Part 2 of 3
There are really two components of exit for Social Enterprises (SEs) and Social Purpose Businesses (SPBs)– the financial returns and the social and/or environmental impacts generated by the venture.
Debt Financing: The typical financing instrument for a social enterprise is a loan which typically carries an interest rate that is at or below market and may include a royalty on sales of product or service to create upside potential return for an investor. The investor is willing to trade some of the typical market-rate financial return for the social and environmental benefits. These loans plus interest must be repaid over the term (typically 5 to 7 years), along with payment of any royalties owing, thereby providing the financial exit for the investor.
Merge with a For-Profit or Non-Profit organization: This strategy may be used when two similar enterprises are competing for clients and resources and there is the possibility that one could fail or that by combining efforts the two organizations se that the resulting operation can be more cost effective or scale more quickly.
Transfer programs to another non-profit organization: This option may be considered when one organization does not have the resources or interest (may not be core to the mission) to continue the social enterprise but another organization does.
Sell social enterprise to a for-profit entity: This option is possible for a profitable social enterprise that has attractive financial returns and/or has significant assets.
Close the social enterprise: The enterprise ceases operations and returns, transfers or distributes existing assets.
Social purpose businesses often raise capital from social venture funds or angels. These investors seek to achieve a blend of strong social, environment and financial returns. Typical sectors that provide blended returns include cleantech, education, micro-finance, sustainable food and health ventures.
The financial exit for social purpose businesses will depend on a number of factors :
“Fat returns are certainly a long-term goal, but delaying an Initial Public Offering (“IPO”) or trade sale may be preferable if it helps a company meet its mission,” says Matt Bannick, managing partner at Omidyar Network (www.omidyar.com/.)“Waiting an extra year or two for an exit may be a secondary consideration,” he says,“compared to deciding the best path for an organization to have a massive social impact.”
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MaRS Social Entrepreneurship. (2009). Part 1: Social Venture Financing, Spring 2009. [white paper]
Alter, K., Shoemaker, P., Tuan, M.& Emerson, J (2001). When is it Time to Say Goodbye? Exit Strategies and Venture Philanthropy Funds.Retrieved November 10, 2009 from www.virtueventures.com/resources/exit-strategies