the main obstacles for the development of a mature social enterprise ecosystem in Europe. There is a mismatch between traditional financial solutions or instruments, like conventional funds of equity or loans, and the needs of the early-stage social enterprises.

In Europe there is a nascent and promising social entrepreneurship ecosystem, but early-stage social enterprises struggle to access to suitable finance due to a number of reasons. First, very often their very legal nature limits the choice of instruments that otherwise would suit for early-stage investments (this is the case of Cooperatives, Employment Integration, Special Employment Centres, Associations and Foundations, that cannot receive equity investments). Second, there is often a misalignment between the expectations of the investors and the social entrepreneurs. Thirdly, frequently early-stage social enterprises are insufficiently prepared to receive investment because they lack some of the skills needed to raise investment in a form different than grants. Fourthly, the transaction cost involved in early-stage investments are very high and often deter investors from entering this short of transactions.

We are convinced that these gaps and barriers can be overcome with innovative financial instruments based on participative financing, and for this reason we have organized three webinars to present and share our findings and best practices at European level.

A crowdfunding platform permits the financial risk to be split and shared among a big number of investors with little investment tickets. Our experience shows that, by democratising the investment via crowdfinancing platforms, more capital and validation can be channelled to the early-stage social enterprises, which in this way will benefit from suitable financial alternatives that fit with their needs.