Place-Based Impact Investing: Catalyzing women-led enterprises in Ontario’s COVID recovery

“It is not more bigness that should be our goal. We must attempt, rather, to bring people back to the warmth of community, to the worth of individual effort and responsibility, and of individuals working together as a community, to better their lives and their children’s future” — Robert F. Kennedy

As communities consider how to rebuild their local economies in a post-COVID era, it is critical to ensure that our investments generate community value in addition to financial value. SVX has written extensively on the need to catalyze community investment to build more resilient and equitable communities across Ontario, but in this article, we will highlight the need to support women-led and women-serving businesses with place-based impact investment solutions. Investing in women-led organizations will be a critical part of our path to a just recovery that champions equity, innovation, and prosperity for all.

Although collectively the term ‘women’ is used throughout this article, it is critical to underscore that place-based impact investing solutions must seek to support women-identified and gender non-binary entrepreneurs from underserved and underrepresented communities. This includes, but is not limited to, Indigenous women, women in rural or remote regions, racialized women, newcomer women, LGBTQ2+, women with disabilities, and those who identify as gender non-binary.

This post is part of a series of knowledge assets created for the Women of Ontario Social Enterprise Network (WOSEN), supported by the Government of Canada through the Federal Economic Development Agency for Southern Ontario.

What is place-based impact investing?

Place-based impact investing refers to the local deployment of impact capital, meaning that investments are made with the intention of generating both financial returns and community benefit to address the needs of particular communities, regions, or ecosystems. Specifically, place-based impact investing uses repayable financing and equity investment to support the startup or growth of a community-based project or social enterprise that looks to achieve specific community outcomes. The place-based impact investing movement is growing rapidly, as capital moves into the broader impact investing sector at unprecedented rates. In fact, the RIA reports that as of 2019, there are $20.3B in impact investment assets in Canada, up 38 per cent from 2017.

How does place-based impact investing work?

Place-based impact investing primarily occurs through funds that aggregate local capital to finance local organizations, enterprises and projects. Because community needs vary, place-based funds typically invest in a variety of sectors, business types, and impact areas. These funds also leverage local capital from a variety of investor types, including high-net worth individuals, local foundations, corporations, governments, etc. This form of impact investing provides funds with the unique ability to bring private capital, public resources, and philanthropic assets together to build a stronger and more resilient community. There is a range of approaches to place-based impact investing across a variety of asset classes:

  • Cash and cash equivalents: Depositing money into local community development banks and credit unions that are socially or environmentally-focused (like Vancity) builds the local social impact ecosystem and extends credit to local and underserved communities. This may take place through insured debt products like Impact GICs or community-based term deposits.
  • Fixed income and debt: Stable, long-term community contribution companies and community organizations may choose to expand using private debt financing or issue community bonds. Municipalities are increasingly issuing social impact bonds and green bonds to finance projects that contribute positively to the city’s environmental or social objectives. Notable examples include the City of Ottawa’s 2017 green bond issuance and the City of Toronto’s $100M social bond which was used to finance social and affordable housing. There are also many examples of community loan funds in Canada and the US including the Saint John Community Loan Fund, Social Enterprise Fund, and VERGE Capital.
  • Private equity and venture capital: Place-based impact investing funds can make equity, debt, and hybrid investments in local private enterprises and Social Purpose Organizations (SPOs) to allow them to scale and grow their operations and ability to contribute to environmental and social solutions. Noteworthy examples include Upper Canada Equity Fund and Local Investing YYC.
  • Real assets and infrastructure: Place-based investing is also a means of financing local infrastructure, social purpose real estate, renewable energy projects, and other commodities that generate positive social and environmental impact for their community. There are large scale examples of place-based impact investing supporting affordable housing in Ontario, including Vancity Community Investment Bank (VCIB)’s partnership with the Parkdale Community Land Trust or the Hamilton Community Foundation’s partnership with Indwell.

Why is place-based impact investing important?

Place-based impact investing is responsive to local community needs and can address specific social, environmental and economic issues with greater efficiency. Communities have enhanced proximity to local issues and can be more reflexive in addressing critical needs than national entities. Particularly, place-based impact investing can invest in solutions that solve core local needs and take a patient capital approach that may be required when addressing embedded community issues. This presents a great opportunity for governments to invest in place-based social finance intermediaries who can act as more effective disbursement agents for investments that achieve local economic, social and environmental objectives. In particular, the Canadian government’s commitment of $755 million of co-investment capital for social finance intermediaries through the Social Finance Fund, which will be leveraged with additional private capital, will allow for many place-based impact investing funds to solve difficult societal challenges in their local communities.

Rural Canada in particular is faced with a lack of new business creation, an exodus of young people, and underinvestment. The Center for Strategic and International Studies wrote a report around impact investing and its ability to strengthen rural economies in a COVID-19 context, saying, “Impact investments can fill the financing gap while addressing pervasive problems like connectivity and access to finance, creating a more sustainable economic model for rural economies going forward.” With undercapitalization being a clear challenge in rural communities, Community Futures Development Corporations (CFDCs) were created. The Community Futures Network operates and supports 267 non-profit CFDCs across Canada as a centralized agent, allowing the federal government to drive smart investments into rural Canada. CFDCs operate with a volunteer Board of Directors made up of local community members and typically have four staff members: an Executive Director, a Business Analyst, a Community Economic Development Officer, and an Administrator.

Place-based impact investing has been a driver for job creation and attracting further investment. CFDCs have had tremendous success in the past, and since 1995, CFDCs have invested $2.13B in 27,196 businesses influencing 138,479 jobs. They have also provided capacity support to 69,631 businesses and leveraged an additional $2.09B in equity and third-party financing.

We have an opportunity to mobilize billions in local capital to tackle local challenges. In Nova Scotia alone, the Community Economic Development Investment Fund (CEDIF) model has mobilized approximately $100M in local capital to be invested in local enterprises. According to StatsCan, Nova Scotians collectively had approximately $166.3B in financial assets in 2019 while Ontarians had over $3T in financial assets. If we could mobilize just 0.1% of this, we would unlock over $30B in private capital for place-based impact investing.

How does place-based impact investing support women-led and women-serving enterprises?

As the place-based investing movement continues to grow, an intentional focus on place-based investing for women-led and women-serving enterprises presents an important gap and opportunity. Investing that focuses on women-led businesses is often referred to as gender-lens investing, defined by the Global Impact Investing Network (GIIN) as investing with the intent to address gender issues or promote gender equality and/or investing with a process and strategy that focuses on gender effects, organizational culture, and gender equality. Capital providers are continuing to develop a gender-lens for their operations because of the multitude of benefits that come from increased gender diversity. Countless studies have demonstrated that gender diversity at the executive level is correlated with greater profitability, higher levels of performance, and enhanced value creation. By advancing gender-lens investing in the place-based investing arena, we can work to dismantle systemic barriers by including women at decision-making tables, while also enhancing financial profitability and operational success.

Women founders may often be unincorporated, hindering their ability to access new financing opportunities. The Women Entrepreneurship Knowledge Hub (WEKH) reports that 66% of self-employed Canadian women are unincorporated compared to only 46.2% of self-employed men. This contributes to the fact that women are less likely to receive financing than men (32.6 percent vs. 38 percent), and firms owned by men are more likely to receive venture capital or angel funding and other forms of leverage such as trade credit or capital leasing. This disparity in access to growth financing prevents women from growing and scaling their businesses and powering the broader engine of Canada’s innovation and economic development. However, this also presents a massive opportunity to capitalize strong founders with viable products and services that offer innovative solutions to wicked issues faced by various communities.

Place-based investing is a critical way, particularly for rural communities, to drive sustainable entrepreneurship. Women entrepreneurs may be particularly attracted to starting a business in a rural community because they face lower start-up costs, meaning the cost of trying something new is relatively low. Additionally, over 19.4% of Canadian women live in rural or remote areas but only 20% of self-employed rural women earn an income of $20,000 or more, which is almost 50% less than their rural male counterparts.

The Centre for Creative Leadership found that women tend to seek out work opportunities that are purpose-driven and want flexibility in where, when, and how they work. Entrepreneurship provides those types of work opportunities for women who may be looking for flexible work arrangements or to generate additional income. Additionally, training programs and accelerators specifically designed for women-led businesses are gaining traction, like the Women of Ontario Social Enterprise Network (WOSEN) and Compass North. As of April 2021, WOSEN has supported over 500 women through programming, business coaching, and peer-to-peer network building, helping them build their businesses and prepare for raising capital.

Investing in women-led enterprises in rural communities may also work to reverse startling trends in Canada’s rural communities. By empowering rural townships to introduce female-focused innovation programming alongside national support, they can work to increase their tax base and business start-up growth, powering their communities for decades to come.

Place-based investing in women-led enterprises is more important than ever in the wake of COVID. There is a renewed need to focus on women-led enterprises, particularly because we have seen that the COVID-19 pandemic had disproportionate effects on women’s employment. In the early days of the pandemic, women made up 70% of employment losses for Canadian workers between 25–54 years old. In fact, according to RBC and Statistics Canada, between February — October 2020, 20,600 women left the workforce whereas 68,000 men entered the workforce. But there is also a utilization issue. Workforce underutilization measures those who are unemployed, those who gave up looking for work, and those who are still employed but lost all or the majority of their hours. This figure peaked in April at 36.1% and has declined consistently as the pandemic wears on. However, what has not changed is the fact that women have experienced consistently lower workforce utilization rates than men, and the labour utilization rates of men and women were nearly equivalent prior to the pandemic.

In no uncertain terms, the COVID-19 pandemic has had devastating economic, health, and social implications for marginalized groups including women, members of the LGBTQ2S+ community, BIPOC and racialized individuals, and newcomer and refugee women. Place-based solutions are starting to show early signs of hope in reversing these trends and catalyzing growth in a more equitable and purpose-led recovery. The RE3 program was created to provide funding for Southern Ontario-based women-led SMEs out of recognition that women entrepreneurs have been severely affected by the pandemic and related restrictions. Through the RE3 program administered by the Northumberland CFDC across Eastern Ontario, they were able to provide support to 375 women-led enterprises and help maintain over 1,040 jobs.

Place-based solutions are key in dismantling systemic barriers faced by women entrepreneurs and necessary capacity is being created with targeted programming to inspire a more inclusive innovation ecosystem. However, investment opportunities for women-led enterprises are still lacking, meaning these capable enterprises lack the much-needed capital required to grow, and scale their business and subsequent impact. While there is much room for growth, there are emerging and leading models for place-based impact investing, particularly those that support women-led enterprises, organizations, and projects.

What are leading models for place-based impact investing?

Local models in Ontario

PARO Centre for Women’s Enterprise: PARO is a nonprofit social enterprise that collaborates to empower women, strengthen small business, and promote community economic development across Ontario. They have been operating in Thunder Bay, ON, for over 26 years and the organization has supported over 22,000 businesses. PARO focuses on growing women’s enterprises, helping women’s businesses access new growth opportunities, and expand women’s businesses into new markets, both in Canada and abroad. They have distributed over $7.7M in grant funding to support women’s enterprises but they also run peer lending circles, where small groups of 4–7 women meet regularly to share their experiences, offer advice, and expand their networks. These peer lending circles also regularly make microloans of $500 to $5,000 to help their peers grow their businesses.

VERGE Capital: VERGE is a social finance intermediary that provides flexible and patient loans to social enterprises in Southwestern Ontario. VERGE Capital is part of the Pillar Nonprofit Network and operates two funds: a Startup Fund for early-stage social enterprises and a Breakthrough Fund for established social enterprises, community real estate, and affordable housing. VERGE invests in local impact, climate action, equity and inclusion, and systems change. However, they prioritize lending to social entrepreneurs from (or organizations that serve) underserved and underrepresented communities, including BIPOC individuals, women, newcomer Canadians, people with disabilities, LGBTQ2+ individuals, and folks who live in rural and remote communities. As a result, VERGE has invested in many women-led social enterprises including Loko Sport, Skilled Accents, and Lazara’s Beauty Supply.

Fair Finance Fund: The Fair Finance Fund is a non-profit social finance fund that provides loans between $20,000 to $200,000 to local food and farm enterprises in Ontario to support food that is grown, raised, and processed locally. Their mission directly benefits Ontario’s rural economies and strengthens regional local food systems across the province. It can be exceptionally difficult for rural social enterprises with an agri-food focus to access growth capital and Fair Finance Fund works to create equitable access to capital for social enterprises in Ontario’s food system. They also work alongside their loan clients and provide them with mentorship through the REAL Assist program, where loan clients have access to hands-on support from experienced advisors around business development, financial management, marketing, branding, etc. Many of the businesses they lend to are run by families and women, including Vintage Soil Farm, Split Rail Brewing Co., and Mulberry Moon Organics.

Outside of Ontario, there are many developed place-based impact investors that are solving critical community needs.

  • Jubilee Fund: a Manitoba-based charitable ethical investment fund that provides loan guarantees, direct loans, and bridge financing to Manitoba nonprofits and social enterprises working to reduce poverty. Jubilee’s lending allows their clients to reach more people and provide more services for marginalized individuals and families in Manitoba, and their investors and donors include foundations, high-net worth individuals, community organizations, and credit unions.
  • Rhiza Capital: Rhiza deploys venture capital and private equity for early-stage BC-based companies that have high growth prospects and strong SDG alignment for local impact. They are supported by the Powell River CIC, Community Futures Sunshine Coast, and Sunshine Coast Credit Union and have invested over $7M across four funds. Their latest fund, CVR3, is actively seeking out female and BIPOC-led ventures.
  • Saint John Community Loan Fund: SJCLF sets out to build solutions through social impact and entrepreneurship in New Brunswick. The loan fund has invested over $3.3M in social-purpose real estate projects and has made almost 300 loans to social enterprises and local entrepreneurs. Their LaunchSocial program supported eight social enterprises with up to $50,000 in financing, and of those ventures, 62.5% were women-led organizations. SJCLF also runs a variety of training programs, including the Enterprising Women program, which has supported over 170 women with business planning and coaching support.

It is clear that there are a number of existing and emerging opportunities to support place-based investment funds that cater to women-led and women-serving enterprises. For the women-led social finance ecosystem to grow, it is crucial that investors work to catalyze investment with intentionality because there will be no economic recovery from COVID without a ‘she-covery’. There is significant work to do to ensure our place-based impact investing ecosystem is inclusive and diverse and investors must work alongside existing and emerging social finance funds so that we can build more resilient and equitable local communities.

SVX is financial services firm & impact investing platform connecting ventures, funds, and investors to catalyze investment capital for impact. #ImpInv #SocEnt

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