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Main Takeaways: Webinar on Digital Financing Strategies For Social Entrepreneurship in Germany

by Sanja Lazic on 02.09.2021

Social entrepreneurs are committed to solving social and environmental challenges. They are key to developing social economies across Europe and have long been valued as key drivers in social innovation. What makes them special is that they define success primarily by their social impact, and second only by their financial sustainability. Alternative financing instruments such as crowdfunding are complimentary to incumbent financial services, but they also give social enterprises a higher public profile and facilitate wider outreach. On September 7, EUROCROWD focused on the case of Germany, bringing for a fruitful discussion with some of the crucial actors in this field in Germany. The webinar welcomed Markus Sauerhammer, Chairman of the Board Social Entrepreneurship Netzwerk Deutschland (SEND), Christin Friedrich, CEO Innovestment and Chair of the Board EUROCROWD, Tino Kreßner, Co-Founder Startnext, Gerlinde Schmidt, Project Manager Euclid Network (EN) and Oliver Gajda, Executive Director EUROCROWD.

Christin Friedrich, CEO of Innovestment and Non-Executive Chair of EUROCROWD opened the webinar and stressed importance crowdfunding has achieved across Europe over the past and the opportunities that crowdfunding can have for social economies. The link between crowdfunding and other alternative funding options, such as venture philanthropy, government funds and support programmes seem to be already playing out across Europe and carry significant potential for the future development of the sector.

The link between social entrepreneurship and crowdfunding was highlighted by Markus Sauerhammer of Social Entrepreneurship Netzwerk Deutschland (SEND), who recalled his first social business start-up and how they financed themselves via their early customers. The digitalisation opens new opportunities to fund innovation, crowdfunding is one of these. Sauerhammer highlighted the need to create financial options for social innovation which serves the needs of businesses that seek social impact first. The need for this discussion was especially important prior to the elections in Germany. He showcased how crowdfunding has already server extremely well in supporting social entrepreneurs, but there are clear steps that the government could undertake to further help create incentives for funding social innovation. These include specific tax incentives for social enterprises and a clear differentiation to for profit businesses.

That crowdfunding has long achieved acceptance in the market, was outlined by Oliver Gajda of EUROCROWD. He referenced the recent European law (European Crowdfunding Service Provider Regulation) where the European legislators stress that crowdfunding is more than just funding, but can offer other benefits, including validation of a business ideas, insights and information on markets and customers or marketing. He continued, that with this in mind, there should be not reason to continuously discuss the validity of the tool, but start to exploit its benefits for society and economy.

Quoting a recent study by the European Venture Philanthropy Association (EVPA), Gajda outlined how crowdfunding was already covering a large part of what traditional venture philanthropy funds would invest in, from non-repayable grants to equity investments in later stage social ventures. EVPA suggests that crowdfunding is already now a relevant tool to mix and match philanthropic funding. Gajda went on to also highlight that the European Business Angel Network (EBAN) in a 2020 report writes that business angels focused on impact investing in social enterprises, do this in angel networks as well as on crowdfunding platforms. Again, the acceptance of crowdfunding in other alternative finance sectors is notable.

Finally, Gajda outlined with the use of a recent EUROCROWD study that indeed, government organisations across Europe are already using the opportunities of crowdfunding through match funding activities in order to support social entrepreneurs or support financially excluded parts of the economy.

Gerlinde Schmidt of Euclid Network highlighted the impact of social entrepreneurs across Europe and the need to provide clearer financial support for change makers. She highlighted the lack of data of social entrepreneurship in Europe and introduced the European Social Entrepreneurship Monitor, created by Euclid with its partner organisations, such as SEND. The monitor showcases how social business creates jobs, inclusion and innovative solutions across Europe. It also showcases that the biggest hurdle for social entrepreneurship to success are lack of capital to start, especially patient private capital or adequate, simple and accessible public funding programmes.

The organisation has worked with others to create a Funding Toolkit for social entrepreneurs, providing guidelines and help when setting up. She referred to relevant policy discussions in Europe that have the opportunity to shape a more social Europe in the next few years, such as the European Industrial Strategy, social taxonomy or the action plan for social economy. But Schmidt stressed that the success of social entrepreneurship requires the involvement of private capital. Crowdfunding offering citizens direct access to investing or funding social innovation and needs the support in form of relevant political support on both European and national level.

Picking up from this, Tino Kreßner, co-founder of Startnext, the German reward-based crowdfunding platform, outlined how social entrepreneurs have become a significant group of fundraisers on their platform. He highlighted how crowdfunding had been a significant contributor to social enterprises in general, but how it also showed in crisis situations, such as Covid or the recent flooding’s in parts of Europe, how crowdfunding can rapidly be used to create targeted and sustainable support on top of quick disaster relief. He stressed that crowdfunding was far more than just collecting money, outlining benefits for businesses such as market testing, consumer feedback, proof of concept and support in pricing strategies by assessing the willingness to pay at various prices.

But despite their focus on social impact within their society, rather than profit maximation, social entrepreneurs do not have access to specific funding or support programmes from the government. More, funding received through reward-based crowdfunding would be taxed at the same rate than income from consumption related business on online market places. Kreßner asked that policy makers create clear help for social entrepreneurs, especially adding crowdfunding to existing support programmes and reductions of value added tax for social enterprises when they test their services through crowdfunding.

He also said that social entrepreneurs should receive support in covering liability of start-up loans. German development banks should, said Kreßner, proactively use crowdfunding to evaluate loan eligibility, as some of the banks already successfully do with the Microcrowd programme, where start-ups can receive up to EUR 50,000 in bank loans at less than 1% interest if they successfully run a reward-based crowdfunding campaign for at least EUR 20,000 within the programme. Regional development banks NRW Bank, IBB Bank, Bremer Aufbaubank, L-Bank, WI Bank and SAB are already working with this model. Matchfunding schemes would be another important tool where local government can support social impact, Kreßner added.

The ensuing discussion highlighted the lack of recognition for social entrepreneurship in form of actionable policies. If the calls for social innovation are to be believed, the government must also back this up with relevant supporting soft measures that will incentivise entrepreneurs to put social impact first. As long as the personal risk and investment into social goods is treated the same way as profit maximising innovation, there will be less interest from potential entrepreneurs and investors. Crowdfunding, through its social engagement with a large audience, has the potential to be a multiplier of social innovation throughout society. It is time for politics to understand that some sectors must be treated differently. The existing legal definitions of “Gemeinnützigkeit” (non-profit and charitable actions) must be redefined to capture new forms of social entrepreurship, social innovation and digitalisation.

The webinar was organised by EUROCROWD in cooperation with Social Entrepreneurship Netzwerk Deutschland e.V. (SEND) and with the support of Euclid Network. Special thanks for additional support goes to the European Venture Philanthropy Association (EVPA). Further reading on topics around the discussion:

Scaling up partnerships - A blueprint for the implementation of match-funding schemes between public authorities and crowdfunding platforms  (EUROCROWD)

Social Entrepreneurship: Nachhaltige Wertschöpfung und gesellschaftliche Innovation (SEND eV)

Impact Crowdfunding (SEND eV)

European Social Entrepreneurship Monitor (Euclid Network)

European Funding Toolkit (Euclid Network)

Accelerating the SDGs - The role of Crowdfunding in Investing for Impact (European Venture Philanthropy Association (EVPA))