Blended finance for social enterprises

Over the last 5 years, there have been multiple ownership structures within our network and financial structuring throughout the franchise where blended finance is being used creatively. Here are 2 examples.?

Example 1: Start-Up Mode

Most social enterprises in start-up mode are heavily reliant on grants, which is a great way to test new ideas. You also need to plan your next steps in your financial journey as a social enterprise as you move beyond relying solely (or largely) on grants.

When a charity decided to buy a Just Like Family franchise, they first received a grant of $5000 to pay for the legal consultation and structuring of a numbered company to hold the purchase of the franchise.? They used their investment dollars to purchase the franchise, which was their equity. Next, they received a line of credit through a non-traditional community loan fund approach to have the capital to scale quicker. These are 3 very different financial vehicles that helped to get the social franchise off the ground.?

To make things more interesting, they had an option to purchase a second franchise. It became necessary for them to act quickly and they received a zero-interest loan.? With the line of credit already in place, this second franchise didn’t require additional capital to get off the ground just a few months after the first.?

In summary:?

Grant > Equity Investment > Line of Credit > Zero-Interest Loan

Example 2: Social Acquisitions

Charities and nonprofits that are investigating social enterprises should take a pause and consider social acquisitions.? Instead of starting from scratch, is there an opportunity to buy an established, successful business that is already doing what your proposed social venture will do??

For us, we had the opportunity to buy the Just Like Family franchisor, which is the national brand of Just Like Family Home Care. This was different from the start up mode as there was existing and ongoing cash flow through royalties and sales of franchises, so this opened up new blended finance opportunities. And of course challenges….

With the existing net income and structure of the business, a valuation and sale price that both the vendor and buyer were happy with was established. We were then able to speak with charities that were interested in a direct equity investment, and raise the equity from both charities and impact investors.? Although we had more interest from impact investors, it was important for the charities to have a majority ownership and we raised the remaining amount in debt in order to ensure that the charities had over 50% ownership.?

In the end we had 3 charities and 9 impact investors, plus private lenders to get us over the finish line.?

In summary:?

Investment by Charities (equity) > Investment by Impact Investors (equity) > Debt

In both examples, we weren’t following a specific model. We knew what success would look like and were able to use the financial tools out there to structure the entities appropriately. We put the cart after the horse.