Financing social enterprises: A study of private investors’ criteria to fund social ventures in Sweden

Abstract: Existing literature on investor motivations when financing social ventures is limited, despite a growing rise in the establishment of social enterprises and a growing interest in social entrepreneurship in Europe. The research presented in this paper, alongside the analysis that complements it, aim to provide new insights into the field of social venture financing, or what many business angels now refer to as impact investing. Social enterprises are often assumed to be too risky or irrational to attract private equity investments, since these enterprises designate a significant portion of their financial resources towards creating a social impact, at the cost of a low return on investment. The authors of this master thesis answer the research question “what criteria motivate private equity investors in Sweden to finance social enterprises that are seeking external funding?” In order to answer this question, qualitative data from five different subjects was collected, using a verbal protocol method. These five subjects represent traditional finance business angels and each are active in the Skåne region of Sweden. A set of eleven variable categories was extracted from the data, with each based on either theoretical considerations or empirical findings. The data and ultimate findings are complemented by a theoretical discussion of social entrepreneurship in Sweden, as well as a theoretical framework that presents the key differences between social and commercial enterprise financing as established in academic literature. The findings demonstrate that, even if the risk of low returns on investment is a strong factor at play when considering financing a social venture, the strongest motivations are related to the business model, the team and other variables that are found both in traditional and social ventures.