Social enterprise

Social enterprise and funding barriers

Due to the nature of China’s investment environment and social business environment, funding can be hard to come by. Restrictive and protectionist policies limit investment while taxation dampens the effectiveness of grant funding. FYSE’s survey of 52 social enterprises for their China 2012 Social Enterprise Report found that 86% of social entrepreneurs had difficulty accessing funding, particularly mezzanine funding. 47% of social enterprises also found acquiring seed funding challenging. This has forced many entrepreneurs to turn to family and friends, which is not a sustainable source of funding. A factor that contributes to this problem is lack of knowledge and information about funding opportunities. There are no platforms for acquiring information and connecting with potential investors.

 

Many enterprises lack a clear business plan and impact monitoring capabilities. This makes acquiring impact investment extremely difficult, because impact investors require information on how much of an impact an enterprise’s activities are having. Over 25% of social enterprises surveyed by FYSE have no information how many people their activities have benefitted, nor information on how great that benefit is. Such informational limitations make it extremely difficult to convince impact investors that the activities of an enterprise are having a positive social impact.

 

China’s protectionist inward FDI policies make acquiring investment difficult for foreign-owned enterprises that are seeking to enter the marketplace. Investment is preferentially directed towards Chinese-run enterprises because the Chinese government seeks to protect Chinese business interests. Furthermore, the Chinese government is less likely to subsidize foreign-owned enterprises, even when subsidies are available to be taken advantage of. Thankfully, enterprises can be hopeful with the advent of new regulations and China’s openness to social entrepreneurs. Moreover, problems acquiring impact investment can be alleviated simply by having an adequate impact monitoring system. Overall, in the Chinese business environment, having an effective and efficient business model is instrumental to acquiring investment.