Of course, not a lot of these enterprises wait for investments. An estimated 39% of social entrepreneurs choose to bootstrap or use their own money to run their businesses, according to a report published by the British Council.
And that’s more often than not a tough option.
Local social enterprises we spoke to said awareness on social entrepreneurship is increasing among Malaysians, thanks to efforts from the government. However, so far, investors remain sceptical about their business models. Impact funding is still scarce.
Investors usually shy away from investing in social enterprises due to slower business growth and longer investment holding periods. This despite some impact investees gearing towards profitability or breaking even.
But the pandemic, as it resets the clock for many a businesses, could make investors rethink the scope of returns on investments.
A quick look at tech investments alone—SoftBank and the WeWork debacle, for instance—shows the traditional IRR model, or internal rate of return, hasn’t necessarily been fruitful. SoftBank’s $100-billion Vision Fund had a 29% IRR, double the global average of 13% as it relied heavily on unrealised gains on investments like WeWork and OYO for its impressive numbers. But the world sees through those inflated numbers now.
Perhaps, the weighing scale needs to change?
As big businesses pause to regain perspective, social enterprises could remind investors the value of a different measurement for returns—social return on investment or SROI. It’s not traditional, but not much is during a crisis. Are the VCs introspecting?
Being seen and heard
One of the biggest misconceptions about social enterprises is that they are non-governmental organisations (NGOs) that depend solely on donations to keep operations up and running. That is completely untrue.
Social enterprises are first and foremost, a business. What separates them from a conventional business is that they’re driven by profit and a social or environmental impact goal.
The government, in an attempt to encourage these businesses, has put together a framework for their registration and definition. It launched the Social Enterprise Accreditation (SE.A) Guidelines in April 2019 to lend more credibility to social enterprises. The programme, managed by the Malaysian Global Innovation and Creativity Centre (MaGIC), has accredited a total of 29 social enterprises ranging from those impacting marginalised communities to those providing environmental solutions. Before SE.A was established, social entrepreneurs were found operating under a variety of legal forms, which are governed by different acts and regulations. Not consolidated.
Three tiers of accreditation
SE Basic Status – First step of the accreditation process that includes those that are self-declared social enterprises
SE.A – Upon receiving Basic SE status, the SE must submit complete documentation on the platform for audit purposes to attain SE accreditation by meeting these three criteria: they must have a clear social or environmental impact, contribute significant resources to the mission and be financially sustainable
SE.A Plus – Final level of accreditation that confirms the social enterprise status of the company with recognition of the Ministry of Finance and Inland Revenue Board of Malaysia