How social ventures grow: understanding the role of philanthropic grants in scaling social enterprise.

As part of my PhD, I am immensely privileged to have the time and space to read so much insightful research. As a social entrepreneur, I never had 5 minutes to read anything and so I’ve decided to try, when I can, to summarise key points of research I find particularly interesting that might be helpful to social enterprises.

The article I’m reflecting on today is called: How social ventures grow: understanding the role of philanthropic grants in scaling social enterprise. (Lall and Park 2022)

This research was particularly of interest because, in Ireland, so much investment in scaling social enterprises comes in the form of philanthropy. [Sidenote: What is the difference between philanthropy and donations? In my understanding, philanthropy is considered more planned, strategic giving]

This research by Lall and Park aims to investigate the important role philanthropic grant funding plays in social ventures' organisational and financial development.

Their research was based on 3,401 nascent social ventures from 77 different social accelerators around the world. [Acclerators were selected from Gali Data, which includes Irish accelerators by NDRC and Invest Northern Ireland]. In summary, they found mixed results - philanthropic grant funding positively impacted employment and subsequent access to debt finance but had no effect on revenue or access to equity. Following their findings, Lall and Park suggest that philanthropic grant funding gives social ventures the flexibility to invest in human capital without pushing them to pursue short-term financial objectives and that receiving a philanthropic grant provides a signal interpreted differently by debt and equity financiers. [Providers of debt are ok with it; providers of equity, less so].

Comparing this research with another interesting piece of research De Beule, Bruneel and Dobson, 2023 - “The internationalization of social enterprises: The impact of business model characteristics” which was conducted with 175 social enterprises in India, this research found that social enterprises that depend heavily on subidiaries, grants and donations are less likely internationalize than those who generate trading income.

What does all this mean? To me, it largely reinforces what I always felt as a social enterprise practictioner, relying heavily on grants to scale a social enterprise is difficult, increasing traded income puts you on more solid footing, however to get to the place that traded income can be increased, perhaps philanthropic funding will help invest in resources and build up a more viable business model. Not exactly a rocket science revelation, I’m sure you agree, but perhaps helps to re-focus where efforts should be and at what time if scaling is on your horizon.

References:

De Beule, F., Bruneel, J., & Dobson, K. (2023). The internationalization of social enterprises: The impact of business model characteristics. International Business Review, 102188. https://doi.org/10.1016/j.ibusrev.2023.102188

Lall, S. A., & Park, J. (2022). How Social Ventures Grow: Understanding the Role of Philanthropic Grants in Scaling Social Entrepreneurship. Business & Society, 61(1), 3–44. https://doi.org/10.1177/0007650320973434