Social finance is the field of financing social enterprises. Social enterprises are enterprises which use entrepreneurial approaches and commercial tools to solve social problems and deliver value to the society. When it comes to funding, social enterprises have unique problems as we have outlined in a recent study for the European Commission:

Social enterprises display surprising features: banks often consider them too risky, while venture capital funds might consider their business models to be below preferred risk-return-profiles. The financing needs might be too large for microfinance, but too low for most other institutional investors. These features show the need for a dedicated social finance market.

How could a definition look like? We could take the definition for impact investing as a starting point. A commonly accepted definition by the Global Impact Investing Network states that “impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return”.

This means that we would restrict our toolbox to commercial investments with positive financial returns only. There are many family offices, foundations or other institutions which use the same strategic approaches as impact investors but use guarantees or grants without any financial return expectation. There is no reason to assume that they are fundamentally different. There are still selection processes, business models and cash flow projections to be understood and agreements to be negotiated.

In our definition, social finance is an expanded toolbox which also includes those instruments used in the wider philanthropic space. In a recent study titled “Impact investing in the framework of business and human rights” for the DROI subcommittee of the European Parliament we have made the case for using the complete range. It is hard to imagine business models for specific human rights issues or public health in general. More philanthropic capital will thus remain important for social enterprises. However, it is also obvious that nearly all the growth in this area is happening in the commercial part of it.

Social finance intermediaries use equity, debt, grants and combinations thereof. We have also seen revenue share agreements, recoverable grants or convertible notes. The main institutional capital providers are social venture capital or venture philanthropy funds, banks, crowdfunding platforms, or business angels. In the study outlined above we have described the various institutions:

Social venture capital funds

Social venture capital funds apply the model of traditional venture capital to the funding of social enterprises. It has proven to work well as it helps social enterprises to grow and these funds provide valuable advice in addition to financial support.

However, the traditional venture capital model has certain implications. It puts an upward pressure on the fund sizes to cover the relatively high operating costs with a management fee of approximately 2% and is increasingly met with reservations. In addition, funds are usually closed after a few years, which implies that investments have to be exited after 5-7 years.


There are two types of banks involved in the financing of social enterprises. The first group comprises commercial banks usually listed on stock markets which have established services for social enterprises. Examples are Erste Bank or BNP Paribas. The second group includes banks which refer to themselves as community banks, ethical banks or social banks and are organized in networks like FEBEA (Fédération Européenne des banques Ethiques et Alternatives) or GABV (Global Alliance for Banking on Values). Examples are GLS Bank, Crédit Cooperatif or Triodos. Both groups provide loans to social enterprises.

Crowdfunding platforms

Crowdfunding platforms use technology to link demand and supply of financing for social enterprises. The three platforms we use as examples – Bolsa Social, and One Planet Crowd – have raised more than €60 million and have roughly 35,000 members on their platforms. The average investment size is €140.000 – €300.000.

Business Angels

Business Angels are individuals investing out of their private wealth into entrepreneurial ideas or start-ups at a very early stage. Statistical data can only be found for traditional business angels, but this might give an indication since business angels might also be inclined to invest in social enterprises. According to numbers from The European Trade Association for Business Angels, Seed Funds and Early Stage Market Player (2018) there are 337,500 investors which closed 39,990 deals in 2017. The average investment per business angel is €25,400.