Idea title: LendForGood
One Sentence description: A crowd lending platform to support the growth of small to medium impact enterprises
Addressing topic: Social Procurement Challenge
Team members: Cameron Neil, David Carbines, Tom Dawkins and Paul Howorth from StartSomeGood and Red Hat Impact
Provide an overview of your solution and how it solves the problem along with a short description of your inspiration behind the idea:
The Australian social enterprise sector is like a monster truck jump: big on-ramp (early-stage startup social enterprises), small off-ramp (large social enterprises at scale) and nothing in-between. At the entry level, crowdfunding sites like StartSomeGood are leading to a vibrant market for launches and new ideas. At the upper end we have $100 million impact funds ready to invest who cannot find sufficient deals. The reason for this is the lack of bridges between the two sides to help social enterprises scale.
We think that creating a crowd-lending platform to allow retail/small investors to participate in supporting the acceleration and growth of Impact SMEs through a distributed risk model is a potentially ground-breaking innovation: through a model like this, everyone has the opportunity to become an active impact investor.
Early stage Impact SMEs that are still on their growth and development pathway are finding it difficult to access mainstream shorter-term trade finance. This makes the process of “stepping up” to larger and larger procurement contracts extremely difficult; they simply don’t have the operating capital.
The platform would enable these businesses to access shorter term finance attached to their trading performance, freeing up other cash for working capital. Investors interested in creating impact by supporting the growth and development of Impact SMEs would benefit from a much more efficient line of sight to business they can support by taking low to moderate risk: an easier entry point to impact investing than is currently available.
Larger impact investors that are holding back capital because they are waiting for a pipeline of scaling businesses in which they can take equity, could use this platform to release smaller investments that drive the growth of that pipeline: they can make early stage investments in impact businesses on commercial terms with low to moderate risk.
Describe your solution in detail, providing a high-level business plan addressing how you would implement your solution:
We wish to build and test a crowd-lending platform for providing short term (12 month) trade finance loans to accelerate the growth and development of SMEs that pursue and transparently demonstrate positive economic, social, cultural and / or environmental impact (Impact SMEs) in the Asia-Pacific region
We believe that even with the advent of equity crowdfunding soon there will still be a large gap in the market for a lending platform such as the one proposed. Equity investments require that you have the money to lose, and even when you pick a winner you wouldn’t expect a liquidity event for a number of years. This platform instead will be much lower risk, and much faster repayment (in under 12 months), creating a viable option for anyone with some cash sitting in the bank to both earn a higher return and to directly support the growth of an inspiring social enterprise.
A 'crowd lending for impact' platform fills the obvious gap between crowdfunding and crowd equity by enabling an efficient scaling of this impact SME focussed, crowd-driven, intermediary-facilitated, relationship-based approach to supporting the growth of early stage SMEs - more businesses, more intermediaries, more crowd, more deals, more growth of the sector.Impact SMEs would be able to post their trade finance requirement to the platform, either via a registered intermediary or directly, build around what in effect would be a ‘prospectus’ per finance ask, and the crowd would be invited to subscribe to fund a share of the finance requirement. There would be limits on the maximum size of a financing requirement, and on the amount a member of the crowd could lend to any one deal. Through this capping function, and the prominent role of intermediaries, the platform would enable and manage ‘distributed risk’.
The platform would enable and manage funding transactions and flows (for example, by using an emerging technology like block chain). Impact SMEs would pay back loans to crowd lenders at near-market interest rates. The loan repayment flow would be from the Impact SME back to the platform in line with set and agreed repayment schedules, and from the platform to the crowd lender in a single lump sum (principal and interest) at the end of the loan period. Impact SMEs working with an intermediary would also pay a fee or commission to the intermediaries that support them to raise finance.
We would likely have two types of deals: Intermediary-led (deals rated and brought to the platform by an intermediary like Red Hat Impact) and Entrepreneur-led (deals listed on the platform directly by the company themselves). These would be clearly rated as having different levels of risk, and would likely suit different types of enterprises.
Deals would work on a time-limited all-or-nothing basis, with a minimum and maximum deal size which the raise must fall between, much like StartSomeGood’s system of a Tipping Point and Stretch Goals.
The platform would earn revenue from funds holding and movement and from listing fees paid to it by intermediaries and enterprises for enabling/managing access and for quality assurance (a key focus of the platform’s work would be performing due diligence on intermediaries and individual deals).
Red Hat Impact (an impact business advisory and lending firm) and StartSomeGood (a crowdfunding platform) are working together to bring this crowd lending platform to market, a great combination of finance, social enterprise and platform experience.
StartSomeGood is the operating partner, allowing the new platform to take advantage of existing technical infrastructure and marketing and customer support capabilities, making all functions more reliable and cheaper than building from scratch.As intermediaries are the key user group for the new platform it is being built with Red Hat Impact, a lending intermediary, from day 1.
We are at a stage where our concept is at an advanced level, and we are readying ourselves to move into development. Subject to development timeframes and regulatory matters, we’d aim to launch a beta test version of the platform during the fourth quarter of the 17-18 FY.
We aim to help social enterprises successfully borrow and repay $500,000 in 2018, over $1,250,000 in 2019 and over $2,000,000 in 2020, unblocking the social supply chain by allowing more enterprises to scale past their initial pilots, and to do so in a scalable, sustainable way.
Outline the budget required to achieve the ambition of your idea:
Rather than developing crowdfunding functionality from scratch LendForGood will be built from a mirror of the existing StartSomeGood platform. This allows for a unique frontend look, brand and custom processes, while leveraging the significant investment in StartSomeGood’s platform, which has all the core functionality this new site requires.
Our total go-to-market budget is estimated at $250,000 to cover design, development, launch and the first 18 months operating budget to achieve traction.
We would use the $25,000 to get investment-ready, firming up the business model, developing preliminary designs and accessing support to raise the required amount.
Partnerships are critical for a stronger idea and delivering a solution. Who are the key stakeholders within your idea? Is your solution the result of a collaborative approach? If not, are you looking to bring other partners along:
Red Hat Impact (an impact business advisory firm) and StartSomeGood (a crowdfunding platform) have formed an MOU-based partnership for developing and testing this crowdlending platform. The idea emerged out of conversations between Cameron Neil and Tom Dawkins on how to unlock the potential of the social enterprise sector in Australia by helping great social enterprises scale. Red Hat Impact is already lending to enterprises ready to grow, but we agreed that platform-thinking was required to build the scale to shift the sector. The idea for LendForGood has emerged over several design sessions between the Red Hat Impact and StartSomeGood Team.
To strengthen the likelihood of success, a broad foundation of evidence is critical. What’s the evidence base that points towards your solution being a success? Is your solution addressing an unmet gap in the market:
We have done a number of customer interviews, with a very positive response from every social entrepreneur we’ve spoken to, usually along the lines of “let me know as soon as I can use it.”
The team working on this have a strong experiential knowledge of the challenges facing social enterprises thanks to the vantage afforded us by current and former roles at StartSomeGood (which has helped almost 1,000 social impact projects successfully raise), Hub Australia, The Australian Changemakers Festival, TDi and Fair Trade Australia. We also know a gap exists in financing because it emerges from every analysis of the sector or survey of enterprises in Australia,such as the most recent FASES report from Social Traders.
Globally, the majority of what gets defined as “crowdfunding” is actually lending, a larger volume of funds than equity, donation and pre-sale crowdfunding combined (source: Massolution). Peer-to-Peer (P2P) lending is expected to reach $460,312 million globally by 2022 (Source: Allied Market Research).
But P2P lending hasn’t captured the same market share in Australia as in the US and EU, and there are no local platform focused on social impact and solving the operating capital challenges of social enterprises. This gives us a unique positioning in the market and an incredible opportunity to make a meaningful contribution to closing the gap between promise and reality for social enterprises in Australia. Think Kiva, but for local social enterprises.
Who are the key beneficiaries of your solution:
The key beneficiaries are social enterprises with a strong track record who are ready to grow.
Secondary beneficiaries include new impact investors who have a lower entry-point to the sector, and the wider business and government sector who will ultimately benefit from expanded social procurement options.
Do you have funding partners interested in your idea:
We have had preliminary discussions with several financial institutions who are very interested in this space and our plans, but are not at a stage where we have formally pitched anyone yet.
Describe your most successful experience executing a solution to a problem:
Red Hat Impact have done two beta test deals so far where:*they leveraged a small loan from the crowd (one $7.5k, one $8.5k) to get them going with stock;*in both cases, they've grown and now need/needed more cash for more stock.*the $8.5k loan became a $27.5k second loan to continue their growth;*the $7.5k loan is in process of becoming a $20k second loan.
They have said “We believe we are proving out the hypothesis that a small amount of crowd leveraged investment can give SMEs the jump start they need to grow - and especially to buy stock that their current cash flow doesn't allow them to do, which enables them to trade at a higher level, generate cash flow, and take on larger contracts.”
Meanwhile StartSomeGood has helped almost 1,000 social impact projects to successfully raise the funding they need to make a difference, with the highest project success rate in cause crowdfunding at 53%. This experience of providing coaching and support for online fundraising is highly relevant to the proposed platform.
Optional visual/picture/infographic that demonstrates your idea:
Idea Opened: 04:55 PM, Friday 03 November 2017
Idea Closes: 06:00 PM, Friday 03 November 2017
Time to go: Closed