Show me the money – funding social enterprise

In the last decade or so we have seen big changes, happily mostly for the better. Here are some observations on some of the good and bad about the way social enterprise funding is heading.

Start with some good: the previous federal government’s move to outsource a range of services still has plenty of warts attached, but outcomes are generally better than they were. For big NFP’s like Mission Australia, government contracts now account for over half of total revenue. The Mission management and delivery team have passion and  do a great job – surely an improvement on layers of disinterested  often uncivil servants. Yes, the vagaries of tendering and contracts are a problem and I would like to see groups like Centre for Social Impact more involved in leading the change process now underway. At least we seem to be moving towards contracts that attempt to reflect the social good that is being addressed rather than box ticking designed to protect  civil servants and government. In the early days of outsourcing it amused me that a contract dealing with the homeless in Kings Cross area rewarded the contractor for the number of people given a bed on the last Thursday of every month. On those Thursdays innocent bystanders walking around the area looking in an way scruffy would be bundled into a van before they knew it, adding to the head count. Silly me thought the overall aim was to ameliorate homelessness, not create new high scores.

Most social enterprises need continuing funding. The more successful you are, the more funding you need. This generally requires ongoing fund raising and/or government funding.

“Perpetual” fund raising is very hard unless you have scale and you have established a positioning and trusted brand. Fund raising costs can be incredibly high – often over 50 cents in the dollar for new money. Accountability and disclosure is poor. Fund raising – not service delivery – consumes a large slice of available resources.  Not a good business model!

Government funding also has big problems. Seasoned bureaucrats are very good at avoiding recurrent funding commitments. Successful lobbying might yield a one off grant here or there (“go away money”) but results-driven long-term recurrent funding is very difficult. I think we in the sector must shoulder some of the blame for this. We have so far failed to get acceptance for a “standard” contract with government that pays a social enterprise if the enterprise saves money that the government would have otherwise spent. The newest fad in the sector – social impact bonds – work on this principle. No results in Australia yet, but we are getting close.

 But the funding landscape for larger social enterprises is not all doom and gloom:

• the major banks are becoming a little more adventurous (eg NAB funding of GoodStart)
• workplace giving, particularly Australian Charities Fund, is growing nicely and provides a very efficient source of “retail” funding
• Private Auxiliary Funds have been a disappointment so far, but the new rules and the involvement of trusted, competent managers such as Social Ventures Australia should grow this sector
• Whilst most established wealthy Australians continue to be unbelievably mean givers, new money philanthropists – mainly investment bankers, fund managers, entrepreneurs – are intelligent and often generous givers of both money and time
• Corporate giving is quite strong and embedded in the culture of the serious players such as Macquarie Bank Foundation (donated $120m across 1000 recipients over 25 years)
• Governments state and federal are at least looking at new funding models; there is greater receptiveness  for new ideas and different ways of doing things

All in all, not a bad climate for social innovation!