Unless you are watching John Krasinzki, it has been hard to find good news since our last post. As reported this week, Canada will experience its worst economic growth since 1921, and the IMF reports that the global economy will suffer the worst year since the Great Depression.
Alongside vital public health measures, there is a critical need to ensure we maintain and improve systemic responses like wage subsidies, income support programs, rent abatement programs, and sector stabilization funds. We will also need to renew our collective social contract as the crisis has revealed the stark nature of long-standing issues that must be addressed from precarious work to incredible inequality.
There is also a need to unleash the power and potential of social enterprise and impact investing as a part of a comprehensive response to the social and economic impacts of COVID-19. As a movement, we really need to lean in at this time.
At SVX, alongside our partners, we continue to work and talk through options and models to respond to the social and economic impacts of the crisis. In our Medium series, we’ve attempted to develop a greater understanding of the trends, gaps, and models, and we developed a long list of potential response actions.
But where do we focus?
Although a lot needs to be done, there is a clear need to identify a short list of actions. We have sought to establish priority responses based on evolving economic data and sector trends, gaps in the current response, and insights from regional community conversations we held in Ontario and British Colombia. Moreover, we believe these priority actions should be targeted to address the need for short-term emergency relief as well as the need for medium to long-term recovery and regeneration.
Three Key Needs
We have identified three key needs:
- We will need capacity support for organizations and enterprises seeking to manage a significant business disruption and/or to re-tool or adapt their business or organization to respond to the crisis.
- We need to direct all forms of capital into communities, entrepreneurs, organizations and intermediaries to support relief, recovery and regeneration.
- We will need to advance broader systems change by creating new institutions, regulations, and infrastructure to support long-term recovery and resilience.
Three Priority Actions
In order to meet these needs, we have identified three (3) priority actions including:
- an enterprise response program;
- an adaptation, relief and recovery fund; and
- long-term community capital institutions.
Action One: Enterprise Response Program
Provide funding for intermediaries to deliver critical technical assistance to organizations and enterprises that are seeking to navigate COVID-19.
Intermediary organizations have the unique experience and expertise to support organizations and enterprises seeking to navigate short and medium-term impacts of the crisis. There are an incredible number of organizations that could be unleashed to provide supports including: Spring, Radius and UBC Sauder (Vancouver), Pillar Nonprofit Network (London), MaRS, Toronto Enterprise Fund, CSI and SVX (Toronto), Esplanade (Montreal), Pond Desphande (Fredericton), and many more.
Funding could be directed to start or scale-up COVID response programs to allow these organizations to:
- provide one-on-one coaching and advice, including specific technical assistance on a range of topics from legal and corporate issues (eg. mergers), technology, financial management, and other critical skills.
- deliver workshops or cohort programs; and
- deliver concierge services to help organizations and enterprises access current and new funding programs.
There are already early examples in Canada of these kinds of response programs, from Spring in Vancouver to Esplanade in Montreal. A provincial or national program would mobilize the power and expertise of dozens of social enterprise accelerator programs and intermediaries across Canada to tackle the crisis. Moreover, there is also a role for organizations like TechSoup and corporate partners to provide technology solutions and other capacity supports.
Action Two: Social Enterprise Adaptation, Relief and Recovery Fund
Develop and capitalize a social enterprise and nonprofit sector blended finance fund targeting regions (and identified priority sectors in regions), rural Canada, women, and indigenous entrepreneurs with grants and loans for adaptation, relief, and recovery.
There is a clear need for adaptation funding. Many social enterprises are already stepping up by adapting their businesses, from local distilleries producing sanitizer (Kinsip in Prince Edward County) to ethical food delivery businesses employing laid off workers (Fresh City Farms in Toronto) to sustainable fashion companies producing gowns and masks for frontline health care workers (Carmina de Young and MLD Solutions in London). But they, and many other organizations and enterprises, will need sufficient grant and/or lending capital to ensure they can effectively adapt to respond to the crisis, from purchasing protective equipment to adjusting manufacturing processes to implementing new hiring and training systems. We could take these individual examples to a far greater scale.
There is also a clear need for relief, particularly grant relief, for social enterprises and nonprofit organizations that are faced with significant gaps in revenues that will not be filled by wage subsidy programs. And as important as they will be, any recovery funding programs are generally on the policy drawing boards of advocacy organizations or public servants.
There are a handful of regional efforts supporting adaptation, relief and recovery, but these initiatives are undercapitalized or not universally available for many social enterprises and nonprofit organizations.
- Help organizations and enterprises adapt to the crisis, from purchasing protective equipment to adjusting manufacturing to implementing new hiring practices
- Fill gaps in relief for those enterprises and organizations that may not have access to emergency relief funds
- Support recovery and long-term regeneration in our transition to a more sustainable and just economy
- Maintain and create employment, particularly targeting women, rural Canadians and indigenous communities
Fund size: Although the precise size and mix would need to be refined, the fund could have an initial target of $150 million, with an expected equivalent balance of grants vs. investment capital.
Flow of capital: Although it would be a central pool to mobilize capital, the Fund could leverage existing infrastructure to support organizations and enterprises in regions and target populations (women, rural Canada, and indigenous communities) where it is needed most. The fund could provide investment capital to local, regional, or national impact investment funds targeting relief or recovery, and grant funding to augment local or regional grant funds, including those supported by community foundations. Where there are gaps in infrastructure, it could seek to make direct investments or identify local fund or funding partners to deploy capital.
For example, the Fund could provide investment capital to support adaptation, relief or recovery via Marigold Capital for women led or focused businesses or Upper Canada Equity Fund in rural Prince Edward County, Ontario. (Full disclosure: Marigold Capital is an SVX issuer and Upper Canada Equity Fund is an SVX partner.)
Funds and intermediaries could receive grant capital and investment capital to finance SPOs, as well as operating capital:
- Up to $10M in investment and grant capital
- Up to $1M in operating capital for start-up, maintaining operations, or scaling up fund operations
Investees and investment size in underlying enterprises and organizations. The Fund could seek to rapidly deploy capital to small and medium sized organizations and enterprises primarily through investments from $25 — $100,000, with the ability to make larger investments ($100,000 — $500,000) when catalytic. Investees would include for-profit and nonprofit social enterprises and organizations, from affordable housing projects to sustainable food production and delivery enterprises.
This Fund could be capitalized by governments, private sector contributions, and philanthropic contributions, including Donor Advised Funds (DAFs). There is an emerging movement to increase the disbursement requirement for foundations from 3.5% to 5%, so this could also be catalytic to capitalizing this kind of fund.
The could be a great rallying call for the sector and a single unifying action for potential funders/investors to support. This fund could mobilize investors, existing impact funds, and organizations to respond to the crisis.
Update (June 9, 2020): Since this article was first posted on April 16th, we have been collaborating and coordinating efforts with partners and stakeholders across the country to advance efforts around Action Two.
There has been significant progress in the allocation of capital for rural regions through funding by the federal government, primarily through Regional Relief and Recovery Funds. Organizations like the Prince Edward Lennox Addington Community Futures Development Corporation have successfully launched funds to provide critical lending capital to support rural enterprises.
In relation to efforts with ESDC, we have integrated Action Two recommendations and efforts into a unified national proposal of the National Impact Investment Practitioners Table (NIIPT) and CAP Finance to accelerate the deployment of the Social Finance Fund. The purpose would be to capitalize and support indigenous financial institutions, current national and place-based impact investing funds, and emerging impact investing funds. We look forward to advancing that shared agenda.
Action Three: Long-term Community Capital Institutions
Establish a framework to identify, qualify and provide ongoing support to a new category of community development financial institutions that can provide capital and capacity supports to organizations and enterprises that can lead recovery and regeneration efforts at a local level, modelled on similar frameworks in the United States and United Kingdom.
Community development financial institutions (CDFIs) provide credit and financial services to people and communities underserved by mainstream commercial banks and lenders. CDFIs encompass a range of nonprofit and for-profit entities including community development banks, community development credit unions, community development loan funds, community development venture capital funds, and microenterprise loan funds. By financing community businesses — including small businesses, microenterprises, nonprofit organizations, commercial real estate, and affordable housing — CDFIs spark job growth and retention in hard-to serve markets across the nation.
A new category of financial services institution would have met important gaps before the COVID19 crisis, and the need is undeniably greater during a potential period of social and economic downturn. Fortunately, there are already dozens of organizations in Canada that would fit the profile of a potential Canadian CDFI, from community loan funds to place-based equity funds. These CDFIs could target regions as well as particular populations (eg. women, Indigenous, etc.) most impacted by the crisis, as well as target community economic development in regions that have faced structural social and economic challenges. The framework for qualifying and funding Canadian CDFIs could be modelled on the CDFI Fund in the United States. This infrastructure has filled at least some of the gaps in the US, and allowed them to respond in a much more rapid fashion.
This infrastructure would need to be supported by capital mandates from mainstream financial institutions and tax incentives to support investment into CDFIs. In the recovery phase, there will be a substantial need for capital by organizations and enterprises, as well as by place-based funds seeking to raise and deploy capital into these organizations. Many major Canadian financial institutions have significant amounts of capital available on their balance sheets. In line with similar regulations in the United States, there could be regulatory mandates for chartered financial institutions to ensure they dedicate a certain percentage of their capital to investing in local organizations, businesses and funds that are driving recovery and regeneration. This could mobilize hundreds of millions in capital for organizations and enterprises that need access to capital.
If this infrastructure was already in place, Canada would be much better positioned to respond to the social and economic impacts of the crisis.
Beyond the above, it would likely be prudent to come up with recommendations for the Investment Readiness Program (IRP) and the Social Finance Fund. Potentially, both programs could be leveraged to support the capacity program and the capital facility.
So what’s next?
We’ve identified a few next steps:
- Seek feedback and buy-in on the priority actions outlined above from current and prospective partners and stakeholders;
- Get moving quickly on more detailed designs of the priority solutions; and
- Seek to collectively advocate for implementation and begin implementation as possible.
And we still have these items on our list:
- Explore how we can learn from and engage with global partners who are grappling with similar questions and challenges.
- Examine how these actions may fit into larger conversations about a long-term systemic response focused on collective well-being and sustainability.
- Explore the role we and others may play in advancing some of these actions.
We will look to explore these topics in subsequent posts. Again, until then, we wish you, your friends and your families good health (mental, physical and metaphysical) in the days and weeks ahead. And please stay home as much as possible to help #flattenthecurve, and please don’t forget to recognize and thank our frontline health care workers, and others on the frontline from grocery store workers to couriers.