Hybrids – a new revenue vehicle for the Community Sector

A major challenge facing community sector organizations is access to money – i.e. to financial capital.  Capital to invest in staff, in new technologies, in infrastructure and perhaps most critical, to invest in creative solutions to stubborn social and environmental challenges.  The sector has laboured and stumbled over the past few decades as government funding for operations has been reduced or eliminated.  It has become more reliant on year to year grant funding – which is just enough to get by on; but not enough to get out in front of, let alone to deal with the root causes. 

This doesn't enable anyone – even someone with the best idea in the world, to work out the kinks, to prototype their idea and to subsequently scale it up.  At the same time as traditional non profit funding is being reduced in Canada, there are not yet the enabling legal structures to permit community and social enterprises to easily attract other sources of capital (debt and equity).

Other countries have put in place legal structures  to enable entrepreneurial, social innovators to access investment capital.  The UK has Community Interest Companies (CIC's).  The US has Low Profit Limited Liability Companies (L3C's).  While far from perfect they offer a new type of governance structure that makes it possible to take on investors/share holders – something non profit charities in Canada cannot do. L3C's also make it easier for Foundations to invest their capital assets not just their income to achieve social objectives. These emerging governance structures are often called hybrids, combining aspects of business financing with the achievement of social and environmental objectives.  To put it another way they enable the community sector to alternate or lever grant financing as well as debt and equity financing.  Just like a hybrid car alternates between fossil fuel and battery power.

I like the psychological signal these emerging hybrid governance structures send to non profit Boards of Directors and Executive Directors as much as their potential to attract new sources of capital.  They send a message, it is no longer 'business as usual'.  That the restrictions are off.  That we can be innovative in how we finance our social mission.  That we can turn our attention back to the causes of the social and environmental challenges we are addressing. 

A number of groups and organizations are leading the development of a 'social finance' infrastructure in Canada.  Vancity Credit Union is at the front (as always); Social Venture Partners, Social Capital Partners, Enterprising Non Profits; Social Innovation Generation (SiG), Causeway and the BC Centre for Social Enterprise are others. 

The BC Centre's contribution has included a series of papers on governance structures.  The most recent, More Reflections on Legal Structures for Community Enterprises has just been published. 

Written once again by Richard Bridge it explores in detail the UK Community Interest Community (CIC) structure; as well as governance options that already exist in Canada.  Richard is one of the finest legal resources, non profits, charities and social enterprises in Canada have.  He has a brilliant legal mind; a passionate heart; a solid understanding of the community sector; and is one of the clearest writers I know.  If you are interested in how some of our leading thinkers are exploring new structures to respond to existing and new challenges, have a look at the whole series. Click here.

NOTE: Related to this topic the Social Enterprise Council of Canada is conducting a series of webinars entitled: Nonprofits Making Profits: Social Enterprise and Legal Issues in Canada.  The first is May 10th conducted by lawyers Margaret Mason (Vancouver) and Susan Manwaring (Toronto).  Register by May 7th at: https://seccwebinar1.eventbrite.com

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