Philanthropic funders are working to close the funding gap for social startups with a new mix of flexible investment tools. RSF Social Finance, for example, plans to launch four new funds focused on fair trade, biodynamics, soil health, and women.
The new funds are modeled after RSF's Local Initiatives Fund, which was launched in 2012 to test an integrated approach to financing early-stage enterprises operating in local and regional U.S. food systems.During the two-year pilot RSF deployed $2 million through its Local Initiatives Fund to 40 early-stage sustainable food companies, which have leveraged $10 million in additional funding.
“That project proved to us that providing a tailored mix of different types of capital can help early-stage social enterprises deliver on their missions,” wrote RSF President and CEO Don Shaffer in the Stanford Social Innovation Review.
For each new fund, RSF will raise philanthropic capital, which it can deploy as loans, loan guarantees, equity investments, and grants in a coordinated mix of capital that meets the funding needs of early-stage companies.
“Social enterprises think about growth as a way to serve their mission, not as an end in itself,” writes Shaffer, an editorial contributor to ImpactAlpha.
“They may intend to remain rooted in a community and serve as a model to others, for example, rather than pursue rapid and far-reaching expansion. Or they may need a longer runway to build a supply chain or other systems, because they can’t just plug into an existing infrastructure that’s part of the problem they’re seeking to address.”
Shaffer says the new Biodynamic Fund and Soil Health Fund grew out of regenerative agriculture advocates’ search for the next step beyond organic. The Women’s Fund is intended to serve women-led social enterprises. The new Fair Trade Fund will make loans to supplier that can't access appropriate funding from other source.
As the funds are repaid, RSF aims to recycle about two-thirds of the money it deploys into new financing.