Innovative finance models: assessing options for the arts

Social Impact Investment. Image: Ruby Grose

Social Impact Investment. Image: Ruby Grose

Arts organisations are always exploring new ways of raising money to improve their sustainability, diversify their income sources and support new projects.

Sales, sponsorships by corporations, philanthropy and individual donations are well established sources of funds for many arts organisations. More recently, crowdfunding – supported by online platforms like Kickstarter, Pozible, Dreamstarter and the Australian Cultural Fund – and live crowdfunding events such as those presented by The Funding Network have proved to be a useful way of supporting new projects, venue improvements, tours and recordings.

Broadening Income Streams is an action under the NSW Arts and Cultural Policy Framework: Create in NSW.  Ann Hinchliffe, Project Officer, Strategic Initiatives has been exploring recent innovations in loan fund and investment models that may offer new sources of funds for the arts. In the following article she outlines her findings on one of the newer and rapidly growing areas of investment for not-for-profit sector, social impact investment.

What is social impact investment?

‘Social impact investment’ is a relatively new form of financing gaining momentum in the social services sector. This innovative finance aims to generate social and  environmental returns for investors and improve the financial capacity of not-for-profit organisations.

Loans to social enterprises offered through community financial institutions and philanthropists, for example, are customised to suit the organisation’s needs, create a social impact, offer  better terms than commercial investments and can be accompanied by valuable guidance to maximise the success of debtor organisations.

Whilst there are variations between different loan products, in order to be eligible for a loan an organisation should be trading with a community benefit mission; be seeking a loan for asset-building, capital expenditure for property and equipment purchase, or to fund new income generating programs; and be able to demonstrate capacity to repay the loan.

Funding for arts organisations

This rapidly evolving sector is trialling a broad portfolio of investments and expanding with new investors, offerings and influence.

In the UK, an impact investing initiative, the Arts Impact Fund, offers “repayable finance to arts organisations with ambitions to grow, achieve great artistic quality and have a positive impact on society”. This is a collaboration of public, private and charitable partners and supporters: Arts Council England, Bank of America, Merrill Lynch, Nesta and Esmée Fairbairn Foundation, and the Calouste Gulbenkian Foundation.

In Queensland, a pilot scheme, the Arts Business Innovation Fund (ABIF), offers a combined grant/no-interest loan to approved organisations with funds from government and philanthropic sources: Arts Queensland and the Tim Fairfax Family Foundation (TFFF), developed in partnership with Foresters Community Finance; Positive Solutions and QUT Creative Enterprise Australia

A strong business model and ability to commit to repayment terms is key to securing a social impact investment. It’s important to understand if your business is at the right stage for taking on debt as security for the loan can often involve your business or personal assets.

Currently, a small number of NSW arts organisations are seriously exploring their capacity to attract these investment funds. Through this process these arts organisations are increasing their understanding of the requirements of this finance while also educating the investment providers on business models in the arts. Alongside this, Arts NSW has developed relationships with the social impact investment sector, actively advocating for arts organisations to be considered for their investment potential.

Sources and Resources

For arts organisations interested in accessing these funds, Arts NSW has compiled the following overview of organisations and resources in Australia’s growing Social Impact Investment sector:

Social Enterprise Development and Investment Funds (SEDIF)

Established by the Australian Government. SEDIF is a combined $40 million dollar fund offering finance and support to eligible social enterprises helping to grow their business and increase the impact of their work in communities.

  • SEDIF funds are available around Australia.
  • The supply of SEDIF funds are managed by intermediaries: three SEDIF fund managers who generate matching investments from community investors. The fund managers bundle a group of investors into a fund and manage smaller investments for organisations, offering social enterprises finance such as loans, and support.

The three SEDIF fund managers are:

SEFA Crowdmatch 

Combines StartSomeGood’s crowdfunding platform with SEFA’s social impact investment lending solutions. If approved organisations can prove that there’s community support for the enterprise by raising at least AUD $50,000 on StartSomeGood’s platform, they can qualify for a loan of $50,000+ to fuel further growth. To apply, organisations need to describe their progress, financials and plan for growth at SEFA Crowdmatch.

Philanthropy 

Many philanthropists and philanthropic trusts are considering supplementing their existing grant-giving programs with social impact investment. Through social impact investing, philanthropic funds can support the building of assets to improve the sustainability of social enterprises whilst receiving a return on their financial investment. Philanthropic funds which have run pilot programs include the Sidney Myer Fund and Tim Fairfax Family Foundation (TFFF). Peak organisations including Philanthropy Australia and Impact Investing Australia are actively promoting knowledge sharing and advocating for the increase in the level of philanthropic funds offered as social impact investments. In November 2015, Philanthropy Australia recommended the Australian Government introduce measures that specifically promote philanthropic investments. Download this report for more information.

Improving investment readiness 

For arts organisations to successfully access these funds, they may need to build their investment readiness capacity. Programs and initiatives aimed at improving investment readiness and building capacity in social enterprises include:

  • Social Traders The Crunch: a skills development program for start-up and growth enterprises providing business skills and access to social enterprise, investor and business networks. The program covers business feasibility, business model validation, business plan, investor access and investment pitching. The Crunch was offered in Sydney in 2015 for the first time with 12 participants including Studio A, First Hand Solutions/Blak Markets and The Social Outfit.
  • Westpac Foundation has been supporting social enterprise for over 10 years by investing in early ventures and supporting programs such The Crunch and those run by the School for Social Entrepreneurs Australia (SSE). The Westpac Foundation also works with organisations to develop their business models creating strong sustainable organisations that can cover their operating costs from trading. This can take between 5-10 years to achieve.
  • National Australia Bank (NAB) Investment Readiness Fund awards grants that provide investment readiness advice and services such as finding finance, structuring deals, business modelling and strategy.
  • NSW Office of Social Impact Investment (OSII): the NSW Government’s Social Impact Investment Policy aims to grow a social impact investment market in NSW. OSII’s Knowledge Hub includes a section specifically for non-profits and social enterprises on how to attract investment and case studies

Arts organisations are eligible to apply for OSII’s Expert Advice Exchange that provide advice to applicants across all social sectors in areas such as business case development, cost-benefit analysis, forecasting and financing strategies

  • SEDIF Fund Managers (see above) respond to organisations enquiring about their eligibility for social impact investments by providing tailored advice and capacity building. For an example, see the SEFA Toolkit.

Further reading

You can learn more about social impact investing in:

What is next?

Social Impact Investing is evolving, assessing pilot investments, expanding with new investors, developing new product offerings and increasingly focussed on measuring impact. Whilst it is at a pioneering stage, it has the potential to offer new investment streams for arts organisations.

By keeping informed of these developments, continuing to build relationships with the social impact investment sector, Arts NSW is seeking to encourage and support arts organisations’ access to these funds.

Organisations wishing to understand more about this area can contact Ann Hinchliffe at Arts NSW: ann.hinchliffe@arts.nsw.gov.au

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Published: 18 February 2016