How can regional governments spur an increase in impact investing?
· The study, conducted by Social Nest Foundation in collaboration with the autonomous community of Valencia, presents an action plan that might help the public administration strategically deploy financing and steer private capital toward funding impact enterprises.
· The report shows two major challenges facing impact businesses: first, gaining momentum in the investment continuum and closing funding gaps, and second, consolidating the impact entrepreneurial ecosystem.
· Some of the main recommendations as to how the public sector might contribute to boosting the impact ecosystem: design blended finance strategies, promote impact incentives and develop sector clusters.
Valencia, May 16, 2023. Social Nest Foundation, the global platform for social and environmental impact investors and entrepreneurs, has presented its results for the report “Financial innovation models for impact enterprises”.
The study provides a conceptual and case study analysis on models of financing structures and instruments for impact enterprises globally. It also presents a proposed action plan for the autonomous community of Valencia, including a series of recommendations to mobilize capital for impact enterprises with an eye to closing the existing funding gap. To this end, it details how regional governments can strategically deploy financing, as well as attract private capital to finance social and environmental impact enterprises.
The work is part of the project “LLAMP 3i CV – accelerating triple impact entrepreneurial projects in the Valencian Community” developed by Social Nest Foundation alongside twelve other entities of the Valencian entrepreneurship ecosystem and in collaboration with the Ministry of Sustainable Economy, Productive Sectors, Trade and Labor of the autonomous community of Valencia, which has funded conferences and workshops on financial innovation for triple impact companies with local stakeholders.
Impact enterprises and their financial innovation needs
As noted in the report, there exist three profiles of impact enterprises: high-growth, organic growth and opportunity enterprises, which mainly face two major challenges common across Spain:
1. Consolidating the impact ecosystem: this includes the need for greater collaboration among the actors within the system, the shortage of leaders in the public sector, the lack of knowledge regarding impact enterprises, in addition to the lack of education and training.
2. Giving momentum to the investment continuum and closing financing gaps: impact enterprises face challenges such as the concentration of investment instruments in high-growth and I +D companies, the absence of a catalyzing role of public financing for mobilizing private investment, the lack of specialized follow-up and lack of adapted, flexible and patient capital instruments.
Within this context, financial innovation models, i.e., the set of strategies that make effective use of financial resources to achieve sustainable development objectives, take on particular importance. Specifically, the report details the role public administrations might play in financing technical assistance regarding investment vehicles, in terms of tying grants to impact targets or to guarantee and cover initial losses in private financing structures.
Recommendations and road map
The report also lays out a series of recommendations for designing financial innovation strategies that the public sector might follow in order to consolidate the impact entrepreneurial ecosystem and close existing financing gaps through the deployment of catalytic capital.
· Build a common vision of the impact economy, in which the public sector works hand in hand in multi-actor partnerships on initiatives that help strengthen entrepreneurship and the impact investment ecosystem in the region.
· Implement investment continuum strategies, by designing and using catalytic instruments from the public sector to close gaps and promote more flexible financing, thus encouraging training, seed capital and early stage, patient capital financing.
· Blended financing strategies by designing and using catalytic instruments from the public sector to close gaps, thereby mitigating risks for private equity investment through blended financing strategies.
· Raise awareness and strengthen key parts of the infrastructure: encourage training activities and promote the measuring and managing of impact among ecosystem stakeholders.
· Promote incentives for measuring and managing impact. The more that grants and funding get tied to impact, the more evident the value of measuring and managing social and environmental impact will become.
· Develop public-private strategies and sector clusters: find a way to design and adapt products to key sectors of the regional economy (biotechnologies, textiles, urban transition for energy-climate, agri-food, etc.) by identifying the specific needs of entrepreneurial profiles by phase and sector.
To view the complete report, click here.