VERGE Capital: A case study of accessible financing for women-led social enterprises
VERGE Capital is a social finance program of Pillar Nonprofit Network (Pillar), in collaboration with Libro Credit Union, London Community Foundation, Sisters of St. Joseph, and SVX. Based in London, Ontario, VERGE Capital provides loans to social enterprises in Southwestern Ontario with a focus on equity deserving groups, including women. VERGE currently operates two funds: the Startup Fund and the Breakthrough Fund.
As we have written previously, place-based impact investing in women-led enterprises will be a critical part of our path to a post-COVID recovery that champions equity, innovation, and prosperity for all. Especially given that the COVID-19 pandemic has changed how — and where — people work, the meaning of “place-based” is not simply limited to considering the location of the social enterprise and its team, but a deeper understanding of how it contributes to or benefits local economies. VERGE Capital is a powerful example of how Pillar, a Women of Ontario Social Enterprise Network partner, supports women-led and women-serving social enterprises in Southwestern Ontario with accessible and affordable financing by removing barriers to these resources for those from equity deserving groups, including women. This locally-rooted impact is a key part of VERGE’s investment philosophy in support of local post-COVID recovery.
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 all women and non-binary/genderqueer entrepreneurs, especially those from traditionally excluded and marginalized communities. This includes, but is not limited to, those who are Indigenous, in rural or remote regions, racialized women, immigrants or refugees, 2LGBTQ+, or those with disabilities.
This post is part of a series of knowledge assets created for the Women of Ontario Social Enterprise Network (WOSEN).
In 2013, VERGE Capital co-founder, Lina Bowden, recognized there was an opportunity to build upon growing interest in social finance in London. Pillar, Libro Credit Union, Sisters of St. Joseph, London Community Foundation and United Way Elgin & Middlesex joined forces to form Social Finance London, which quickly identified $40 billion in investable assets in traditional markets in London and the surrounding area that had the potential to be leveraged for local impact.
By 2015, Social Finance London was hosting presentations and events to raise the profile of social finance across London and the province. They caught the attention of the Ontario government and the Ursuline Sisters of Chatham, who contributed the initial grants to launch a Startup Fund for local social enterprises. Thus, as a cross-sectoral collaboration of the founding organizations, the newly rebranded VERGE Capital was born.
Since 2015, the VERGE Capital Startup Fund has provided over $1 million in loans to over 20 early-stage enterprises in Southwestern Ontario with both a solid business case and a strong
community impact model. As a cross-sectoral collaborative, the fund counts on the steadfast support of Libro Credit Union, which administers the loans and contributes 25% of the loan amount.
“VERGE isn’t just something Libro invests in, we are true partners who learn from each other and collaborate every step of the way,” said Liz Arkinstall, Libro’s Manager of Corporate Responsibility. They have been instrumental in progressing social finance in the region and we’ve seen how the seeds they have planted are popping up in other cities and organizations. They really are creating a movement.”
In 2018, VERGE Capital partnered with SVX to launch the VERGE Breakthrough Fund, raising $2.26 million from local impact investors. This fund is the first of its kind in Southwestern Ontario and one of the few impact investment funds in Canada focusing on local impact. Startup costs and first loss capital was provided by the Government of Ontario with continued support from Libro Credit Union, London Community Foundation, and the Sisters of St. Joseph. With $3 million in loans and counting to social enterprises as well as affordable housing developments, green energy projects, and community hubs, the VERGE Breakthrough Fund serves as an example that investors can earn a financial return while creating positive change in their backyards.
What is VERGE Capital’s investment philosophy?
For VERGE Capital, building a more inclusive economy means building upon its place-based foundations to include a commitment to gender lens investing and aligning investments with racial and social justice. Early understandings of social enterprise were limited to mission and purpose — but the addition of an equity lens means an intersectional view of the enterprise, including the gender and racialized experiences of the founders. For VERGE, embedding this holistic view on social impact in its investment philosophy is important to better support women-led and women-serving entrepreneurs in historically and continually excluded communities.
One of the results of this perspective is how VERGE considers and addresses barriers when making its investments. By offering low interest loans with flexible repayment terms that do not require excessive collateral or personal guarantees from borrowers, VERGE provides more equitable access to financing, especially for women entrepreneurs who have experienced barriers to traditional sources of capital, wealth, and income. Prospective investees are assessed not by a single person or a credit-based formula, but by an independent review panel of community volunteers with diverse backgrounds in terms of lived experience and professional expertise. The loan application is not limited to the typical written materials, but also includes an opportunity for the entrepreneur to share their story, vision and values with the review panel through dialogue and discussion. This process aims to reduce barriers to access, mitigate imbalances in power dynamics, and counteract the homogeneity of decision-making, traits that are often experienced by women and other equity-deserving entrepreneurs when seeking financing for their business.
Why is investing in women entrepreneurs important?
In our previous post about place-based impact investing, we highlighted the ways that place-based impact investment supports women entrepreneurs. Indeed, a multitude of barriers hinder the abilities of women entrepreneurs to access funding — particularly racialized and otherwise systematically excluded women — which is an issue that has only been exacerbated by the COVID-19 pandemic. Addressing the gap in investing in women-led and women-serving ventures remains not only a need to uplift their economic and social freedom, but also an opportunity for localized economies to benefit from the capacity of both women-led and purpose-oriented businesses to outperform their peers.
Certainly, the burden of employment losses as a result of the COVID-19 pandemic were not borne evenly between men and women. In the early days of the pandemic, women made up 70 percent of employment losses for Canadian workers between 25–54 years old. According to RBC and Statistics Canada, between February — October 2020, 20,600 women left the workforce whereas 68,000 men entered the workforce. Despite the long-lasting consequences that these employment losses will have on gender equality, they also represent a drive and opportunity for women to pursue entrepreneurship. According to the Women Entrepreneurship Knowledge Hub (WEKH), 57 percent of women entrepreneurs choose to pursue entrepreneurship because of difficulty finding employment, and 44 percent said it was because they needed to work from home due to family responsibilities. Women entrepreneurs are more likely than men to start and run their businesses as sole proprietors — sole proprietorships account for 67% of women-owned businesses, as compared to 57% of businesses owned by men. VERGE serves sole proprietors, incorporated businesses, as well as nonprofit and charitable organizations.
Further, structural barriers such as cultural stereotypes, the relatively short history of women having credit, the absence of role models and the over-representation of men leading financial institutions and venture capital firms stand in the way of women entrepreneurs receiving startup capital. The result of such barriers is that men are more likely to receive credit from financial institutions for startup funding (38 percent for men-owned businesses compared to 32.6 percent for women-owned businesses.) Among Black women entrepreneurs, 78.5% noted access to financing was an issue, 74.7% specifically pointed to the cost of borrowing, 81.4% used personal financing for their businesses, and only 22% and 17% accessed government grants/subsidies or credit from financial institutions, respectively; yet, many of these women started their businesses to directly address race, gender, and class inequalities and bring positive impact to their communities. Indigenous women’s funding barriers are rooted in constraints due to the Indian Act, a demand through Aboriginal financial institutions (AFIs) that outpaces loan availability, lack of microloans for small and microbusiness models, personal circumstances that impact access to credit; yet, Indigenous entrepreneurs are more likely than those who are non-Indigenous to start businesses with the explicit goal of collective community benefit. This highlights the need for place-based impact investment that prioritizes impact with an intersectional gender lens, which VERGE continues to commit to in terms of outreach, intake, and recruitment of both review panel members and investors.
With a focus on building a more equitable economy based on the United Nations Sustainable Development Goals’ “universal call to action to end poverty, protect the planet and improve the lives and prospects of everyone, everywhere,” VERGE Capital has translated the 17 SDGs into four areas of focus:
- Local Impact: VERGE invests in locally-rooted social enterprises that understand and are committed to serving the needs of their local community;
- Equity and Inclusion: VERGE invests in social enterprises that are building a more inclusive economy where no one is left behind;
- Climate Action: VERGE invests in social enterprises and projects that work towards climate action, from reducing greenhouse gas emissions to transitioning to a circular, clean, and carbon neutral economy; and
- Systemic Change: VERGE invests in social enterprises working to address the root causes of systemic social, economic, racial, and gender inequity.
Overall, in the last six years, VERGE Capital has provided over $4 million in impact investments to almost 40 social and environmental enterprises in Southwestern Ontario. These community change-makers are building impactful organizations to create a vibrant, engaged and inclusive community across Southwestern Ontario. To date, VERGE estimates that about 32% of organizations in its portfolio are led by women (although it should be noted that this estimate is not based on self-identified data from investees and is therefore not verified.) Recognizing that there is still work to be done to capitalize more entrepreneurs from marginalized communities, VERGE aims to increase this percentage with its future funds through a greater focus on equity and diversity.
Meanwhile, the VERGE Breakthrough Fund has also made it possible for 20 local investors to leverage their investment portfolio to create positive community impact right in their backyards by investing in affordable housing, community real estate, and established social enterprises. The $2.26 million fund was fully subscribed and closed in 2018 and as of 2020 has been fully deployed.
VERGE’s funding has enabled entrepreneurs to scale and expand their businesses to have a greater impact.
“A Friendlier Company recently received funding from VERGE Capital that will allow us to expand more quickly across Southwestern Ontario. The funding will directly translate to more impact through waste and emission reduction as we increase the use of reusable packaging,” said Kayli Dale, Co-Founder of A Friendlier Company. “We are extremely excited about the opportunity and support we’ve received from VERGE on our mission to revolutionize take-away packaging.”
VERGE Capital’s focus on capitalizing women entrepreneurs seeks to alleviate this gap in access to capital, particularly for locally-rooted enterprises. Sandra Maniago, the President and Designer of Loko Sport, says that a loan from VERGE has benefitted her in many ways. “It’s so hard for small business owners to get funding through banks, so VERGE was a wonderful option,” she said. “Prior to connecting with the VERGE team, I was disconnected with my local community since my business dealings were mostly outside of London. It filled my heart to be welcomed into the community of VERGE and my local city again.”
Loko Sport is a Canadian activewear line founded in 1995 by Sandra Managio that is designed and manufactured for women of all shapes and sizes, using certified eco-friendly fabrics from Canadian suppliers.
A Friendlier Company
Founded by Kayli Dale and Jacqui Hutchings, A Friendlier Company aims to revolutionize take-out packaging through an easy, centralized reuse system. A Friendlier Company partners with restaurants and prepared meal suppliers to provide consumers with reusable containers for their take-out orders to cut down on plastic waste.
Skilled Accents is a social enterprise founded by Kay Habib that employs newcomer and refugee women who are marginalized and face various barriers to meaningful employment. Skilled Accents produces decorative pillows made of recycled fabric collected from local furniture and drapery stores, which would otherwise end up in the landfill. During the pandemic, Skilled Accents began making masks as well.
Reimagine Co., founded by Kara Rijnen and her husband Heenal Rajani, is London’s first and only package-free zero waste grocery store offering fresh produce, bulk dry goods, frozen foods, and cleaning products. They received immense community support throughout the pandemic, running a successful crowdfunding campaign that supplemented their loan from VERGE and London Community Foundation that allowed them to expand to a larger retail storefront that they own rather than lease.
VERGE Capital, alongside partners, is currently working on developing its third fund, building on the momentum and lessons learned from the Breakthrough Fund. This new fund will broaden access to include retail investors and have an even greater focus on investing in social enterprises owned by, led by, or serving women and other equity-deserving groups.
This fund will be an exciting opportunity for VERGE to continue and expand its impact in Southwestern Ontario, particularly in supporting and investing in women entrepreneurs. Keep an eye on VERGE’s website or social media channels for more news about this new fund in the coming months.