Three sold-out events exploring the emerging impact investment sector in New Zealand have given Äkina Foundation insights and confirmed challenges.
Äkina Foundation CEO Alex Hannant said impact investment was more than just making ethical choices through investment.
"Impact investments are made with the intention to generate a measurable social and environmental impact alongside financial return. Impact investment can provide a broader range of financing options to social purpose organisations, and provide them with the capital they need to grow and suceed," he said.
He said impact investment was not exclusive to social enterprises, but made sense for social enterprises as they were businesses with social or environmental goals at their heart.
Äkina has hosted three events in Auckland, Wellington and Christchurch in the past week, with the support of Deloitte and Russell McVeagh, reaching more than 100 people as well as running an online survey.
Mr Hannant said feedback from the survey of social enterprises showed that 50% of the 108 respondents were not yet engaged in impact investment activity, but wanted to know more about how a growing market might increase their access to capital.
"It’s no surprise to us that people developing social enterprises see challenges with relying on grant funding in the long-term and want to diversify their funding sources and become independent from the uncertain grant funding cycles," he said.
Survey results showed that about 25% of survey respondents were planning to take on investment but were unsure about how to go about it. Many of these organisations reported a lack of appropriate support and were often encouraged by service providers to go down traditional funding routes that didn’t necessarily suit their social enterprise model.
"In New Zealand, we have good infrastructure in place to support traditional businesses - social enterprises need similar support, such as funders and advisory services that understand the needs of organisations delivering on social and environmental outcomes in a way that is self-sustaining and potentially scalable. That’s what we’re doing at Äkina and demand is increasing rapidly, especially in the regions."
The survey showed about 5% of organisations were investment ready, but they needed help with the development of an investment proposition and investor communications. Access to investors that consider a social and financial return was also reported as a key barrier.
"What’s interesting is that some organisations were forced to take on grant funding, despite having the ability to service investment, because of a lack of awareness of new models of investment - or is some cases, a nervousness or reluctance to use these unfamiliar models. We also need to simply grow the network of people who could be impact investors."
About 10% of the respondents had raised investment, but echoed similar concerns about the lack of specialised support services and investor market. The final 10% said they had raised or were seeking investment, but were using "investment" in a broader sense to include grant funding.
Mr Hannant said about 40% of survey respondents used a charitable or not-for-profit model to protect their social mission. Another 40% of organisations used a company model without charitable status and found other ways of protecting their mission, while not restricting their investment options. There was a small number (about 5%) that used multiple structures to protect mission and take on investment, usually in the form of a charitable trust with a subsidiary company, while the remaining 15% had no legal form and were still exploring options.
"There is a gap in legal recognition of social enterprise in New Zealand, which creates a barrier to accessing both grant funding and investment - they’re not a charity and they’re not a traditional company, although either form can operate as a social enterprise, sometimes with limitations. In other countries like Scotland, a legal form for social enterprises has helped clarify investment opportunities, so this is something worth investigating if we want to grow the sector."
Äkina is a charity that aims to grow the social enterprise sector in New Zealand. Its impact investment programme helps organisations secure investment by helping them determine a type and level of investment that is suitable for the organisation and supporting them to engage with investors.
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