The Social Enterprise Development and
Investment Funds: Progress report
June 2013
Contents
Executive Summary
1
1. Introduction
8
1.1 Background
1.2 About this Report
1.3 Context
1.4 SEDIF Objectives
1.5 SEDIF Program Logic
1.6 SEDIF Fund Managers
2. Supply
2.1 At a Glance
2.2 Establishment of SEDIF
2.3 The Catalytic Effect of SEDIF
2.4 Investor Profiles
2.5 The Year Ahead
3. Demand
3.1 At a Glance
3.2 General Enquiries
3.3 The Investment Pipeline
3.4 The Social Enterprise Life Cycle
3.5 Demand Characteristics
3.6 Pipeline Development
3.7 Investment Readiness
3.8 Capacity Building Support
3.9 Post-investment Support
3.10 Challenges for Developing the Capability of Social Enterprises
3.11 The Year Ahead
4. Investments and Impact
4.1 At a Glance
4.2 SEDIF Investments
4.3 Broad Comparison to the Experience of Small Business
4.4 A Place in the Market
4.5 Social Impact Areas
4.6 Investment Impact
4.7 Impact Measurement
4.8 The Year Ahead
8
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5. Funds Management
5.1 Funds Management
46
46
6. Lessons from the Market
48
6.1 At a Glance
6.2 Supply
6.3 Demand
6.4 Intermediation
6.5 Market Development Takes Time
6.6 Direct Market Impacts
6.7 Secondary Effects
6.8 Future Initiatives
48
48
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51
7. Conclusion
54
8. Appendices
55
Appendix A: Program Logic
Appendix B: SEDIF Development and Selection Process Overview
Appendix C: Foresters Fund Structure
Appendix D: SEFA Fund Structure
Appendix E: SVA Fund Structure
Appendix F: Investment Register
56
57
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61
Executive Summary
Introduction
The Social Enterprise Development and Investment Funds (SEDIF) initiative was launched in 2010, it
established the first impact investment funds of their kind in Australia. The SEDIF initiative was designed
with two key purposes:
 To improve access to finance and support for social enterprises to help them grow their business,
and by doing so, increase their impact in Australian communities.
 To catalyse the development of the broader impact investment market in Australia – that is, the
market for investments made with the express intention of delivering positive social, cultural and/or
environmental outcomes and some measure of financial return.
As a result of SEDIF, three funds have entered the Australian market. The first two were announced in
August 2011 – Foresters Community Finance (Foresters) and Social Enterprise Finance Australia
(SEFA).The third, Social Ventures Australia (SVA), was announced in June 2012. The Australian
Government provided $20 million in grant funding to seed the establishment of the funds. This was
more than matched by private capital arranged by the fund managers to create a total investment pool
of $40.6 million. The funds have all commenced making finance available to social enterprises. Early
evidence suggests they are also contributing to building the market, thereby meeting SEDIF’s key
objectives (the full range of short and longer-term objectives is detailed in Section 1.4).
From a policy perspective, SEDIF was an opportunity for the Australian Government to take a leadership
role in accelerating development of the impact investment field in Australia. This aligns with the
approach often taken in relation to other industry and innovation policy initiatives to catalyse
investment activity.
A ‘program logic’ diagram (Appendix A) was developed to reflect
the policy intent of SEDIF and the hypothesis being tested. The logic
diagram tracks progress from SEDIF’s initial conception through its
implementation, to assessment of the impact in communities. This
provides a consistent reference point for periodic progress reviews.
Figure 1 provides a snapshot of progress in the first 18 months.
Although it’s still early
days, SEDIF has already
been recognised for its
innovative approach to
impact investment.
The picture this first progress report paints is positive overall. SEDIF’s primary short-term objectives are
being met and a number of spill-over effects have been noted that would not have occurred without this
initiative. The potential demonstrated so far will need to be tested over time, but there are positive
signs that align with international experience.
Although it’s still early days, SEDIF has already been recognised for its innovative approach to impact
investment. The 2010-11 Australian Public Service Commission State of the Service report said
implementation of SEDIF had contributed to innovation within the Australian Public Service and noted
the central role of innovative approaches like SEDIF in improving national productivity. The Senate
Economics References Committee reinforced the policy rationale in developing SEDIF initiative, noting
that it ‘provides a positive example of strategically directing funds to deter dependence on governments
and encourage sustainability in the sector’.1
1
Senate Economics References Committee, Investing for good: The development of a capital market for the notfor-profit sector in Australia, Committee Hansard, 2011, p. 191 <Parlinfo parlinfo.aph.gov.au>
2
Figure 1: SEDIF program logic – progress at 18 months
3
What the Funds have Achieved
SEDIF’s fund managers secured leveraged investment from a range of sources to more than double the
$20 million Australian Government grant. As a result $40.6 million in new investment capital is available
to social enterprises. The range of impact investors secured by the fund managers demonstrates the
catalytic effect of the Australian Government’s SEDIF funding.
In the first year, the fund managers went through a number of steps to establish the funds to a point
where they could start operations (referred to as the establishment phase). This included setting up
internal processes for managing applications, governance and credit assessment practices. Once that
stage was complete, the fund managers ‘opened for business’ and began offering financial products and
engaging actively with social enterprises. They are new funds in an emerging field and their approach to
market development is necessarily being refined based on their early experience.
As new funds in an emerging field, the SEDIF fund managers have
achieved significant reach. The quality of the initiative is being
recognised internationally. Early fund activity has occurred within an
acceptable tolerance range from initial projections, notwithstanding
changes in the market conditions. The practical experience of the first
year is informing ongoing operations.
There has been strong
interest in SEDIF, with
almost 600 enquiries
from social enterprises.
While not a principal focus of the first year of operations, the fund managers have been actively
engaging the investor community to attract new capital into the funds. This early engagement has led to
a significant and increasing interest in SEDIF and impact investment more broadly.
There has been strong interest in SEDIF, with almost 600 enquiries from social enterprises. The
overwhelming majority have come from major cities in the eastern states. These initial enquiries have
resulted in more than 125 social enterprises engaging further with the fund managers, with 50 of these
progressing more fully through the loan application phase. The interest from social enterprises
represents a wide range of industry sub-sectors. The highest proportion of interest has come from the
following sectors: community and social services (19 per cent), arts, culture and recreation (16 per cent),
housing and development (14 per cent), and education and training (10 per cent).
The experience has been consistent with comparable international experience in social enterprise
finance. SEDIF targets finance for growth and development. Many early expressions of interest came
from social enterprises that had not reached the level of maturity appropriate for this finance. That is, a
significant proportion of enquiries came from start-ups without an appropriate track record that would
enable an investment to be made. More established enterprises have been slower to engage with the
fund managers for a range of reasons.
The fund managers have undertaken significant outreach activities. This
is intended to develop an investment pipeline that better aligns the
enterprises seeking capital with the types of capital available. This
includes engaging with more established enterprises that may not yet
identify with the language of ‘social enterprise’ despite meeting the
criteria. This engagement with social enterprises requires building
understanding and appetite for the role that different sources of capital
can play in developing an organisation. Through this process, the fund
managers have begun to address some of the broader challenges for
establishing an investment pipeline. This includes tackling cultural
perceptions of debt finance to assist enterprises to make sound
decisions about where it can be a strategic tool for growth and longterm sustainability. This outreach work is broadening the fund
managers’ footprint within Australian communities.
While SEDIF was
targeted at laterstage growth and
development
financing, some of
the initial expressions
of demand were from
social enterprises
seeking early-stage
seed or grant capital.
4
Indigenous Business Australia’s announcement that it will fund an Indigenous Social Enterprise Capital
Fund to help Indigenous social enterprises access SEDIF financing is a welcome development. Other
governments (Western Australia, New South Wales and Victoria) also recognise this need for action and
have contributed to development of the investment pipeline in various ways.
At 31 December 2012, ten SEDIF investments totalling $4.69 million have been approved. The
investments include a mix of larger secured property loans, smaller unsecured business development
loans and one equity-like investment. The interest rates charged on loans varies from seven to eight per
cent for secured loans and 10 to 12 per cent for unsecured loans. The terms of the loans range from four
to seven years and 10 to 15 years for larger mortgage-secured loans.
The immediate impact of the ten approved investments includes:




the creation of 42 jobs;
the purchase by two social enterprises of all or part of the premises they were previously leasing;
the purchase by two social enterprises of new premises to expand their operations;
the launch by four social enterprises of new programs aimed at creating social change and
generating revenue;
 the provision by two social enterprises of improved health services to disadvantaged individuals; and
 the necessary finance for three social enterprises to scale up their operations.
The long-term impact will be measured progressively as the investments mature. Each fund manager
has made significant progress in developing impact measurement frameworks that can be benchmarked
internationally. The impact reports are made public by the fund managers.
The Market Perspective
The SEDIF funds are an impact investment model. That is, they are
investment vehicles intentionally designed to achieve positive social and
financial return. The impact investment field has a market context,
which can be considered through a framework of three connected
domains: supply, demand and intermediation. ‘Demand’ refers to
organisations seeking investment capital and who deliver a social
impact, ‘supply’ refers to investors who supply the capital and are
seeking a measure of both social and financial return, and
‘intermediation’ refers to organisations that facilitate transactions and
access to finance deals between investors and investees.
The SEDIF funds are
intermediaries in the
market, bringing new
capital and
developing the
investment pipeline.
On the supply side, the new funds have brought additional capital into the market. Their early efforts to
raise additional capital reflect that impact investment is still a developing field. The challenges and
opportunities for its development have been examined in a number of recent papers including IMPACT
– Australia: Investment for social and economic benefit2 and Reaching underserved markets: The role of
specialist financial intermediaries in Australia.3
2
R Addis, J McLeod and A Raine, IMPACT – Australia: Investment for social and economic benefit, Australian
Government Department of Employment and JBWere, 2013
<Social Innovation http://employment.gov.au/social-innovation>
3
I Burkett, Reaching Underserved Markets: The role of specialist financial intermediaries in Australia,
commissioned by Social Traders and Foresters Community Finance, 2013 <Foresters
www.foresters.org.au/knowledge-exchange/publications>
5
On the demand side, SEDIF reinforces that social
enterprises have much in common with other small and
medium-sized enterprises. They are often required to
develop their operating and revenue models and cash
flow before they are ready to take on a debt
commitment. The highest need for this ‘capacity
building’ support for social enterprises identified by the
fund managers has been in financial viability and
business planning, operations and governance.
A relatively modest investment
created momentum and
credibility for governments in
mobilising the market, attracting
new partners… and directing
capital to issues that are
important.
Demand for such capacity building is currently exceeding the supply of known support available. This is
in part a function of the demand dynamics identified above. A particular focus for the fund managers
will be on continuing to develop links to capacity building opportunities in order to build the investment
pipeline. This also points to another area where further market development is required. While there
has been development in early stage support through programs like The Crunch (Social Traders)4, there
is still need for this support. The development needs of social enterprises are common to Australia and
other countries.5 These needs are also similar between social enterprises and other small and medium
enterprises.6
Overcoming the challenges facing the supply and demand side of the impact investment market will
take time. However, the fund managers are already making inroads to market development with the
initial capital supply, market engagement and development of market infrastructure. Burkett’s research7
on the role of intermediaries in meeting financing needs of underserved markets in Australia highlights
the catalytic effect that SEDIF has had on the market and the role Australian Government funding played
in leveraging private investment. It also draws attention to challenges for the fund managers in the need
to build capacity on the demand side of the market, balance demand-led and supply-led investment
approaches, and differentiate the SEDIF funds from mainstream finance intermediaries.
As the market of specialist intermediaries for social enterprises and for impact investment remains
relatively small in Australia, the SEDIF fund managers’ activities have added significantly to the
landscape. They face challenges as new businesses in an emerging field. The challenges are part of the
context in which the funds operate and need to be understood in any consideration of their
performance. However, the advances in the field in the past couple of years, including the activities of
the funds themselves, give reason for optimism.
The Australian Government’s relatively modest investment in SEDIF has already provided a number of
valuable lessons:
 The provision of catalytic funding has been a powerful tool in stimulating investment and activity in
the impact investment field. It has mobilised both investors on the supply side and social enterprises
on the demand side. The nature of the funding strategically moderated the risk that might otherwise
limit the development of a new market.
 A relatively modest investment created momentum and credibility for governments in mobilising the
market. This attracted new partners (in new combinations) and directed capital to issues that are
important both from a policy perspective and as a society.
4
See the Social Traders web site <Social Traders www.socialtraders.com.au/crunch>
5
I Burkett, Reaching Underserved Markets: The role of specialist financial intermediaries in Australia,
commissioned by Social Traders and Foresters Community Finance, 2013 <Foresters
www.foresters.org.au/knowledge-exchange/publications>
6
Organisation for Economic Co-Operation and Development, Policies for Seed and Early Stage Finance: Summary
of the 2012 OECD Financing Questionnaire, 2013
7
I Burkett, Reaching Underserved Markets: The role of specialist financial intermediaries in Australia, 2013
<Foresters www.foresters.org.au/knowledge-exchange/publications>
6
 The terms on which the capital was offered stimulated investment that was otherwise unlikely to
occur. The capacity to offer funding on a basis that absorbed greater risk was critical in securing
private investment from a range of investors.
 With the appropriate conditions in place, SEDIF has demonstrated that the full spectrum of investors
can and will participate. SEDIF investors include individuals, philanthropic trusts, international
leaders entering the Australian market, not-for-profit organisations, banks and a superannuation
fund.
 Testing the market through SEDIF has revealed a
There is an opportunity for
high degree of correlation between the
governments in this developing field
Australian context and international
to use targeted policy initiatives to
developments. This reinforces that Australia can
learn from initiatives and ideas from the
direct capital to areas of policy need
international experience and adapt for the
or priority.
Australian context.
SEDIF has also produced a number of secondary effects on the market, including the development of
new networks and relationships across the government and social sectors. As with other innovation
models, such effects can often be one of the most powerful and enduring impacts of catalytic
investment.8
Overall, the SEDIF experience so far indicates that there is much in common between governments’
actions to catalyse impact investment and other areas of innovation and industry policy. That is, policies
executed for catalytic effect can facilitate development of the ecosystem and carefully targeted
investment on appropriate terms can stimulate the market. However, the initiatives need to be
designed to provide incentives but not be distortionary.9
The SEDIF experience provides evidence from the Australian context that echoes international
experience, supporting consideration of a range of additional policy initiatives. A range of measures that
could be commended was outlined in the report of the Senate Economics References Committee.10
These include:
 initiatives to support enterprise development and stimulate the demand pipeline;
 initiatives to ensure that the regulatory and policy environment do not unduly discourage supply of
capital for impact investment;
 further support for development of intermediation to bring together supply and demand on
appropriate terms; and
 support for developing the information flows that would reduce barriers to entry and overcome
asymmetries of information affecting development of the field.
8
W Janeway, Doing Capitalism in the Innovation Economy, Cambridge University Press, 2012, p. 1
9
See for example Chapter 6. Lessons from the Market – Policy Implications; and Organisation for Economic CoOperation and Development, Policies for Seed and Early Stage Finance: Summary of the 2012 OECD Financing
Questionnaire, 2013
10
Senate Economics References Committee, Investing for good: The development of a capital market for the notfor-profit sector in Australia, Committee Hansard, 2011, pp.xxiv-xxvii <Parlinfo parlinfo.aph.gov.au>
7
The SEDIF experience points to scope for additional catalytic investment to further stimulate impact
investment toward critical mass. It also points to a case for supporting broader enterprise development
(that is, beyond social enterprises) based on the international track record in community investment
and research already undertaken for such an approach in the Australian context.11 Further, the
experience of this initiative indicates an opportunity for governments to use targeted policy initiatives to
direct capital to particular areas of policy need or priority.
The Year Ahead
Over the coming period, the fund managers will continue to build the impact investment market and
address some of the challenges they have identified. The following areas will be a strong focus for SEDIF
in 2013:
 More investments – disbursing more of the fund capital and converting more of the applications in
the pipeline into investments.
 Pipeline development and capacity building – building a stronger investment pipeline through
continued engagement with the social enterprise sector, using the capacity building approach to feed
into the investment pipeline and develop the demand side of the market.
 Impact measurement – using their impact measurement frameworks to capture the impacts of the
funds to ensure the funds are meeting their objectives.
 Attracting new capital – looking for new investors will become an increasing focus for the fund
managers as they are now starting to demonstrate a track record with their first investments.
 Ongoing innovation – continuing to respond to the challenges and opportunities of the emerging
impact investment market with innovative solutions and approaches.
Future reports will review the progress of the funds in these areas. They will continue to view SEDIF in
the broader context of an emerging impact investment market and the experience of other leaders in
the field, both locally and internationally.
11
I Burkett, Place-Based Impact Investment in Australia: A Literature Review Exploring Opportunities for PlaceBased Impact Investment in Australia, Australian Government Department of Employment, NAB Australia, Mission
Australia and JBWere, 2012; and I Burkett, Place-Based Impact Investment in Australia: Building Blocks for Action,
Australian Government Department of Employment, NAB Australia, Mission Australia and JBWere, 2012
<Department of Employment http://employment.gov.au/social-innovation>
8
1. Introduction
1.1 Background
The SEDIF project is an Australian Government initiative. It was designed to improve access to finance
and support for Australia’s social enterprises to help them grow their business, and by doing so, increase
their impact in their communities. SEDIF was intentionally designed to utilise investment funds in
Australia as a mechanism to target sustainable support and finance for social enterprises to grow and
develop. It expanded the range of funding and financing options to make possible a new alternative
offering. The funds were not designed to provide start-up or ‘seed’ funding, but to provide later-stage
finance for organisations that had already developed their operating model.
By establishing SEDIF, the Australian Government is also seeking to catalyse the development of the
field of impact investment in Australia. Impact investment is the field for investments made with the
express intention of delivering positive social, cultural and/or environmental outcomes and some
measure of financial return.12 The SEDIF initiative reflects the Australian Government’s recognition of
the potential for impact investment approaches to drive effective solutions to social challenges and to
encourage meaningful partnerships between the private, community and government sectors.
Internationally, impact investment funds are investing in organisations in both the for-profit and not-forprofit sector. Examples can be found in the arts, community development, economic regeneration,
sustainable agriculture, the environment and social enterprise.
The fund mechanism was selected for SEDIF because it offered the opportunity to:
 pool financial resources from multiple investors with different appetites for risk and return through a
structure familiar to the Australian Government and other investors;
 target capital to social enterprises and recycle the capital through many enterprises over time;
 create a demonstration effect that forges a new path for government involvement in impact
investment and introduces a range of investors to the social enterprise sector;
 harness the skills and market focus of experienced fund managers to guide investment decisions and
further growth; and
 maximise outcomes by enhancing the role of the fund managers as intermediaries bringing supply
and demand together as well as increasing the supply of financing available.
In August 2011 and June 2012, the Australian Government announced Foresters Community Finance
(Foresters), Social Enterprise Finance Australia (SEFA) and Social Ventures Australia (SVA) as the three
SEDIF fund managers. The Australian Government provided $20 million in grant funding to seed the
establishment of the funds, which was more than matched by the fund managers to create a total
investment pool of $40.6 million.
1.2 About this Report
This report provides a snapshot of the outcomes and lessons from SEDIF in the first 18 months of the
operation of the three investment funds. This period reflects the establishment phase of the funds,
where the focus has been on implementing business processes and engaging the market to start the
business of investing in social enterprises. During this 18-month period, the first priority of the fund
managers was to establish operations and then commence offering finance in the market.
In the next stage, the funds will focus on making more investments to demonstrate the value of impact
investment and attract additional investment capital. This report seeks to capture the activity of the
fund managers to date and lessons that can help inform continued development of Australia’s impact
investment market.
12
Impact investment is often referred to as social finance or social investment. The department uses the term
‘impact investment’ for the purposes of this report.
9
The report looks at the demand for, supply and impact of SEDIF capital. In terms of demand, this report
provides an initial assessment of the appetite for capital from the social enterprise sector and,
importantly, the progress of the fund managers in building a pipeline of investment ready social
enterprises. In terms of the supply of capital, this report focuses on the investments made by the funds,
investor outreach activities and early indications of investor appetite. While it’s too early to provide a
complete assessment of investment impact, this report provides a snapshot of the intended impact of
the approved investments and progress towards the establishment of each fund’s social impact
measurement framework.
The data in this report is provided by the SEDIF fund managers through their formal reporting
requirements as well as through ongoing engagement and discussions convened with fund managers.
Where relevant, other sources of information have also been used, particularly in establishing the
context for this first progress report.
Related reports
A number of related reports about SEDIF and the impact investment field in Australia have been
produced. These include the SEDIF Business Process Review, The Social Enterprise Development and
Investment Funds: Lessons from the implementation process and a field scan of the Australian impact
investment market, IMPACT – Australia: Investment for social and economic benefit.
The SEDIF Business Process Review analysed the business processes the department used to design the
SEDIF initiative, assess proposals and select the fund managers. The purpose was to document the
process of fund development, including innovations in the design of the initiative and the features of
best practice implementation. For an overview of this review, see Appendix B.
The review highlighted process and design choices that contributed to attracting high-quality proposals
and supported the successful establishment of the funds in the market. Key conclusions of the review
were that the department’s approach was centred on the following:
 It maintained a focus on the SEDIF objectives and intended outcomes. The department did not
prescribe the design of the funds but instead focused on outcomes and allowed each fund manager
to develop its own business plan, or roadmap, for implementing its fund.
 It encouraged collaborative and consortia arrangements in applications from fund managers. The
provision for applications to include partnership or consortia arrangements recognised that a range
of organisations with specialist expertise might be necessary to successfully operate a SEDIF fund and
could also support the market building objectives of the initiative.
 It allowed for refining of fund manager proposals in a staged assessment process, which produced
stronger proposals overall and deeper relationships between the department and the fund
managers.
 It drew on a range of experts including an impact investment expert consultant, an
inter-departmental committee, a departmental legal team, external legal advisers with expertise in
commercial funds management, and an expert Advisory Committee. At every stage, the design and
contracting processes were developed with the input of contributors bringing the most relevant
expertise available.
The Social Enterprise Development and Investment Funds: Lessons from the implementation process13 is
a case study outlining the process of developing and executing the SEDIF initiative and the experience
and reflections of the SEDIF team. This document captures the intention, story and lessons from the
implementation of SEDIF. It expands on the key lessons from the process that may help to inform the
development of similar initiatives. The document is structured to provide an overview of each phase of
the SEDIF development and implementation process – research, design, consultation, development of
13
Australian Government Department of Employment, The Social Enterprise Development and Investment Funds:
Lessons from the implementation process, Canberra ,2013 <SEDIF - http://employment.gov.au/social-enterprisedevelopment-and-investment-funds>
10
the guidelines and assessment documents, assessing proposals, and negotiating agreements. Each
section gives a high-level summary of the approach taken during each phase, highlights what worked
best and outlines issues for consideration in developing similar initiatives.
IMPACT—Australia: Investment for social and economic benefit14 outlines the current state of play,
challenges and opportunities, and what could or should happen to develop impact investment in
Australia. The field scan presents a snapshot of the market at the early phase of the SEDIF initiative and
could be a useful benchmark for evaluating SEDIF’s contribution to the development of the impact
investment market in Australia.
The field scan builds on the Place-Based Impact Investment in Australia reports15. These reports
identified the potential application for adapting international practice to Australia that would target
investment for communities that need jobs and economic regeneration. In particular the reports
indicate potential for investment in small and medium-sized enterprise development to create quality
jobs and enhance local economic activity.
Other recent reports16 provide background on the finance needs of social enterprises and the role of
intermediaries in impact investment, including some that consider the Australian context. In particular,
research from Dr Ingrid Burkett on the financing needs of social enterprises and the role of specialist
intermediaries in reaching underserved markets examines the life cycle of social enterprises, advantages
and disadvantages of different sources of capital, and the barriers to investment (both on the demand
and supply side).
1.3 Context
SEDIF was developed against a backdrop of growing international literature and practice in the
developing field of impact investment. This included the seminal 2009 Monitor Institute report17 and a
range of policies implemented in the United Kingdom with a particular focus on finance for social
enterprise. Internationally, advocates and practitioners highlighted the potential to achieve a cultural
and practical shift from traditional grant-making and government funding towards a more powerful
approach that could mobilise additional investment in a more sustainable way to address significant
social and environmental challenges at scale.
In Australia, SEDIF’s establishment was supported by the benchmark report of the Productivity
Commission, Contribution of the Not-for-Profit Sector (2010). That report highlighted the need to
diversify funding and financing sources for not-for-profits and social enterprises and to promote
innovation. It included a recommendation that “Australian governments should assist in the
development of a sustainable market for not-for-profit organisations to access debt financing”.18
14
R Addis, J McLeod and A Raine, IMPACT – Australia: Investment for social and economic benefit, 2013
<Social Innovation http://employment.gov.au/social-innovation>
15
I Burkett, Place-Based Impact Investment in Australia: A Literature Review Exploring Opportunities for PlaceBased Impact Investment in Australia, 2012; and I Burkett, Place-Based Impact Investment in Australia: Building
Blocks for Action, 2012 <Department of Employment http://employment.gov.au/social-innovation>
16
I Burkett, Reaching Underserved Markets: The role of specialist financial intermediaries in Australia, 2013; and I
Burkett, Financing social enterprise: understanding needs and realities, Foresters Community Finance and Social
Traders, 2010
<Foresters www.foresters.org.au/knowledge-exchange/publications>
17
J Freireich and K Fulton, Investing for Social and Environmental Impact: A design for catalysing an emerging
industry, Monitor Institute, 2009 <Monitor Institute www.monitorinstitute.com/impactinvesting>
18
Productivity Commission, Contribution of the Not-for-Profit Sector, Canberra, 2010 <Productivity Commission
www.pc.gov.au/__data/assets/pdf_file/0011/94574/20-references.pdf>
11
The Jobs Fund initiatives in 2009 had included grant funding for a range of social enterprises. This
responded to the concerns of a range of stakeholders, including community and social enterprise sector
advocates, about the need for increased access to capital and related support for social enterprises in
Australia. Some stakeholders argued that the circumstances were ripe for development of a capital
market offering new types of finance for social enterprises and the development of impact investment
in Australia. The Finding Australia’s Social Enterprise Sector (FASES) project19 was completed at the same
time. It aimed to highlight the scope and activities of the social enterprise sector and its potential as a
vehicle for social policy implementation. While an important snapshot of the sector, the report
identified that more needed to be done to understand the scope, diversity, impact and developmental
needs of social enterprises in Australia.
SEDIF was an opportunity to test capacity for and existing barriers to impact investment and access to
capital for social enterprises, which became one of the key SEDIF objectives (see Section 1.4). The policy
rationale for SEDIF was to:
 support the development of the social enterprise sector in Australia through access to finance for
growth and development; and
 provide a catalyst and momentum for impact investment.
Importantly, SEDIF is not meant to be all things to impact investment or to social enterprises. SEDIF
comes at an early stage of the larger story of developing innovations in investment and enterprise. The
drivers affecting this include the challenges of greater productivity and the broader range of funding and
finance options required for the not-for-profit sector and social enterprises, which include some cultural
and capacity shifts and challenges. The entire development for a robust impact investment field cannot
rest on the funds alone and was never intended to.
The SEDIF fund managers are conscious of these broader issues, and face the dual challenge of a nascent
impact investment market and an emerging identity for social enterprises. This is occurring within a
context where different options are being explored for how the not-for-profit and social enterprise
sectors are funded and financed.
1.4 SEDIF Objectives
The principal objective of SEDIF was to establish two or more investment funds that generate social,
cultural or environmental impact in addition to financial return, and increase capital for social
enterprises in Australia through capacity building. The SEDIF objectives outlined in the program
guidelines also required the initiative to contribute to the following objectives:
 In the short term:
 provide a catalyst for market development
 test capacity for and existing barriers to social impact investment and access to capital for social
enterprises
 capacity building for social enterprises
 target investment in priority areas for impact.
 In the longer term:
 support development of infrastructure to build the marketplace for social impact investment
 support innovative product development
 attract longer-term investment in priority areas for impact.
19
J Barraket, N Collyer, M O’Connor and H Anderson, Finding Australia’s Social Enterprise Sector: Final report,
Australian Centre for Philanthropy and Nonprofit Studies, 2010 <Social Traders www.socialtraders.com.au/findingaustralias-social-enterprise-sector-fases-final-report>
12
1.5 SEDIF Program Logic
The impact investment market can be considered through a framework of three connected domains –
supply, demand and intermediation, which operate within an enabling environment. ‘Demand’ refers to
organisations seeking investment capital and who deliver a social impact. ‘Supply’ refers to investors
who supply the capital and are seeking a measure of both social and financial return. ‘Intermediation’
refers to organisations that facilitate transactions and access to finance deals between investors and
investees.
Figure 2: Dynamics of the market for impact investment
Source: Adapted from J Freireich and K Fulton, Investing for Social and Environmental Impact, Monitor Institute, 2009;
and R Hill, Effective Consulting.
To help understand where the SEDIF objectives fit into development of the broader impact investment
market, see the SEDIF ‘program logic’ diagram in Appendix A. This program logic illustrates the links
between the context and drivers of SEDIF, its specific objectives, the role of the SEDIF fund managers in
meeting those objectives and the role of the broader, enabling environment in influencing those
objectives. It also helps identify the chain of reasoning, from the initial conception of SEDIF through
implementation to impact assessment.
The SEDIF funding was designed to attract different investors. The Australian Government grant funding
was offered on favourable terms that enabled other investors to come in on a risk-adjusted basis that
would not otherwise have been possible. These types of ‘layered structures’ (Figure 3) are recognised
internationally as a means to enable different actors to achieve together what none could do alone by
combining different types of capital in non-traditional ways. They commonly disrupt the traditional riskreturn equation as investors taking greater risk may get a lower return.20
20
R Addis, J McLeod and A Raine, IMPACT – Australia: Investment for social and economic benefit, 2013, p. 52
<Social Innovation http://employment.gov.au/social-innovation>
13
Figure 3: Layered structures for impact investment
Source: Adapted from I Burkett, Place-Based Impact Investment in Australia: A Literature Review Exploring Opportunities
for Place-Based Impact Investment in Australia, 2012
SEDIF is one impact investment initiative that is aimed at catalysing this new market in Australia. There
is a range of other impact investment activities occurring nationally, including capacity for community
development financial institutions, targeted tax relief through the National Rental Affordability Scheme,
the development of new social financing mechanisms such as social impact bonds, and the exploration
of social value creation through for-profit business models. It is important to recognise that while SEDIF
is making a critical contribution to developing the nascent market, there are a range of other influences
that also affect market development.
1.6 SEDIF Fund Managers
Each fund manager has taken a different approach to design and operations of the SEDIF funds. The
differences reflect the individual history of each organisation, the different kinds of investors committed
to each fund, and their tailored approaches to social enterprise development. See Figure 4 for more
detail on each fund manager.
Foresters has been operating for more than a century, and lending in the community sector for twenty
years. Foresters received a $6 million SEDIF grant to establish two funds, the Community Finance FundSocial Enterprise (CFF-SE) and the Social Enterprise Finance Fund (SEFF). The CFF-SE provides tailored
financial products to established social enterprises at the growth-stage and the SEFF focuses on
incubating innovative and emerging social enterprises. Foresters’ leveraged investment has been
provided by a superannuation fund, Christian Super, indicating the interest and potential role of
institutional investors in the development of the impact investment market in Australia. The structure of
Foresters’ funds is outlined in Appendix C.
SEFA has brought together a depth of experience from within Australia and overseas specifically to
manage its SEDIF fund, the $20 million SEFA Loan Fund. The fund focuses on three broad areas of
impact: community development, Indigenous enterprise and enhancing the environment. The Australian
Government provided SEFA with a $10 million SEDIF grant, which was matched by a variety of investors
including the social bank Triodos (from the Netherlands), New South Wales Aboriginal Land Council,
Community Sector Banking (a joint venture with Bendigo Bank) and private investors. The structure of
the SEFA Loan Fund is presented at Appendix D.
14
SVA has ten years’ experience of investing and supporting promising and innovative social ventures, as
well as offering consulting services. SVA’s $8.6 million Social Impact Fund is an extension of this work
and aims to improve both economic and social inclusion for Australian communities with entrenched
disadvantage, while increasing the range of financing options available to Australian social enterprises. It
was established with a $4 million SEDIF grant and $4.6 million in leveraged investment that came from a
range of private investors. The structure of the Social Impact Fund is detailed in Appendix E.
The differences across these approaches are important aspects of SEDIF’s market building objective.
They encourage the involvement of a diverse range of partners in the market, each with different needs
and motivations. The relative strengths and spread of each approach will also contribute to the evidence
base supporting impact investment practice in the Australian context.
The range of investors in the three SEDIF funds demonstrates that impact investment funds are able to
bring together different types of investors that allow the needs and capacity of each investor to
combine with others in the pursuit of the overall investment requirement. This provides an opportunity
to layer investments so that each layer meets the needs of a particular investor group.
15
Figure 4: The SEDIF fund managers at a glance
MISSION
Mission
Sector
Location
Legal
Scale
Provide appropriate, affordable, tailored finance to social enterprises
Social enterprise
Australia-wide
Three unique funds administered by different organisations—two organisations are public companies,
limited by shares; one organisation is a public company, tax concession charity, limited by guarantee
Over $40 million
INVESTMENT — Foresters Community Finance:
Community Finance Fund – Social Enterprise and Social Enterprise Finance Fund
Description
Instrument
Deal structure
Investors
Foresters is a Community Development Finance Institution (CDFI) that provides finance and investment
capital to the community sector. Foresters’ Social Enterprise Solutions program provides social, cultural
and environmental enterprises with access to community finance loans for property, business equipment
or business development purposes. The program draws from two funds. The Community Finance Fund –
Social Enterprise (CFF-SE) provides secured loans to sophisticated social enterprises. The Social Enterprise
Finance Fund (SEFF) provides unsecured finance to social enterprises, assisting in their strategic growth
and development. The total capitalisation of the Social Enterprise Solutions program is $12 million.
Unit trust
 Christian Super purchased $6 million of ordinary units in the CFF-SE
 Australian Government $6 million grant (The Australian Government is not seeking earnings or a
capital return)*:
o $4.3 million in ‘capital warranty’ units in the CFF-SE, which provide a subordinated capital
investment
o $1.2 million in units in the SEFF
Australian Government, Christian Super
INVESTMENT — Social Enterprise Finance Australia (SEFA): SEFA Loan Fund
Description
Instrument
Deal structure
Investors
The SEFA Loan Fund is a $20 million fund. SEFA offers loans to social enterprises in tandem with targeted
business advice and support to help build their capacity to manage debt and become financially
sustainable over time. The SEFA Loan Fund is focused on: community development, Indigenous
enterprise and enhancing the environment. SEFA brings together a range of enterprise partners
(including investors) with expertise in social finance, business development, community development,
and research and training.
Trust sourced from a combination of debt, shares and grant funding
 A total of $10 million in debt and equity investments. Some investments take the form of equity in
SEFA Ltd provided as loans to the SEFA loan fund, some as debt directly to the SEFA Loan Fund.
 Australian Government grant (The Australian Government is not seeking earnings or a capital
return)*: $10 million of Government funding is provided to the SEFA Loan Fund and is subordinated
to other capital.
Australian Government, Triodos Bank, Community Sector Banking, NSW Aboriginal Land Council, private
investors
16
INVESTMENT – Social Ventures Australia (SVA)
Description
Instrument
Deal structure
Investors
SVA is an independent, not-for-profit organisation that invests in social change to help increase the
impact and build the sustainability of the social sector. SVA’s Social Impact Fund is an $8.6 million fund
that invests in social enterprise through debt, equity and quasi-equity products. The fund also offers
capacity building grants to earlier-stage social enterprises for a specific activity or piece of work to build
their investment readiness. The Fund’s social aim is to support enterprises that are providing
opportunities to disadvantaged Australians.
Unit trust
 Unit holders: invested $4.6 million and have the senior investment in the fund.
 Australian Government grant (The Australian Government is not seeking earnings or a capital
return)*: $4 million of Government funding is provided to the SVA Fund and is subordinated to other
capital.
Australian Government, over 30 private investors
FINANCIAL RETURN
Reported
returns
The SEDIF fund managers each have slightly different approaches to the management of their funds.
Across the three funds, targeted returns to investors are in the range of 6 to 13 per cent. Actual returns
to investors will vary depending on different organisational structures, different terms of other
cornerstone investors and different modelling on the size, nature and terms of the funds’ investments.
IMPACT
Impact
objective
Reported
impact
 Establish impact investment funds that increase capital for social enterprises.
 In the short term:
o provide a catalyst for market development
o test capacity for and existing barriers to social impact investment and access to capital for social
enterprise
o capacity building for social enterprise
o target investment in priority areas for impact.
 In the longer term:
o support development of infrastructure to build the market place for social impact investment
o support innovative product development
o attract longer term investment in priority areas for impact.
 Enabling social enterprises to purchase their operating premises, providing them with greater security
and stability.
 Providing finance for business development allowing expansion, product development and
diversification.
 Extending the reach of social enterprises into their communities; for example, enabling the provision
of 800 counseling sessions for people recovering from eating disorders, providing accommodation for
people experiencing homelessness, providing integrated transport and accommodation for people
who need to travel for medical procedures, recycling end-of-life electronic waste and providing
employment opportunities for disadvantaged people.
* Australian Government funding was provided as a grant, in each case paid to an appropriate entity to enable seed
capital for the investment funds. The full fund structures are detailed at Appendices C – E.
17
2. Supply
2.1 At a Glance




By leveraging the $20 million in Australian Government grants and launching three impact
investment funds, the principle SEDIF objective to establish two or more investment funds that
generate social, cultural or environmental impact in addition to a financial return has been met.
The effect of the grants was catalytic. In particular, the subordinated position of the grants was
critical in securing the diverse range of investors, on a range of different terms, with varying degrees
of involvement in the funds’ development. This demonstrates the important role in ‘going first’ to
stimulate investment activity, with the demonstrated appetite for supply a good indication of the
potential for other catalytic endeavours to contribute to the growth of the impact investment market
in Australia.
While not a principal focus of the first year of operations, the fund managers have been actively
engaging the investor community to attract new capital into the funds. This early engagement has
created significant and increasing interest in SEDIF and impact investment.
However, the fund managers have also identified a number of barriers to investment that will need
to be overcome to grow the funds.
2.2 Establishment of the SEDIF Funds
The launch of the SEFA and Foresters funds in August 2011 and the SVA fund in May 2012, met the
principle objective of the SEDIF to establish two or more impact investment funds. Given the funds are
the first of their kind in Australia, the fund managers’ efforts to secure $20.6 million in private
investment also demonstrates that an appetite for appropriately structured impact investment products
exists in Australia.
The investments come from a range of investors, on varying terms and with different degrees of
involvement in the funds’ development. Investors include high net worth individuals (HNWIs),
foundations, trusts, a superannuation fund, local and international banks, an Indigenous organisation
and a conservation organisation. Engaging this diversity of investors is important for the long-term
development of the impact investment market; not only to maximise the supply of capital to the
market, but also to support innovative and collaborative impact investment partnerships. Local and
international examples are emerging where the mix of investors with varying appetites for risk-return
have been a crucial factor in making impact investment possible.
2.3 The Catalytic Effect of SEDIF
With a relatively modest investment, the Australian Government has been able to mobilise the supply
side of the impact investment market by attracting a diverse range of new partners (in new
combinations) to direct capital to issues that are important both from a policy perspective and as a
society.
Feedback from investors and fund managers has been that the Australian Government grant was a
critical factor in securing the matched investment. The subordinated position of the grants in each of
the funds provides an increased level of security for the investors. Each fund manager was required to
negotiate utilisation of the grant funding to maximise additional investment. The utilisation is different
in each case, but involves the grant funding absorbing greater risk in various ways and contributing to
some costs and market development. This role of the government funding has contributed to generating
goodwill and commitment to building the market among many of the investors.
18
As previously mentioned, the catalytic effect of SEDIF was also highlighted in Dr Burkett’s report.21 This
action by the Australian Government has helped to demonstrate the potential of the impact investment
market, and the range of investors secured by the fund managers helps support the case for more
market-stimulating endeavours. Other catalytic activity to promote impact investment has the potential
to expand the field in more diverse ways, to enable investment that might not otherwise occur.
2.4 Investor Profiles
Foresters Community Finance (Foresters)
Foresters’ Australian Government grant was leveraged with a $6 million investment from Christian
Super, an ethical superannuation fund (see the Christian Super case study and Appendix C). Christian
Super receives a targeted distribution rate on its invested capital. That rate is set at the beginning of
each month. As the other unit holder, Foresters also receives a distribution on any profits from the fund.
Social Enterprise Finance Australia (SEFA)
The SEFA Loan Fund is capitalised with equity invested in SEFA and loans direct to the fund (see
Appendix D). SEFA’s equity investors include Triodos Bank, the New South Wales Aboriginal Land
Council, Community Sector Banking, foundations and individual investors. These investors also act as
key partners to the fund, offering advice, support, links into investor and sector networks and referral
pathways. For example, a Triodos Bank employee worked on a six-month secondment with SEFA’s loans
manager to help with refining SEFA’s investment process. Loans directly to the fund were provided by
Triodos (also an equity shareholder), Community Sector Banking (CSB) and private lenders. This capital
has been lent for an extended period at low interest rates while SEFA attracts additional equity
investors.
“We were attracted to the SEDIF program because it gave a great opportunity to put into place
what we’d been looking to do in funding social enterprise in Australia. It provided a very
worthwhile guarantee to marshal more private resources, to effectively leverage monies and funds
for the social enterprises in Australia.”
David Rickards, Managing Director, SEFA
“We were very impressed by the fact that the Australian Government was willing to put up AUD
$10 million to make it work and we could also invest a small amount in the operation to show that
we are interested in it, and became a minority shareholder.”
Peter Blom, CEO Triodos Bank
21
I Burkett, Reaching Underserved Markets: The role of specialist financial intermediaries in Australia, 2013
<Foresters www.foresters.org.au/knowledge-exchange/publications>
19
Case Study: Institutional investment in SEDIF - Christian Super
Christian Super is a not-for-profit industry superfund with over 20,000 members. It manages
$450 million of retirement savings and only makes investments with an ethical, Christian focus.
Christian Super is a cornerstone investor in Foresters’ Community Finance Fund-Social Enterprise.
Significantly, Christian Super’s $6 million investment demonstrates the potential role of institutional
investors in the field of impact investment.
Fiduciary duty requirements are often cited as a potential barrier to impact investment by
superannuation funds and other institutional investors. However, Christian Super views the SEDIF
investment as providing good diversification from traditional capital markets.
“We’ve seen in the wake of the [global financial crisis] that many investments are subject to the
gyrations of the financial markets. By being able to offer a return such as we’ve got through
Foresters, we’re able to actually diversify the portfolio a little bit better than we would have
through traditional investments.”
Peter Murphy, CEO Christian Super
The involvement of the Australian Government was a crucial in the investment decision. Christian
Super had been considering impact investments prior to the advent of SEDIF. However, it was the
additional security provided by the Australian Government grant’s “first loss” status that allowed
Christian Super to make the investment.
“With the Australian Government co-investment, the risk-return characteristics have changed
sufficiently for us to be able to both make a good return on a risk adjusted basis, and also make
a difference for our members.”
Peter Murphy, CEO Christian Super
Christian Super was attracted to the Community Finance Fund-Social Enterprise because it offers the
opportunity to invest in a fund that supports social enterprises doing meaningful work that’s aligned
with its mission, while getting good risk-adjusted returns from the investment.
“Christian Super being invested in Foresters’ Community Finance Fund really resonates with our
members. Our members want us to make a good return for them, but also make a difference,
and being invested in Foresters provides those core characteristics for both of us.”
Peter Murphy, CEO Christian Super
Christian Super’s investment demonstrates its willingness to invest capital in areas that include both a
social and financial impact, and importantly, how that investment links with the expectations of its
members and its fiduciary duty obligations.
By taking a whole-of-portfolio view of the contribution to member returns that the SEDIF investment
could make, Christian Super’s investment has demonstrated the role that government capital can play
as a stimulus in attracting private investment that might not otherwise be available.
20
Social Ventures Australia (SVA)
SVA attracted more than 30 investors into the Social Impact Fund, which was established as a unit trust
and an unregistered managed investment scheme. The majority of investors are HNWIs, private ancillary
funds, and family trusts. Other investors are private companies, self-managed super funds and family
foundations.
SVA’s initial investors were those with a strong relationship with the organisation and awareness and
interest in developing the impact investment market in Australia. SVA has since begun to broaden this
investment base to include corporate foundations, suitable financial institutions, corporates with an
interest in social enterprises and trustee companies.
“The SEDIF program gave SVA an opportunity to work with the Australian Government
collaboratively to form effectively a new model of funding social enterprises. SVA was able to
leverage off the government funding and access our own pool of investors, to put together a pool
of capital which can invested in social enterprises around Australia for positive change.”
Ian Learmonth, Executive Director (Social Finance), Social Ventures Australia
“Measurement of success, measurement of the social benefits that come from providing capital to
the sector, is going to be a big determinant of how people feel about giving money to the sector. I
don’t think people want to give money to anything without knowing how it’s going to be used, and
over time, if the money is being used successfully, I think that will raise momentum for the sector.
So measurement is very important, but reporting of that is very important as well. So it has to be
transparent, like any other investment.”
Paul Bide, impact investor
2.5 The Year Ahead
Each fund is open to investors and each fund manager is aiming to raise more capital from private
investors in the year ahead. Initial capital-raising activities have been limited in the first year, as the
primary focus of the fund managers has been on establishing the funds and developing the pipeline of
investment ready social enterprises. Now that the funds are established and the first investments have
been made, further capital-raising will become an increasing focus for the fund managers in 2013 and
beyond.
Investor appetite
It is still quite early in the implementation of the funds to provide a definitive indication of investor
appetite. At this stage, general feedback from the fund managers indicates that investor appetite is
conservative. This is to be expected in the early stage of the field development and funds themselves.
The range of initial investors attracted by the fund managers and interest in NSW Social Benefit Bonds
provides encouraging signs that a greater range of investors are willing to enter the market. Some
considerations in building investment are consistent with the international experience of impact
investment, and the broader experience of investing in new markets, where investors expect to evaluate
the track record of an investment to guide their investment decisions.
The fund managers have undertaken a range of market outreach programs to engage the investor
community and attract new investors into the funds. These activities have included investor forums and
information sessions, the development of educational material such as case studies. SEFA has hosted
investor ‘road shows’ featuring Triodos Bank executives Peter Blom and Pierre Aeby, who talked with
investors about the European impact investment market and the potential for success in Australia.
21
Feedback from the fund managers’ outreach activities is that there is significant and growing interest
from the investor community, and that ongoing outreach and information about the track record of
impact investments made will help attract new investments over time. This is consistent with the
department’s observations from a range of other field-building activities.22
Engaging with investors
Despite the growing interest in impact investment, the fund managers have cited a number of
challenges for investors that they will continue to address through their investor outreach activities. In
addition to the limited track record of impact investments, these include a general lack of familiarity
with an understanding of impact investment relative to traditional philanthropy and investment models.
Other factors include liquidity (capacity to readily sell or exit investments), particularly for institutional
investors, and lack of a clear framework for assessing risk combined with lower risk appetite following
the global financial crisis. In addition, some investors have asked for guidance from regulators, in
particular around fiduciary duties of institutional investors seeking to make impact investments.23
“Although we’ve had some early successes and we’re seeing extended interest from investors in
this kind of space, there’s still a large task of education to go on to help people understand that
social investment isn’t a dressed-up form of philanthropy, but can produce a financial return and
do a social good.”
Belinda Drew, CEO, Foresters Community Finance
22
See for example, R Addis, J McLeod and A Raine, IMPACT – Australia: Investment for social and economic benefit,
2013
<Social Innovation http://employment.gov.au/social-innovation>
23
These challenges are consistent with those identified in recent reports, including Investing for good: The
development of a capital market for the not-for-profit sector (Senate Economics References Committee, 2011)
which made a number of recommendations aimed at promoting impact investment; and IMPACT—Australia:
Investment for social and economic benefit (R Addis, J McLeod and A Raine, 2013).
22
3. Demand
3.1 At a Glance






There has been strong interest in SEDIF, with almost 600 enquires from social enterprises.
The initial enquiries have resulted in more than 125 social enterprises engaging further with the fund
managers, with 50 of these progressing through the loan application phase.
These social enterprises reflect a diverse sector, with ventures that vary considerably in terms of
priority impact area and industry segment. However, the overwhelming majority of the interest has
come from major cities in the eastern states.
While demand has been consistent with the international experience, early expressions of interest
were received from social enterprises that were not in the social enterprise lifecycle stage SEDIF was
aiming for. That is, there were many enquiries from start-ups without an appropriate track record.
Also, more established enterprises have been slower to engage with the fund managers.
The fund managers have undertaken significant outreach activities. This is intended to develop a
pipeline that better aligns the enterprises seeking capital with the types of capital available. In doing
so, they have begun to address some of the broader demand challenges, including the cultural shift
in social enterprise perception of debt finance as a strategic tool for growth and longer-term
sustainability.
The experience of the SEDIF fund managers reinforces that social enterprises have much in common
with other small and medium-sized enterprises. They often require development of their operating
and revenue models and cash flow before they are ready to take on a debt commitment. The highest
need for capacity building support for social enterprises identified by fund managers has been in
financial viability and business planning, operations and governance.
Each fund manager has their own approach to capacity building and has developed a range of
mechanisms to support the investment readiness of social enterprises. With demand for capacity
building exceeding the supply of known support, a particular focus for the fund managers will be on
continuing to develop links to other capacity building opportunities in order to build the investment
pipeline.
3.2 General Enquiries
Social enterprises have expressed a strong demand for finance through SEDIF since it was launched. The
fund managers have received almost 600 enquiries from social enterprises. This level of interest is
promising for the growth of the funds and future development of the impact investment market.
The fund managers have found that a number of eligible organisations do not identify as social
enterprises. Educating the sector will help to engage these organisations that don’t self-identify and may
open up many more investment opportunities. With information sessions, forums and the development
of tools like case studies and impact reports, the fund managers hope to reach that broader audience
and raise awareness about SEDIF and impact investment. This is discussed further in Section 3.6.
The social enterprises in the SEDIF pipeline are typically small to medium-sized enterprises with over
half the clients having fewer than 20 employees and an annual turnover of less than $1 million. (Note
that employee and turnover data represents SEFA and Foresters only. SVA will be reporting on these
indicators in future reports.)
23
3.3 The Investment Pipeline
The ‘investment pipeline’ refers to the flow of social enterprises progressing through the fund
managers’ investment process. While each fund manager uses a different approach, four broad stages
can be identified across their processes. For the purposes of this report they have been called the
enquiry stage, client stage, due diligence stage and investment stage. As social enterprises move
through these stages, the fund managers progressively assess the fit between a social enterprise’s
demand for finance and its suitability to SEDIF. This assessment may be influenced by a range of factors
including the social enterprise’s need for finance, the type of finance it is seeking, whether the purpose
of the finance is consistent with SEDIF objectives, and the capacity of the social enterprises to repay the
finance. The stages are summarised below:
 An enquiry generally involves the first contact between the fund managers and the social enterprise.
At this early stage, discussion focuses on basic information about the venture’s financial needs, the
appropriateness of a SEDIF investment for that social enterprise, and their willingness to take the
enquiry further.
 At the client stage, there is a more detailed information exchange. The social enterprise has engaged
further with the fund manager, and has expressed an interest in applying for a SEDIF investment. The
fund managers start to collect information about the social enterprise and provide initial feedback on
what may be required to proceed through the formal application process. While the fund managers
may each have a slightly different interpretation of the exact point in time a social enterprise
becomes a client, for the purposes of this report, this stage represents those enquiries that have
progressed to a more engaged level.
 Social enterprises at the due diligence stage are seriously considering taking on finance, which
involves making a formal application and progressing through the due diligence process. The client’s
ability to repay the finance is assessed as well as the alignment of the investment with SEDIF
objectives. This stage includes a credit assessment by the fund managers to evaluate the credit risk of
potential investments from the funds. Clients may need to fulfil some pre-conditions before approval
of an investment, which can include a range of requirements to strengthen their investment
readiness (i.e. their operating model and other factors that indicate they are able to take on finance).
At this stage, clients may be referred to other services to further strengthen their application for
investment, may be rejected for an investment or may withdraw from the process.
 The investment stage is reached after approval of the investment.
Figure 5 gives a snapshot of the progress of social enterprises through the investment pipeline up to
31 December 2012.24 While they represent the progress from initial enquiry to investment, it is
important to note that the figures represent a specific point in time. Many of the potential investments
in the pipeline are still progressing through the process. There are also a number of social enterprises
within this pipeline who may have halted their own progress for a number of reasons. Examples have
included changed circumstances, finance obtained elsewhere, aversion to the risk of taking on finance,
the need to further discuss the potential investment opportunity with Board members, or a selfassessment that this form of finance was not appropriate to their organisation.
24
All SEDIF data presented in this report is current at 31 December 2012.
24
Figure 5: The SEDIF pipeline (as at 31 December 2012)
25
One observation from the SEDIF pipeline snapshot is that the conversion rate of enquiries to
investments is about 60:1, or around two per cent. This is consistent with the international experience,
and exceeds the conversion rate of comparable impact investment funds.
“Conversion rates among social investors, (not including government-backed soft loan and grant
funds) appear to sit between 5 per cent and 15 per cent. At one extreme, Community Builders had
4000 enquiries leading to 200 applications and 37 investees – equivalent to less than a 1%
conversion rate.”
Dan Gregory, Katie Hill, Iona Joy and Sarah Keen25
It is relevant to note that SEDIF funds are the first of their kind in Australia, and that a significant number
of initial enquiries were very broad in nature and in many cases, social enterprises misunderstood the
nature of the finance available. For example, feedback from the fund managers indicated that a
significant number of the initial enquiries had assumed that SEDIF was providing grant funding. Also,
many early inquiries were received from social enterprises that were not in the phase of the social
enterprise lifecycle that the SEDIF was targeting (see below), and as such, did not have the track record
to provide a substantial case for accessing SEDIF finance.
The conversion rate for the SEDIF pipeline snapshot is illustrative of the allocation of resources by the
fund managers in managing the funds. In particular, the fund managers have streamlined their
processes to more effectively manage enquiries and applications and build a pipeline of investment
ready social enterprises. This will be discussed in more detail in Section 3.11.
The early experience has provided important feedback to the fund managers, and has also highlighted
the case for targeting other initiatives that respond to demand from social enterprises at the early stage
of their life cycle. This is an important point that has been recognised by the Western Australia State
Government (through its Social Enterprise Fund), the New South Wales and Victorian State
Governments in their community asset-building work and the recent announcement by Indigenous
Business Australia of its Indigenous Social Enterprise Capital Fund to help Indigenous social enterprises
access SEDIF financing. These initiatives are in addition to a range of other capacity building support
provided to early-stage social enterprises through other intermediaries (for example, Social Traders’ The
Crunch program).
3.4 The Social Enterprise Life Cycle
As noted earlier, SEDIF was targeted at a particular stage of the social enterprise life cycle where the
enterprise is beyond the early stages of development. Specifically, it was pitched at later-stage growth
and development funding, not early-stage seed or grant capital (see Figure 6). It is at this stage of
development that access to finance, rather than a reliance on grant funding, has the greatest potential
to improve the longer-term sustainability of social enterprises.26
25
Investment Readiness in the UK, Commissioned by the Big Lottery Fund, 2012 <Big Lottery Fund
www.biglotteryfund.org.uk/er_invest_ready.pdf>
26
This assessment of the most appropriate stage of the social enterprise to target was also informed by the work
of Dr Ingrid Burkett – see Financing social enterprise: Understanding needs and realities, Foresters Community
Finance (2010)
<Foresters www.foresters.org.au/knowledge-exchange/publications>
26
Within this context, there are a range of factors influencing the development of the investment pipeline,
targeting the right social enterprises and the conversion of enquiries to investments. Factors identified
by the fund managers include:
 raising awareness of organisations that don’t identify as social enterprises about investment
opportunities;
 building confidence in the cultural shift within social enterprises to accept finance as a strategic
management tool;
 raising awareness of the availability of finance through SEDIF fund managers; and
 building the capacity of social enterprises to utilise different financial options as part of a funding and
financing mix.
Figure 6: SEDIF targets growth and development capital
3.5 Demand Characteristics
Location
The overwhelming majority of SEDIF clients are located in the eastern states, making up approximately
85 per cent of the social enterprises at each stage of the investment pipeline (Figure 7). This primarily
reflects a concentration of activity and level of development of the sector in these locations. While the
fund managers operations are based in Sydney, Melbourne and Brisbane, they are continuing to seek
investment opportunities in other states. This outreach activity is discussed further in Section 3.6.
The Western Australian (WA) social enterprise sector is particularly challenging to access due to the
ready supply of grant capital. In April 2012, the WA Government launched the $10 million Social
Enterprise Fund (SEF), which effectively offers capacity building grants to establish new and strengthen
existing social enterprises. The WA Government also offers $4 million per annum in grants through the
Social Innovation Grants Program to not-for-profit organisations who are looking to develop and trial
news ways of delivering services. While this has generally reduced the appetite for debt and other forms
of finance, it has opened up some opportunities to develop the pipeline for larger, longer-term
investment in the sector through SEDIF. SVA are a lead partner in the consortium supporting the WA
Government to implement the SEF. SVA also conducts due diligence on the grant applicants. This work
has resulted in some organisations applying for finance through SVA’s Social Impact Fund, with the
potential for referrals to the other fund managers.
27
Most of the clients are located in more populous areas, with two-thirds in major cities, almost
30 per cent in regional areas and five per cent in remote areas (see Figure 8). While the fund managers
have actively engaged with the sector in remote areas, the investment readiness of social enterprises in
these locations has been reported as much lower than in the larger cities. These issues are addressed in
more detail in Chapter 4.
Figure 7: Demand by location
Number of social enterprises at each stage of the investment process by location.
Figure 8: Demand by location type
Proportion of social enterprises at the client stage in each location type.
28
Impact and industry
The fund managers have received a wide range of enquiries from social enterprises with a broad mix of
target impact areas and industries. In particular, the early signs of diversity across sectors for demand
demonstrate, to governments and investors, how broadly impact investment can be applied to achieve
a social and financial outcome.
At the client stage, the targeted impact areas of the social enterprises are highly diverse. The most
common impact areas are employment and Indigenous outcomes, with each representing 20 per cent of
the clients. The remainder of clients are well-distributed across a range of impact areas such as general
community, environment, arts and culture, disabilities, housing and homelessness, youth and education
and training.
Figure 9 shows the full range of impact areas that the social enterprises have identified as targeting
through access to SEDIF funds. The ‘general community’ category refers to a range of impacts that
contribute to the general community such as information hubs, support for community organisations,
volunteer recruitment and advocacy and advice services. The ‘other’ category represents a variety of
impacts that do not fit regular categories such as fair trade, microfinance, men experiencing
disadvantage, legal services and media services.
Figure 9: Client priority impact areas
The number of clients working in each social impact area. Some social enterprises can be counted under more than one
category. For example, a social enterprise that created job opportunities for people with disability will be counted
under both ‘employment’ and ‘disabilities’.
Over half the client social enterprises operate in four predominant industry segments: community and
social services; arts, culture and recreation; housing and development; and education and training. A
smaller proportion comes from retail and wholesale, construction, landscape and forestry, hospitality,
and media, information and telecommunications. The ‘other’ category comprises several different
industries, including agriculture, manufacturing, financial services, and environment. The industry
breakdown of client group is shown in Figure 10.
29
Figure 10: Clients by industry
The proportion of clients operating in each industry segment is shown as a percentage.
3.6 Pipeline Development
Figure 11 shows the development of the investment pipeline for each fund manager. SEFA and Foresters
have a similar pattern while there are comparatively lower figures for SVA. This is due to reasons
including the later launch of SVA’s fund, Foresters’ and SEFA’s early engagement of the market (which
attracted a higher number of low-potential enquiries), and SVA’s approach to social enterprise outreach,
where it has focused primarily on its well-established networks for potential investments.
Figure 11: Pipeline development by fund manager
Number of social enterprises at each stage of the investment process for each fund manager.
30
The pipeline figures provide an indication of the fund managers’ contribution to the SEDIF objective of
providing a catalyst for market development. Their efforts to stimulate the impact investment market
through sector outreach and pipeline development processes have already resulted in many social
enterprises engaging with SEDIF and the approval of the first investments (refer to Chapter 4). The
following section outlines the activities fund managers have undertaken to engage the social enterprise
sector and achieve these results.
Social enterprise outreach
Over the first year, the emphasis was on approaching the market to stimulate demand, and also
adapting those approaches to respond to the needs of social enterprises. The fund managers focused on
profile-building in the early period of establishment. They promoted the SEDIF funds through a range of
launch events, information sessions, online campaigns and developing relationships with key social
enterprise sector organisations.
The fund managers continue to engage with the social enterprise sector to build a strong investment
pipeline. In addition to forums, workshops, conferences and other outreach activities common to each
fund manager, they have developed a unique and targeted approach to social enterprise outreach
reflecting their own organisational features.
 Foresters has adopted a demand-led approach, which it has supported through concentrated
campaigns to generate interest and focus applications at particular time periods.
 As a new company, SEFA has focused on building brand recognition and developing networks,
actively travelling around Australia and meeting with governments, peak bodies, intermediaries,
social enterprises and other leading organisations.
 SVA has leveraged its well-established networks for high-quality and innovative investment
proposals. These networks include its other business services, such as SVA Consulting, development
partners, and SVA’s interstate offices.
“We’re looking in areas where banks aren’t present and where they’ll actually meet some of the
SEDIF objectives, which is to certainly boost jobs and opportunities in this area across Australia,
and also to build capacity for social enterprise in Australia.”
David Rickards, Managing Director, SEFA
The SEDIF fund managers have also established relationships with some state governments as an
additional element of their market-building activities. An example is Foresters’ engagement with both
the Victorian and New South Wales State Governments to support interested non-government
organisations to assess their financial capacity and put in place strategies for property ownership and/or
long-term secure tenure in property. These partnerships are aimed at increasing awareness about
alternative forms of finance and the benefits of community asset building. It will also provide the
opportunity for eligible organisations to have access to finance for asset-building strategies.
The role of networks
The fund managers have reported that the stronger potential investment propositions have generally
been sourced through existing networks and partner organisations. These contacts are able to identify
opportunities and also act as a preliminary screen for investment suitability. Figure 12 shows that half
the social enterprises at the due diligence stage have come through networks or partner organisations.
Drawing on these networks will continue to be an important part of the fund managers’ strategies as
they build relationships around Australia.
Some referrals have come through the department, including the state and territory network. This
reflects strong local connections the fund managers have made, including with local employment coordinators, regional education, skills and jobs co-ordinators and other the department staff around
Australia.
31
Figure 12: Source of social enterprises at the due diligence stage
The proportion of clients that have come from each source.
Awareness-raising and education
The fund managers are also contributing to awareness-raising and education for longer-term market
development. Despite reported improvements in recent times, the general understanding in the sector
of basic concepts of social enterprise, impact investment, and social finance compared to grants remains
relatively low.
As discussed, many early expressions of interest came from start-up social enterprises that were not in
the social enterprise lifecycle stage SEDIF was targeting. Yet more established enterprises have been
slower to engage. The awareness-raising and education activities have begun to address some of the
broader demand challenges including the cultural shift in social enterprise perception of debt finance as
a strategic tool for growth and longer-term sustainability. This will help to develop a pipeline that better
aligns the enterprises seeking capital with the types of capital available.
“Many of the organisations that we see come naturally through our door are very much first
movers and forward thinkers. So, actually getting to the bulk of the market, those organisations
who aren’t awake yet to the possibility of the use of this kind of capital, is a real challenge.”
Belinda Drew, CEO, Foresters Community Finance
32
3.7 Investment Readiness
Investment readiness refers to the extent to which social enterprises are perceived to be an investible
proposition by the fund managers, and as such, their capacity to take on finance and repay that finance
within an acceptable level of risk. Where investment readiness is a measure of the extent to which a
social enterprise is eligible to take on finance, capacity building refers to the discrete skills and
capabilities required to build that investment readiness.
“One of the issues with identifying the right or suitable social enterprises is making sure that
they’re in a position to be investment ready. We are very conscious that many organisations need
support and assistance in capacity building before they’re in a position to raise capital from a fund
like this.”
Ian Learmonth, Executive Director (Social Finance), Social Ventures Australia
The experience of the SEDIF fund managers reinforces that social enterprises have much in common
with other small and medium-sized enterprises. They often require work to develop their operating and
revenue models and cash flow before they are ready to take on a debt commitment. Poor financial
viability is the most common issue cited by the fund managers, with many applicants presenting
projects that are not backed by robust financial planning. Other issues include poor governance
structures, inexperienced personnel and poor business planning.
The fund managers’ experience is in line with other reports on the capacity of the social enterprise
sector, and is also broadly consistent with the experience of the small business sector in Australia. As
previously discussed, investment readiness and capacity building needs are the primary challenges to
accessing capital identified in Burkett’s research27 in which she also identified cultural readiness and
legal structures, the availability of affordable capital and the understanding that financial institutions
have about social enterprise business models as impediments to finance.
“Key impediments to finance for social economy organisations are the lack of collateral to
guarantee loans, the lack of a reliable revenue stream to service debt, the large transaction costs
relative to the capital required and the lack of a suitable organisational structure to allow the
organisation to raise equity capital.”
Senate Economics References Committee28
27
I Burkett, Reaching Underserved Markets: The role of specialist financial intermediaries in Australia, 2013
<Foresters www.foresters.org.au/knowledge-exchange/publications>
28
Investing for good: The development of a capital market for the not-for-profit sector in Australia, Committee
Hansard, 2011,
p. 39 <Parlinfo parlinfo.aph.gov.au>
33
3.8 Capacity Building Support
The fund managers identify capacity building needs throughout the investment appraisal process and
areas needing development, such as more detailed business planning, modified governance
arrangements or more rigorous financial forecasting. Each fund manager has their own approach to
capacity building and has developed a range of mechanisms to support improved capacity of the social
enterprises in the investment pipeline. In some cases this involves direct support, in other cases, referral
or clarification of issues that need to be addressed by the applicant. The process adopted also needs to
meet appropriate governance standards in avoiding conflict of interest and appropriate credit
assessment.
 Foresters has established a group of consultants, referred to as the ‘Arboretum’, who are made
available to social enterprises on targeted capacity building needs. An important feature of these
referrals is the matching of like organisations – that is, wherever possible, matching consultants with
social enterprises that have similar experiences or organisational characteristics.
 SEFA focuses on brokering mentoring relationships with Macquarie Group staff, which has been
expanded to include mentors from the University of Sydney Business School.
 SVA provides up to $50,000 annually from its fund for capacity building grants. Similar to the due
diligence process for investment, social enterprises must apply for grants with relevant
documentation such as business plans and a proposal outlining how a grant will help to build their
capacity for future growth and social impact.
 The fund managers also make referrals to existing capacity building programs and providers such as
Social Traders, the School for Social Entrepreneurs and Social Firms Australia.
Figure 13 shows the primary focus of Foresters’ and SEFA’s referrals to social enterprise support
providers. 28 referrals were made up to 31 December 2012. Fund managers identified strong needs for
support with financial viability and business planning, operations and governance. Given SVA’s later
establishment, it did not make any capacity building grants in its first quarter of operations. At this stage
of the program, it is too early to assess the outcomes of these capacity building activities. The fund
managers anticipate that over time, the social enterprise receiving support will re-enter the investment
appraisal process and provide a future source of investment opportunities for SEDIF funds.
Figure 13: Reasons for capacity building referrals by SEFA and Foresters
In some instances, social enterprises have been referred to work on more than one area of capacity building.
34
3.9 Post-investment Support
The fund managers are also likely to provide some level of post-investment support to investees as part
of their relationship management. In these early stages, there is little information about the ongoing
capacity building needs of investee social enterprises and how the fund managers intend to approach
this.
3.10 Challenges for Developing the Capability of Social Enterprises
The fund managers have identified a number of significant challenges for both the work required to
develop a pipeline of enterprises ready for investment and the development needs of the social
enterprise sector more generally. The following section describes some of these challenges for the
coming year.
The demand for capacity building
With the limited pool of providers of targeted support appropriate for social enterprise, the demand
from the social enterprise sector for these services exceeds supply. Importantly, there are limitations to
what SEDIF is expected to achieve in terms of capacity building, and so an important element of the
fund managers’ approach has been to leverage current opportunities.
The fund managers have established good connections with existing providers, and an important
element of their work over the next year will be to continue to develop some of these pathways to
investment readiness for social enterprises.
The recent announcement of Indigenous Business Australia’s tender for the Indigenous Social Enterprise
Capital Fund provides an important opportunity to fund development needs of Indigenous social
enterprises in a way that will build their ability to take on SEDIF finance at a later stage.
Further work in the coming year will be aimed at finding support that matches the specific needs of
social enterprises. SEFA, for example, has reported difficulty in matching mentors with the particular
development needs of social enterprises. Accessing mentors for Indigenous organisations in rural and
remote areas has also been a challenge.
The fund managers have begun to work together to address some of these capacity building challenges.
For example, Foresters and SEFA have held workshops to identify where they can co-operate on
capacity building, identifying each other’s priorities and forming a strategy where referrals can be
efficiently co-ordinated between them.
SEFA has undertaken a review of its capacity building approach and diverted its resources to improving
support throughout the investment process. After a thorough analysis of its experience in the market,
investment readiness issues and appropriate intervention strategies, SEFA is focusing more on
developing support networks as a source of referrals and spending more ‘hands-on’ time with loan
applicants.
In addition to its grants component, the SVA Impact Investing team continues to work closely with its
internal capacity building business area and external development partners. For example, SVA’s first
SEDIF investment is a co-investment with Social Traders in North Yarra Community Health, a social
enterprise which developed its model while participating in Social Traders’ The Crunch program.
35
3.11 The Year Ahead
The fund managers will continue their work in key areas to build and sustain a strong investment
pipeline. This includes a number of strategies to address the challenges of the emerging impact
investment market.
Building demand
Consistent with other emerging markets, a relatively small proportion of the enquiries are converted to
investments by the fund managers. This trend is being driven by a number of challenges:
 Much of the fund managers’ work in the first year was concentrated on establishing the funds and
operations to ensure ongoing sustainability. Some of this work included establishing business, risk
and governance processes, marketing, building brand awareness and product development.
 The developing nature of the Australian impact investment market means that there are few wellestablished pathways for the flow of information and finance between the supply and demand sides
of the market. For example, there are few support networks with clear referral pathways for social
enterprises looking to take on finance. As intermediaries, the fund managers have a role to improve
the overall efficiency of the impact investment market by supporting the development of these
pathways to improve the flow of capital to social enterprises.
 There is limited understanding of impact investment in the Australian social enterprise sector. This
contributed to the early influx of enquiries from social enterprises not suitable or ready for finance.
 Low levels of investment readiness in the sector mean that very few social enterprises present viable
investment opportunities at first contact with the fund managers, therefore, investment appraisal
processes can take some time.
 Capacity building and investment readiness are key challenges for social enterprises in seeking to
access finance. This is considered in more detail in Chapter 4.
Targeting of social enterprises to capital
Some fund managers have reported a greater focus on sourcing potential investments through networks
and partner organisations that provide generally higher potential propositions. They plan to establish
new networks around the country with leading organisations, including sector peak bodies, in order to
develop stronger linkages with organisations that may be facilitated by a sector-specific approach. This
will also include tailored marketing campaigns to social enterprises in a format they are familiar with. An
example is Foresters’ ‘Grow’ Campaign, which is designed to tap into the experience many social
enterprises have with the process of applying for grant funding.
Continuing to refine the investment process
Significant improvements have been made to refine the investment process. In particular, fund
managers have adopted active improvement strategies to streamline resources and adapt their
processes to the realities of the market and pipeline development experience. Given that the funds are
still at a relatively early stage, it is anticipated that this process will be ongoing as the market continues
to develop. The funds have been refining their processes based on early experience.
Improving market understanding
All fund managers have reported misunderstandings in the market about social finance and the need for
greater awareness of investment opportunities and loan servicing requirements in the social enterprise
sector. This reflects a range of factors including information asymmetry. In part, the sector outreach
activities have been targeted to develop organisations’ literacy and understanding of social finance, and
this will continue to be a priority. The fund managers also intend to develop case studies of successful
investments to help inform the market and provide greater clarity on potential deals.
36
Building investment readiness
A particular area of focus for the fund managers in the coming year will be to improve the financial
literacy of social enterprises. This will help develop a better understanding of the impact investment
products that are available to them from the SEDIF funds. While financial literacy has been the dominant
barrier to investment readiness, there are other challenges that are broadly reflective of cultural
barriers, including board reluctance to take on debt, poor governance structures, inexperienced
personnel and poor business planning. The fund managers will continue to address these issues, where
appropriate, including how best to leverage partnerships with other organisations to support the
development of investment ready social enterprises.
37
4. Investments and Impact
4.1 At a Glance





At 31 December 2012, ten SEDIF investments totalling $4.69 million had been approved.
The investments include a mix of larger secured property loans, smaller unsecured business
development loans and one equity-like investment.
The interest rates charged on loans varies from seven to eight per cent for secured loans and 10 to
12 per cent for unsecured loans. The terms of the loans range from four to seven years and 10 to 15
years for larger mortgage-secured loans.
The immediate impact of the ten approved investments is already evident, including job creation,
purchase of premises, and the launch of new programs.
The longer-term impact will be measured as the investments mature. Each fund manager has made
significant progress in developing impact measurement frameworks that can be benchmarked
internationally. The impact reports are made publicly available.
4.2 The SEDIF Investments
The fund managers are developing a range of financial products to meet the needs of both social
enterprises and impact investors. In line with SEDIF objectives, these financial products are testing the
capacity for, and existing barriers to, impact investment and access to capital for social enterprises.
In the early days of the SEDIF funds, the fund managers are beginning to differentiate their place in the
market and products being offered and, over time, this differentiation will become more apparent.
Ten investments were approved at the end of 2012, worth a total of $4.69 million. The tables below
provide greater details about the SEDIF investments and information about individual investments can
be found in the Investment Register, Appendix F.
Investments by fund manager (as at 31 December 2012)
Fund Manager
Social Enterprise Finance Australia
Foresters Community Finance
Social Ventures Australia
Total
Average
Number of Investments
Value
3
4
3
10
-
$1,600,000
$1,472,515
$1,613,000
$4,685,515
$468,552
38
Investment characteristics
Financial
Instruments



Interest
Rates


Terms


Security


Nine of the investments are in the form of loans; the other investment is an
equity-like investment (see PGM Refiners case study).
Two predominant types of loans are emerging;
o larger secured property loans with lower interest rates and longer
terms; and
o smaller higher-interest unsecured business development loans.
The secured property loans tend to include some portion of the loaned capital
for operational expenses and other business development.
The interest rates range from seven to 12 per cent.
The lower interest rate loans (seven to eight per cent) are generally secured by
mortgage and the higher interest rate loans (10 to 12 per cent) are generally
unsecured business development loans.
Most investments have between four and seven-year terms. Some mortgagesecured loans have longer terms of 10 and 15 years.
The fund managers have shown differing appetites for the term of the
investments. Foresters has approved loans of up to 15 years while SVA has
reported a desire for greater liquidity in its fund and is aiming to maintain loan
terms of between five and seven years. This is likely a product of the different
requirements of the investors in each of the funds.
Half of the loans were secured by mortgage, ranging between $400,000 and
$800,000.
The unsecured loans are smaller business development loans ranging between
$35,000 and $163,000.
Case Study: An innovative equity-like investment in PGM Refiners from SVA
SVA’s $1 million quasi-equity investment in PGM Refiners represents an innovative application of
alternatives to debt finance for social enterprise.
PGM is an Australian incorporated private company located in Dandenong, Victoria that recycles
end-of-life electronic waste (e-waste) such as televisions, computers, point-of-sale equipment, and
set top boxes. PGM provides employment opportunities to disadvantaged job seekers, including
those who have experienced long-term unemployment.
The Fund’s equity-like investment in PGM is via convertible preference shares. The investment will
be made in two tranches of $500k each. The first has been made and the second is expected to be
made in 2013. The investment is expected to create up to 30 job opportunities for disadvantaged
job seekers, with 10 jobs already created at 31 December 2012.
PGM is using the investment to increase its recycling capacity to capitalise on a legislated increase
in e-waste recycling brought about by the National Television and Computer Recycling Scheme.
The recycler will upgrade and expand its facilities in Dandenong, and launch a new site in New
South Wales.
The investment in PGM Refiners is an example of innovative product development, which is one of
the SEDIF objectives, and provides a flexible financing option that has enabled PGM Refiners to
expand its business reach and deliver greater impact. This investment gives SVA the assurance of a
fixed rate of return plus the opportunity for higher returns depending on the success of PGM
Refiners. Importantly, this investment demonstrates a strong partnership between both
organisations, and how it is possible for a social enterprise to structure its operations to be able to
access finance appropriate to its business needs and capabilities.
39
4.3 Broad Comparison with the Experience of Small Business
As noted, the early experience of the fund managers is broadly consistent with the wider experience of
small business funding in Australia. A recent report by the Reserve Bank of Australia (RBA)29 shows that
interest rates for small business have been around 7.5 to 8.5 per cent for the last three years (compared
with six to seven per cent paid by household mortgages and larger businesses), noting that variability in
interest rates between small businesses is high. This is generally comparable with SEDIF lending rates,
noting the variability in loan products and size.
The RBA report says smaller businesses typically access funding on less favourable terms than larger
businesses. The reasons mostly relate to their size, in that smaller businesses’ revenue streams are more
volatile, increasing the riskiness of these loans to lenders. The RBA report also notes that small
businesses usually have shorter financial histories and that, as a result, banks have tended to charge
small businesses a premium for the added uncertainty of having less information to base credit
assessments on. The RBA notes that this problem has become greater in recent years as banks place
more weight on quantitative risk assessment methods.
The challenges for investment readiness of social enterprises identified in the previous chapter also
mirror the experience of small business, as illustrated in an OECD discussion paper.30
“Access by SMEs to finance is constrained by demand-side weaknesses. Most businesses are not
investment ready. Their owners are unwilling to seek external equity finance and those who are
willing do not understand what equity investors are looking for or how to “sell” themselves and
their businesses to potential investors. These weaknesses, in turn, compromise the effectiveness of
supply-side interventions, such as initiatives to stimulate business angels or which create public
sector venture capital funds.”
Facilitating Access to Finance: Discussion paper on investment readiness programmes, 2010,
OECD
4.4 A Place in the Market
SEDIF funding has provided an opportunity for the SEDIF fund managers to provide an alternative
financing option for social enterprises other than traditional sources such as banks. In doing so, they are
addressing some of the issues raised by the RBA through a greater focus on engaging with social
enterprises to better understand their credit risks and investment readiness (discussed in more detail
below). The interest rates charged by the fund managers are broadly comparable with small business
lending rates, noting the variability in products offered and the additional engagement with social
enterprises to build the pipeline of potential investments.
Significant work has been undertaken by the fund managers to ensure a better alignment of supply and
demand through their pipeline development and market outreach activities discussed in the previous
chapter.
As a result of their exposure to the market, the fund managers have largely revised their loan
projections to reflect the realities of the market. Earlier projections had been based on estimates of
market activity and have proven to be optimistic. This was largely expected, and with a better
understanding of the market and the fund managers’ place in this market, the revised loan projections
provide a more realistic view of future investment activity.
29
M Matic, A Gorajek and C Stewart, Small business funding in Australia, Reserve Bank of Australia, 2012 <RBA
http://www.rba.gov.au/publications/workshops/other/small-bus-fin-roundtable-2012/pdf/02-small-bus-fundingaus.pdf>
30
C Mason, and J Kwok, Facilitating Access to Finance: Discussion Paper on Investment Readiness Programs, 2010
<OECD http://www.oecd.org/investment/psd/45324336.pdf>
40
4.5 Social Impact Areas
The ten investments that have been approved reflect a range of targeted areas for impact. Figure 14 and
Figure 15 show the spread of these investments across priority impact areas and industries. While these
categories often align with each other, they are not necessarily always the same. For example, a café
which employs people experiencing a mental illness would operate in the hospitality industry while
creating a social impact in mental health and employment. In line with the trends emerging through the
deal pipeline (refer to Chapter 3), the investments have been made across a diverse range of priority
impact areas and industries.
Figure 14: Investments by priority impact area
The targeted impact area of each investment. Note that some social enterprises are targeting more than one impact
area. For example, a social enterprise that creates job opportunities for people with disability will be counted under
both ‘employment’ and ‘disabilities’.
41
Figure 15: Investments by industry
The proportion of investees operating in each industry is shown as a percentage.
4.6 Investment Impact
Given the early stage of the approved investments, it is not possible to report on anything other than
the immediate impact the investment has had or the proposed impact of the investment. Over time, as
the investments mature, further progress on investment impact will be provided by the fund managers
through their impact reports.
While some investments have direct social impact, such as job creation, other investments will primarily
have an enabling effect on social enterprises. For example, purchasing property may reduce the
financial burden of ongoing rental costs or the uncertainty of future occupancy and allow a social
enterprise to expand its operations. As these impacts are achieved, the fund managers will include them
as part of the annual impact reporting process.
The fund managers have identified these immediate impacts of the first ten SEDIF investments:
 Between 30 and 75 jobs will be created for disadvantaged job seekers. Of these, 42 were created as
at 31 December 2012.
 Two social enterprises can now purchase all or part of the premises they were previously leasing.
 Two social enterprises will purchase new premises to expand their operations.
 Four social enterprises have been able to launch new programs that aim to create social change and
generate revenue.
 Two social enterprises now have the finance to provide improved health services to disadvantaged
individuals.
 Three social enterprises now have the necessary finance to help them scale up their operations.
42
Case Study: Eating Disorders Victoria launches a new program with Foresters loan
Eating Disorders Victoria Inc. (EDV) is using a $75,000 business development loan from Foresters
to launch a new revenue-generating service. It is a strong example of how a not-for-profit can
rethink its current ideas about service delivery to not only reach sectors of the community that it
couldn’t before, but to sustain the long-term viability of the organisation.
“The new service will not only serve as an independent source of revenue for the
organisation but will also be of significant social impact for individuals and families across
the state.
“Being able to offer this service will not only serve to make our organisation more
sustainable in the long term but will also have a direct impact upon the mental health and
wellbeing of thousands of Victorians.
“The loan funds will enable us to recruit a client services manager, purchase and install a
HiCaps machine and cover marketing expenses for the promotion of our now expanded
counselling service.”
Jennifer Beveridge, CEO, Eating Disorders Victoria
EDV is unique in Victoria in providing comprehensive support and information services on all
aspects of eating disorders. EDV incorporates a unique approach to the provision of non-clinical
support services through a blend of qualified professionals and lived experiences of employees and
volunteers. The approach and services provided by EDV have a direct impact on the mental health
and wellbeing of thousands of Victorians every year.
EDV accessed finance through Foresters to set up a social enterprise component to their service,
being a fee-for-service counselling arm. The loan from Foresters has enabled EDV to establish
much needed counselling sessions that provide early intervention and ongoing support for people
with eating disorders in Victoria, as well as affording vital support to their families, carers and
friends. By establishing the fee for service program, Eating Disorders Victoria can provide
community-based, specialised support to those who do not qualify for government funded
services.
This loan shows how SEDIF finance is being used to help social enterprises to grow, both in terms
of impact and capacity.
43
4.7 Impact Measurement
The fund managers are developing their approaches to impact measurement in order to capture the
social and environmental impact of the funds. While their approaches are different, each uses the
taxonomy of the Impact Reporting and Investment Standards (IRIS) to improve local and international
comparability. This work is a key part of meeting the SEDIF objective of supporting the development of
market infrastructure. Impact measurement frameworks communicate the social impact of investments
and allow for comparability across the market.
The fund managers are required to publish their impact reports on an annual basis. The following
provides an overview of the fund managers’ progress to date, with developing their approach to impact
reporting. These impact reports will develop over the years as more loans are made and the impact of
the work of social enterprises enabled by their SEDIF finance is realised in the communities in which
they operate.
Foresters
Foresters has developed its framework based on 42 IRIS indicators, some custom indicators based on
Foresters’ theory of change, investment profiles adapted from those used by the Global Impact
Investing Network, and in-depth case studies. Foresters is also considering incorporating Social Return
on Investment (SROI) analysis if resources allow. Foresters’ first impact report has been published and
focuses on the case studies of its first investments. The report also includes interviews with loan
recipients.31
SEFA
SEFA has partnered with the University of Sydney Business School to develop an approach called the
StrategicFrame. The StrategicFrame conceptualises inputs, activities, outputs, outcomes and impacts
(each with relevant IRIS indicators) as being driven by an organisation’s mission and influenced by the
environment or context of the organisation. It also incorporates a process of evaluation and adjustment
that is able to reflect the organisation’s particular characteristics. SEFA’s first annual impact report has
been published and focuses on the development of the StrategicFrame and how SEFA has used it to
evaluate its impact and improve its business processes in its first year of operations. It also features a
case study of Three Sista’s and how it has utilised the StrategicFrame. SEFA is actively considering how
best to capture and present the practical application of this framework in a way that balances the
unique character of each social enterprise with a measurement framework for the fund as a whole.32
SVA
SVA’s impact measurement framework will pursue a combination of IRIS indicators and individual
qualitative indicators to capture the impact of the fund’s investments. SVA has selected the IRIS and
qualitative data indicators for the North Yarra Community Health and has begun to collect data. SVA was
not required to publish an annual impact report in 2012 as it reached its first anniversary in 2013. It has
included information on the immediate and expected longer-term impact of its current investments in
its published Investor Report.33
31
Foresters Community Finance, 2012 Annual Review, 2013
<Foresters http://www.foresters.org.au/knowledge-exchange/publications>
32
Social Enterprise Finance Australia, 2012 Annual Social Impact Report – SEFA, 2013
<SEFA sefa.com.au/resources/reports-and-documents>
33
Social Ventures Australia, SVA Social Impact Fund report: Investor report as at 31 December 2012, 2013
<SVA www.socialventures.com.au/social-finance/about-the-sva-social-impact-fund/investors/investor-reporting>
44
Case Study: Multiple impacts created with SEFA’s investment in Three Sista’s
The Three Sista’s investment provides a good example of how social enterprises can leverage
partnerships to achieve a number of different social impacts in their communities.
Three Sista’s is a privately owned company with a social mission to provide transitional
accommodation for Indigenous people experiencing homelessness and displacement in the Cairns
area. SEFA made a $450,000 loan to Three Sista’s that has enabled it to purchase a number of units
and the management rights of a former tourist accommodation facility in Cairns. Three Sista’s has
since refurbished the 68-unit facility and is now providing its services to the Cairns community.
While Three Sista’s is in its early stages of operation, its services are already in high demand, with
up to 90 per cent occupancy, including up to 75 per cent Aboriginal and Torres Strait Islander
families. The organisation connects its clients to a range of government and non-government
services to help address issues associated with disadvantage.
Three Sista’s is also providing employment and training opportunities. They have employed four
Indigenous workers through Job Services Australia and have partnered with a range of local nonprofit organisations to progress the redevelopment of the property.
Three Sista’s revenue model includes rent from the units, consultancy services and its charity, the
Three Sista’s foundation. This loan has provided Three Sista’s with a more stable financial footing
to build the activities of the enterprise. Having used the loan to secure premises, Three Sista’s has
been able to think more strategically about growing its business and building stronger commercial
opportunities in the community which will help it deliver even greater social impact.
“Our relationship with SEFA extends well beyond our commercial connection. SEFA gives
Three Sista’s access to a range of organisations and services we could not find on our own for example to the University of Sydney Business School’s Research Group which is helping us
measure the social impact of our work."
Three Sista’s
45
4.8 The Year Ahead
Matching loans to demand
The first year of loans has demonstrated product variety from large mortgage secured loans to smaller
unsecured business development loans and an equity-like investment. While fund managers have
indicated a preference for larger loans to build the track record and sustainability of the funds, they are
also sensitive to the different needs of social enterprises through access to smaller business
development loans. The fund managers will continue to match investment products with demand from
the market.
Continued product development
Over the coming year, the fund managers will continue to provide tailored finance to social enterprises
and look for opportunities for innovation. SVA has made its first equity-like investment, and SEFA and
Foresters will further develop the incubation component of their funds. In time, as these products are
tested, modified and proven, the demonstration of a track record will contribute to the development of
market infrastructure with reliable industry standards and benchmarks.
46
5. Funds Management
5.1 Funds Management
The department and the fund managers have adopted innovative and flexible approaches to managing
SEDIF in order to best achieve its market development objective. The Australian Government has taken
an enabling role by providing $20 million in capital to prompt market activity and maintaining an ‘arm’s
length’ stance in managing the funds. The key feature of this approach is a focus on SEDIF objectives
without requiring a set model for how to reach those objectives. This has allowed each fund manager to
establish a unique fund and flexibly manage it according to the needs of the impact investment market.
Managing risk through the outcomes-based funding agreements
Through the SEDIF selection process, the department developed tailored outcome-focused funding
agreements with the fund managers that were not overly prescriptive and allowed them to effectively
implement their unique proposals and to modify them over time. Importantly, this flexibility was
matched with appropriate accountability through the inclusion of clauses linking the fund managers’
decisions to SEDIF objectives.
This has proven to be a successful model that has enabled significant improvements to be made to the
management of the funds based on the fund managers’ early experience. In addition, the fund
managers have tested their understanding of SEDIF objectives with the department in specific detail to
inform some investment decisions. These examples demonstrate how the combination of flexibility and
accountability is enabling the fund managers to respond to the emerging needs of the impact
investment market and contribute to SEDIF objectives.
As a contractual matter, the fund managers are obligated to act in the best interests of advancing SEDIF
objectives, and are held accountable for this through delivery of their business plans. This is particularly
important in mitigating the necessary uncertainty of business planning, which has required adjustments
as the funds have become operational in the market. These plans were developed in consultation with
the department to give practical effect to their original proposals in applying for SEDIF funding.
During the period of this report, the fund managers have progressed through three phases. Initially, the
fund managers were required to establish the funds. This required different levels of activity depending
on each organisation (for example, as a new business, SEFA was required to undertake the additional
work of securing premises, establishing websites and formalising recruitment).
Following the establishment phase, the fund managers progressed through their early operational phase
where many of the business processes were refined and improved, and are currently in a ‘business as
usual’ phase where business processes have largely been settled and the fund managers are fully
operational. Given the developmental nature of the earlier phases, the department met with the fund
managers on a more frequent basis.
Reporting
SEDIF reporting requirements are one of the department’s key accountability mechanisms, with the
fund managers reporting on a quarterly basis. Consistent with the approach taken to the funding
agreement, the department has not restricted the fund managers to reporting to a set form or
template. Rather, it identified the essential information that it needs to monitor the funds’ progress and
identify areas of risk. The department also worked with the fund managers to develop a set of minimum
data indicators to achieve greater consistency of data across the funds. Consistent data is important for
building an understanding of the impact investment market, illustrating market activity and identifying
potential barriers and opportunities to market development.
47
The department will further streamline the reporting arrangements as the funds mature. Previously,
face-to-face meetings were held each quarter to discuss at length the early implementation issues and
experiences of the market. Now that the funds are established and operational, and in the interests of
streamlining the use of resources, the department and the fund managers will meet less frequently,
unless otherwise required. This is in line with the decreasing level of risk to the program as the funds
complete the establishment period and become fully operational.
Collaboration through the Fund Managers Working Group
The department and the fund managers have also jointly collaborated through the Fund Managers
Working Group. This option for the fund managers to meet collectively with the department was
identified as an opportunity to discuss issues that were relevant to all fund managers. Currently held on
a semi-annual basis, the working group meetings have served as a forum to share information and
different perspectives on the market. To date the meetings have focused on reporting, investment
readiness issues and impact measurement. They have helped reach a consensus in developing the
minimum data indicators and identify areas where fund managers can work collaboratively. In
particular, Foresters’ and SEFA’s joint workshop on capacity building stemmed from the discussion at
one of these meetings. The department will continue to facilitate these meetings where there is value to
both the Australian Government and the fund managers.
48
6. Lessons from the Market
6.1 At a Glance





Catalytic funding has been a powerful tool in stimulating investment and activity in the impact
investment field. It has mobilised investors on the supply side and social enterprises on the demand
side. The nature of the funding strategically moderated the risk that might otherwise limit the
development of a new market.
There is willingness to act from both the supply and demand sides of the market. However, the fund
managers have identified a number of challenges. The most significant is the low level of investment
readiness in the Australia social enterprise sector, and the need to target those social enterprises
that are appropriate for growth and development financing.
Overcoming the challenges facing the supply and demand side of the impact investment market will
take time. However, the fund managers are already making inroads to market development with the
initial capital supply, market engagement and development of market infrastructure.
SEDIF has stimulated the development of at least one other fund to help build the investment
readiness of Indigenous social enterprises through Indigenous Business Australia. Other governments
also recognise the need for action and are contributing to the development of the investment
pipeline in Western Australia, New South Wales and Victoria. Other secondary effects on the market
include the development of new networks and relationships across government and social sectors.
Overall, the experience with SEDIF so far indicates that there is much in common between
governments’ actions for catalytic effect in impact investment and other areas of innovation and
industry policy. The department’s experience of implementing SEDIF can inform future government
action in impact investment or other markets.
6.2 Supply
The initial private investment in SEDIF demonstrates a broad and varied interest from a range of
investors in the market who see the value in achieving both a social and financial return. Further, the
range of different types of investors indicates the broad appeal of the impact investment model,
including for institutional investors. This experience is consistent with international trends and although
it is still early days for SEDIF, it points to an investor interest that is worth investigating further in order
to grow the impact investment market in Australia.
The Christian Super investment in Foresters’ fund shows that innovative deals can be structured to meet
the fiduciary obligations of superannuation funds. This is an important signal to the market as making
impact investment opportunities more accessible to institutional investors will be integral to its
long-term development.
“Sharing the risk with governments, as we did with the SEDIF program, improves the risk-adjusted
return and allows us to make meaningful investments that make a real difference in the
community. In our view, the shared risk and reward model is a key component of any investable
structure that seeks to improve both the financial and the social return of the investment.”
Peter Murphy, Chief Executive Officer, Christian Super
The interest that the fund managers have received through their investor outreach programs is
promising for further growth of the funds. However, the fund managers have also identified a number
of challenges that will need to be addressed before SEDIF and other impact investment initiatives are
able to scale significantly. The most significant is the development of a track record of approved
investments, which is now under way.
49
6.3 Demand
The demand-side response to SEDIF has shown that there is a vibrant social enterprise sector looking for
opportunities to grow and scale. This interest is coming from a diverse range of social enterprises that
differ widely in terms of impact focus, industry, operating model, size, location and capacity.
The fund managers have found that the sector also differs in terms of its understanding of impact
investment and the opportunities it presents. At one end of the spectrum, social enterprises can be
heavily grant-dependent and less motivated to take on finance. At the other end, social entrepreneurs
are seeking finance to scale well-developed businesses and achieve social impact. However, even at this
stage they still face challenges in accessing finance and many have failed to do so through traditional
financial institutions. This highlights a gap in the market and reinforces the SEDIF objective of improving
access to capital for social enterprises.
The generally low level of investment readiness across the social enterprise sector presents a
considerable barrier to the growth of the SEDIF funds and broader impact investment market. There is a
clear need for greater capacity building services to overcome this barrier. The SEDIF fund managers and
other providers in the market offer some of these services, but currently the demand for these services
exceeds supply.
An important element of understanding the demand for access to finance is understanding the life cycle
of a social enterprise. While SEDIF was pitched at growth and development financing, some of the early
expression of demand was from social enterprises seeking early-stage seed or grant capital. Given this
context, and noting the specific focus of the SEDIF initiative, there is a broader potential for other
initiatives to respond to different expressions of demand for access to finance. While existing capacity
building programs delivered through social enterprise intermediaries have attempted to do this, the
SEDIF experience suggests that there is still significant room for further attention to this financing need.
Initiatives from the sector such as The Crunch (Social Traders) and recent initiatives by the Western
Australian, New South Wales and Victorian State Governments and Indigenous Business Australia shed
more light on this opportunity.
6.4 Intermediation
The SEDIF fund managers are playing a vital role in bringing together the supply of impact investment
capital with the demand from social enterprises to access that capital. In the emerging field of impact
investment, the SEDIF fund managers are an important demonstration of the role that intermediaries
can play in building the market.
This demonstrates the opportunities to link the supply and demand side of this developing market
through:
 building a pipeline of investment ready investee organisations on the demand side;
 increasing awareness and information of investment opportunities on the supply side;
 bridging gaps between the needs of investee organisations on the demand side and available finance
and financial products on the supply side; and
 brokering deals that demonstrate an appropriate balance of social and financial return and meet the
needs of both investee organisations and investors.
50
6.5 Market Development Takes Time
Overcoming the challenges facing the supply and demand side of the impact investment market will
take time. The fund managers have a complex role where they must deal with a large degree of
uncertainty, respond to market conditions and evolve their approach to lead this emerging practice.
However, the fund managers are already making inroads to market development with the initial capital
supply, market engagement and development of market infrastructure. The Australian Government also
recognises that the SEDIF fund managers cannot develop the market alone and that, as a demonstration
project, they make a contribution to the development of the broader market.
6.6 Direct Market Impacts
The SEDIF fund managers are working to catalyse the impact investment market on a number of fronts.
The initial step of securing private investors and facilitating a supply of over $40 million in capital to the
market has established investment opportunities that did not previously exist.
Engagement with both the supply and demand side is helping to educate the market, raise awareness
and create investment opportunities. In particular, the fund managers are improving the investment
readiness of the sector through their capacity building approaches. The investments to date are
contributing to this, providing tangible case studies that demonstrate the potential for impact
investment across a range of social impact areas.
The fund managers are contributing to the development of crucial market infrastructure to facilitate the
flow of capital and generate social impact. This includes developing impact measurement frameworks,
innovative financial products and networks between investors, social enterprises, intermediaries and
governments.
The fund managers’ experience of the impact investment market to date has been one of growth. This
includes growth in interest, awareness, activity and involvement from a diverse range of stakeholders.
The fund managers will continue to build on this progress with more investments and by raising more
capital in 2013.
6.7 Secondary Effects
SEDIF has also produced a number of secondary effects on the broader impact investment market.
Some of these have been highlighted by the Senate Economics Referees Committee and in the reports
such as Dr Burkett’s research. The signalling from the Australian Government as well as direct
investment galvanised parties in the market in dialogue and action. The following concrete examples
show how SEDIF has contributed to the development of new networks and relationships across
government and social sectors.
 The Victorian Office for the Community Sector is working closely with Foresters and SEFA to develop
connections with the Victorian social enterprise sector. The office is also hosting SEFA’s Melbournebased employee in its office and commissioning investment readiness tools from Foresters which will
be available on the office website. These secondary effects are likely to build the investment
readiness of social enterprises in Victoria. Similarly, Foresters is undertaking some community assetbuilding work for the New South Wales State Government.
 Two unsuccessful applicants from the first SEDIF fund manager selection process have formed a
partnership and are working on their own social investment initiative, and another applicant has
submitted a proposal as a social enterprise to one of the fund managers This demonstrates the
collaborative effect of SEDIF and the way in which it has brought together organisations and
individuals with a common interest in impact investment.
51
 As discussed in Section 3.10, Indigenous Business Australia’s tender for the Indigenous Social
Enterprise Capital Fund provides an important opportunity to link the capacity building needs of
Indigenous social enterprises with their capacity to take on SEDIF finance. This fund has been
specifically designed to build the pipeline of investment ready Indigenous social enterprises to
leverage SEDIF funds.
Growing recognition of SEDIF’s innovative approach will help to draw attention to impact investment as
a means for governments to work with private and corporate investors to achieve social impact through
the development of the impact investment field.
6.8 Future Initiatives
Overall, the experience with SEDIF indicates that there is much in common between governments’
actions for catalytic effect in impact investment and other areas of innovation and industry policy. The
department’s experience of implementing SEDIF can inform further governments’ actions in impact
investment or other markets. Some of the potential areas for action and policy considerations are
outlined below.
Potential areas for action
There are still gaps in the development of the impact investment market. SEDIF cannot be all things and
was not designed to be. The experience so far highlights areas for the fund managers to do more work
in targeting and developing the pipeline for both loans to social enterprises and investment into their
funds. The SEDIF experience provides evidence from the Australian context that echoes the
international experience and literature, and which suggests scope for a range of additional policy
initiatives. A range of measures that could be commended was outlined in the report of the Senate
Economics References Committee.34 These include:




initiatives to support enterprise development and stimulate the demand pipeline;
initiatives to ensure that the regulatory and policy environment do not unduly discourage supply of
capital for impact investment;
further support for development of intermediation to bring together supply and demand on
appropriate terms; and
support for developing the information flows that would reduce barriers to entry and overcome
asymmetries of information affecting development of the field.
Support for social enterprise development is a particular area where governments can draw on the
experience of the fund managers. For example, early indications are that the social enterprise sector has
a significant need for additional capacity building support. Further initiatives to support a capacity
building service for the sector could be informed by data from the SEDIF experience and a survey of
applicants, particularly those who were unsuccessful due to capacity constraints. This would help to
target the service to the specific needs of social enterprises.
34
Senate Economics References Committee, Investing for good: The development of a capital market for the notfor-profit sector in Australia, Committee Hansard, 2011, pp.xxiv-xxvii <Parlinfo parlinfo.aph.gov.au>
52
The experience also suggests that other objectives could be achieved through targeted policy initiatives.



The SEDIF experience points to scope for additional catalytic investment to further stimulate impact
investment toward critical mass.
It also points to a case for supporting broader enterprise development (that is, beyond social
enterprise) based on the international track record in community investment and research already
undertaken for such an approach in the Australian context35.
Further, the experience of this initiative indicates an opportunity for governments to use targeted
policy initiatives to direct capital to particular areas of policy need or priority.
SEDIF as a field building innovation
The provision of catalytic funding has been a powerful tool in stimulating investment and activity in the
impact investment field, has mobilised investors on the supply side and social enterprises on the
demand side, and has strategically moderated the risk that might otherwise limit the development of a
new market. In doing so, it has created activity in a range of areas targeted specifically at social
enterprises to create momentum for impact investment and to demonstrate a track record that helps
build the value proposition for impact investment.
The SEDIF has demonstrated a role for governments
The department has demonstrated the capacity to attract and direct capital from non-government
sources to achieve public value through impact investment. A relatively modest investment created
momentum and credibility for governments in mobilising the market. This attracted new partners (in
new combinations) and directed capital to issues that are important from a policy perspective and as a
society. This demonstrates the potential of targeting policy issues where there is an opportunity for
private investment, or where there is already government investment but demand and market dynamics
suggest that there is potential to attract additional non-government capital or better target government
capital. Important to this role is the opportunity for governments to moderate the risk for other
investors, where there is public value in doing so.
Overall, the experience with SEDIF so far indicates that there is much in common between governments’
action for catalytic effect in impact investment and other areas of innovation and industry policy. That
is, policies executed for catalytic effect can facilitate development of the ecosystem and carefully
targeted investment on appropriate terms can stimulate the market.
Investment funds such as SEDIF take time to design and negotiate
Given the time taken to establish the funds, they are unlikely to be suitable where there is a pressing
social need requiring immediate response or funding shortfall. A commitment to co-design,
collaboration and realistic timeframes are critical to the successful development and implementation of
an impact investment fund. The review of SEDIF’s implementation referred to in
Section 1.5 reflects more on this process.
35
I Burkett, Place-Based Impact Investment in Australia: A Literature Review Exploring Opportunities for PlaceBased Impact Investment in Australia, Australian Government Department of Employment, NAB Australia, Mission
Australia and JBWere, 2012; and I Burkett, Place-Based Impact Investment in Australia: Building Blocks for Action,
Australian Government Department of Employment, NAB Australia, Mission Australia and JBWere, 2012
<Department of Employment http://employment.gov.au/social-innovation>
53
The terms of the Australian Government grants provided a stimulus to private investment that was
otherwise unlikely to have occurred
This should not be seen as a long-term dependency, but as making a good case that more carefully
targeted investment on appropriate terms could further stimulate the market. Consideration could be
given to other policy priorities and outcome areas that could help achieve impact through a critical mass
of targeted finance (for example, focusing on a place-based approach to underserved communities,
extending to small businesses or focusing on particular sectors such as early childhood development or
other social infrastructure).
With the appropriate conditions, a range of investors can and will participate
With a modest investment, SEDIF has attracted the full spectrum of investors including individuals,
philanthropic trusts, international leaders entering the Australian market, not-for-profit organisations,
banks and a superannuation fund.
International experience has important lessons for local initiatives
The testing of the market with the SEDIF initiative has revealed a high degree of correlation between the
Australian circumstance and experience and international developments on both the supply and
demand side. This reinforces the notion that Australia can learn from international initiatives and ideas
and also adapt for the Australian context.
54
7. Conclusion
With the launch of three funds, SEDIF has met its principle objective to establish two or more
investment funds that generate social, cultural or environmental impact in addition to a financial return.
This catalytic funding has been a powerful tool in stimulating investment and activity in the impact
investment field, has mobilised investors on the supply side and social enterprises on the demand side,
and has strategically moderated the risk that might otherwise limit the development of a new market.
The fund managers bridge supply and demand in the market. As the number of specialist intermediaries
for social enterprise and impact investment remains relatively small in Australia, these fund managers
have significantly contributed to the landscape. They have achieved significant reach, set up at a level of
quality that is being recognised internationally, and made $4.69 million in investments in social
enterprises. The early indications are promising for further growth of the SEDIF funds. However, the
fund managers also face challenges that come from being new businesses in an emerging field.
The challenges of an emerging market have a considerable influence on the funds’ operating
environment. While there is strong appetite from both the supply and demand sides, there are barriers
to the ready flow of capital to social enterprises. Most significantly, Australian social enterprises
experience similar challenges to other small and medium-sized enterprises in that they often require
work to develop their operating and revenue models and cash flow before they are ready to take on a
debt commitment. These challenges are not unique to SEDIF and reflect the experience in the United
Kingdom, North America and Europe over the last decade. Advances in the field in recent years,
including the performance of the funds themselves, give reason for optimism for the continued
development of the funds and the impact investment market.
With the establishment phase complete, the SEDIF fund managers have now set up the key business
processes and refined their approach to market development based on their early experience. Over the
coming period, they will build on that approach to develop the market and address some of the
challenges they have identified. Looking ahead, the following areas will be a strong focus:
 More investments - disbursing more of the fund capital and converting more of the applications in
the pipeline into investments
 Pipeline development and capacity building – building a stronger investment pipeline through
continued engagement with the social enterprise sector, reaching more ‘growth stage’ social
enterprises, capacity building activities to feed into the investment pipeline and develop the demand
side of the market
 Impact measurement – using their impact measurement frameworks to capture the impacts of the
funds to ensure the funds are meeting their objectives. The 2013 impact reports will provide the first
substantive measure of the impacts of the funds
 Attracting new capital – looking for new investors will become an increasing focus for the fund
managers as they are now starting to demonstrate a track record with their first investments
 Ongoing innovation – continuing to respond to the challenges and opportunities of the emerging
impact investment market with innovative solutions and approaches.
Future reports will review the funds’ progress in these areas. They will continue to view SEDIF in the
context of the emerging impact investment market and the experience of other leaders in the field,
locally and internationally.
“Let’s wait for the next one or two years and then look at it again, but I’m quite confident and
quite enthusiastic about what has been done so far.”
Peter Blom, CEO Triodos Bank
55
8. Appendices
56
Appendix A: Program Logic
57
Appendix B: SEDIF Development and Selection Process Overview
58
Appendix C: Foresters Fund Structure
59
Appendix D: SEFA Fund Structure
60
Appendix E: SVA Fund Structure
61
Appendix F: Investment Register
Name
Location
Impact
Industry
Organisation Description
Eating
Disorders
Victoria
(EDV)
Melbourne
VIC
Health &
Mental Health
Health
An eating disorder support
and advocacy group which
provides a variety of services.
Universal
Village Pty
Ltd
Melbourne
Fair Trade
Fair Trade
Small retail/wholesale
business distributing fair trade
foods and beverages and
increasing awareness of fair
trade goods.
Indigenous
Consumer
Assistance
Network
Cairns
Indigenous
Financial
Services
Organisation seeking to
improve the outcomes for
Indigenous consumers with
services and advocacy.
Artery
Co-operative
Melbourne
Arts & Culture
Culture &
Recreation
Housing,
Homelessness,
Indigenous, &
Health
Housing
Amount
Investment Purpose
Intended Investment Impact
$75,000
Launching a fee for service
counselling program that
will generate income for the
organisation.
An additional 840 sessions of
early intervention and
ongoing support for people
with eating disorders.
$35,000
Financing the point of sale
promotion of fair trade Qi
Tea in Woolworths, and
promotional activity to
increase awareness.
Increased awareness and
consumption of fair trade
goods in Australia and the
employment of more
Australians.
$630,000
Property and operating
capital to establish a social
enterprise designed to assist
Indigenous consumers.
Financial services and
microfinance for indigenous
individuals in the Far North
Queensland region.
Artist/member-run initiative
providing appropriate studio
space to professional artists in
city fringe Melbourne. Artery
seeks to foster a vibrant
artistic community through its
establishment.
$732,515
Purchase of studio space,
and operating capital to
continue provision of
services.
Stronger organisation
financially and reduced risk of
exposure to fluctuating rental
markets, enabling more
sustainable provision of space
for the creation of art.
Three Sista’s provides crisis
accommodation to people in
Cairns.
$450,000
Capital to purchase some
units and lease the
remainder of an underutilised tourist resort which
it uses to deliver its services.
Capital to refurbish the
facility.
Stronger organisation
financially, establishment of
program to deliver housing,
homelessness, and health
services. Training and
employment opportunities
are also being created.
Foresters
VIC
QLD
VIC
SEFA
Three Sista's
Cairns
QLD
62
Name
Location
Impact
Industry
Organisation Description
Kuranda
Education
Education
& Training
Independent school in a
disadvantaged area with 182
students.
Amount
Investment Purpose
Intended Investment Impact
Candlenut Steiner School
will use the loan facilities to
build extra classrooms and a
science lab.
Accommodation of more
students and greater
education opportunities;
reduced waiting list for early
childhood education, opening
of Class 10 to the community.
SEFA
Candlenut
Steiner
School
QLD
$500,000
(loan)
+
$100,000
(standby
facility)
Myrtle Park
Retirement
Homes
Yolla
TAS
Affordable
Housing &
Aged Care
Housing &
Property
Mgmt
Myrtle Park offers
independent living units for
older Australians, providing
opportunities to ‘age in place’.
$500,000
Construction of six new
environmentally friendly
two-bedroom units for older
Australians.
Expansion of services, in an
area of high disadvantage,
allowing more people to ‘age
in place’.
$450,000
The loan will to help NYCH
establish a new private
general medical practice.
Profits from this practice
fund NYCH’s community
health centres.
To provide a source of
funding for the free or lowcost health services that
NYCH provide.
PGM will expand its
operations in Dandenong
and to establish a new site
in NSW.
Employment of 10-15
additional disadvantaged job
seekers.
Working capital allowing
Ability Enterprises to pay
staff and meet training
requirements to fulfil a
contract with Toowoomba
Regional Council
Job creating for people with
disability (minimum of 20,
expected 60).
SVA
North Yarra
Community
Health
(NYCH)
Melbourne
VIC
Community
Health
Health
NYCH provides a wide range of
medical, allied health, social
work and community
development services over
three community health
centres.
PGM
Refiners
Melbourne
Employment
and
Environment
Waste
Disposal &
Recycling
E-waste recycling enterprise,
with a strong focus on longterm employment. Over 70%
of its production-line staff are
disadvantaged job seekers.
$1,000,000
Social Procurement
organisation that aims to win
contracts to provide job
opportunities to people with
disabilities.
$163,000
Ability
Enterprises
VIC
Toowoomba
QLD
Employment &
Disabilities
Waste
Disposal
10 jobs had been created at
31 December 2012.
32 jobs had been created at
31 December 2012.