{"id":11760,"date":"2023-01-09T13:19:14","date_gmt":"2023-01-09T12:19:14","guid":{"rendered":"https:\/\/fa-se.de\/?p=11760"},"modified":"2023-01-16T11:24:18","modified_gmt":"2023-01-16T10:24:18","slug":"esiif-a-catalytic-capital-case-study","status":"publish","type":"post","link":"https:\/\/fa-se.de\/en\/blog-en\/esiif-a-catalytic-capital-case-study\/","title":{"rendered":"Catalytic capital in action: Four lessons learned from the ESIIF"},"content":{"rendered":"<h4 style=\"text-align: justify;\">The <span style=\"text-decoration: underline;\" data-text-color=\"primary\"><a href=\"https:\/\/fa-se.de\/en\/esiif\/\" target=\"_blank\" rel=\"noopener\">European Social Innovation and Impact Fund (ESIIF)<\/a><\/span> uses catalytic capital to enable better access to finance for early-stage social enterprises. But how exactly do the catalytic and innovative components create additionality? In our case study, we reflect upon the design elements of this unique fund and list the top 4 lessons we have learned so far.<\/h4>\n<p><em>Photo: \u00a9 Anders Jilden \/ Unsplash<br \/>\n<\/em><\/p>\n<div class=\"is-divider divider clearfix\" style=\"max-width:800px;\"><\/div>\n\t<div id=\"gap-665638178\" class=\"gap-element clearfix\" style=\"display:block; height:auto;\">\n\t\t\n<style>\n#gap-665638178 {\n  padding-top: 30px;\n}\n<\/style>\n\t<\/div>\n\t\n<h2><span data-text-color=\"primary\">First, some ESIIF facts and figures:<\/span><\/h2>\n<p>At FASE, we initiated the ESIIF as the second pillar in fulfilling our mission to create a thriving European ecosystem for social innovation. Designed as an impact mezzanine fund, the ESIIF is the first of its kind in Europe and enables better access to finance for early-stage social enterprises. But before we dive into the details of the Fund&#8217;s catalytic and innovative components, some facts, figures and definitions:<\/p>\n<p><span style=\"color: #eb5200;\">What is catalytic capital?<\/span> The Catalytic Capital Consortium (C3) describes this type of capital as follows: &#8220;Catalytic capital\u2014investment capital that is patient, risk-tolerant, concessionary, and flexible\u2014is an essential tool to support impact-driven enterprises and organizations that lack access to capital on suitable terms through the conventional marketplace. The aim of catalytic capital is to unlock impact and additional investment that would not otherwise be possible, strengthening communities, expanding opportunity and economic growth, and fueling innovation that advances the well-being of people and the planet, while laying the groundwork for mainstream investors to participate in transformative investments.&#8221;<\/p>\n<p>About the ESIIF:<\/p>\n<ul>\n<li><span style=\"color: #eb5200;\">Type of organisation: <\/span>The <span style=\"text-decoration: underline;\" data-text-color=\"primary\"><a href=\"https:\/\/www.avesco.de\/european-social-innovation-and-impact-fund\/\" target=\"_blank\" rel=\"noopener\">European Social Innovation and Impact Fund GmbH &amp; Co. KG<\/a><\/span> (\u201cESIIF\u201d) is an impact fund domiciled in Germany and set up as a closed-end \u201cSpezial-AIF\u201d according to German \u00a72(4) KAGB. It is available to professional and semi-professional investors in Germany. The final closing took place in 2022.<\/li>\n<li><span style=\"color: #eb5200;\">The financial instrument(s) used: <\/span>The ESIIF makes mezzanine investments into social enterprises in the size of EUR 100k to 500k per enterprise and with a tenure of a maximum of 8 years. Each investment matches 1:1 the financing amount that the enterprise raised from direct investors (matching fund principle).<\/li>\n<\/ul>\n<ul>\n<li><span style=\"color: #eb5200;\">The beneficiaries and impact sectors targeted:<\/span> The direct beneficiaries of the ESIIF are social enterprises as defined by the European Union and based in an EU member country. They need to meet the criteria of the <a href=\"https:\/\/www.eif.org\/what_we_do\/microfinance\/easi\/easi-guarantee-instrument\/index.htm\" target=\"_blank\" rel=\"noopener\"><span style=\"text-decoration: underline;\" data-text-color=\"primary\">EaSI Guarantee<\/span><\/a> that the ESIIF has embedded as a catalytic component. The ESIIF is agnostic in terms of impact sectors and pursues a broad diversification across sectors.<\/li>\n<\/ul>\n<ul>\n<li><span style=\"color: #eb5200;\">Country focus: <\/span>The ESIIF targets social enterprises in all EU member countries, with a preference for Germany (min. 51%), Austria, and the Benelux region.<\/li>\n<\/ul>\n<ul>\n<li><span style=\"color: #eb5200;\">SDGs addressed: <\/span>Potential ESIIF investees can cover the entire spectrum of SDGs. The ESIIF itself \u201cpays into\u201d SDG 17.<\/li>\n<\/ul>\n\n  <div class=\"banner has-hover\" id=\"banner-1874259677\">\n          <div class=\"banner-inner fill\">\n        <div class=\"banner-bg fill\" >\n            <img loading=\"lazy\" decoding=\"async\" width=\"1020\" height=\"680\" src=\"https:\/\/fa-se.de\/wp-content\/uploads\/2022\/10\/01_Gruender_RaphaelFellmer_Credits_Markthalle-Neun-1024x683.jpg\" class=\"bg attachment-large size-large\" alt=\"\" \/>                                    \n                    <\/div>\n\t\t\n        <div class=\"banner-layers container\">\n            <div class=\"fill banner-link\"><\/div>            \n   <div id=\"text-box-376592628\" class=\"text-box banner-layer x20 md-x20 lg-x20 y95 md-y95 lg-y95 res-text\">\n                     <div data-animate=\"fadeInUp\">           <div class=\"text-box-content text box-shadow-1\">\n              \n              <div class=\"text-inner text-left\">\n                  \n<div class=\"icon-box-text p-last-0\">\n<h5 class=\"testimonial-text line-height-small italic test_text first-reset last-reset is-italic\" style=\"text-align: center;\"><span data-text-color=\"primary\"><em><span style=\"font-size: 130%;\">\u201eDue to matching the financing amounts that we raised from direct investors 1:1, the ESIIF brought us one big step closer to our vision of placing the topic of food saving right into the heart of society&#8230;. For impact startups such as us, the ESIIF is an important component to scale innovations and enable a functioning ecosystem for social finance.\u201c\u00a0<\/span>\u00a0<\/em><\/span><\/h5>\n<div class=\"testimonial-text line-height-small italic test_text first-reset last-reset is-italic\" style=\"text-align: center;\"><span style=\"color: #eb5200;\">Raphael Fellmer <span class=\"testimonial-name-divider\"> \/ <\/span> CEO &amp; Founder of <span class=\"testimonial-company test_company\">SIRPLUS<\/span><\/span><\/div>\n<\/div>\n              <\/div>\n           <\/div>\n       <\/div>                     \n<style>\n#text-box-376592628 .text-box-content {\n  background-color: rgb(253, 251, 251);\n  border-radius: 37px;\n  font-size: 100%;\n}\n#text-box-376592628 .text-inner {\n  padding: 6px 10px 10px 15px;\n}\n#text-box-376592628 {\n  width: 74%;\n}\n<\/style>\n    <\/div>\n \n        <\/div>\n      <\/div>\n\n            \n<style>\n#banner-1874259677 {\n  padding-top: 56.25%;\n}\n<\/style>\n  <\/div>\n\n\n\t<div id=\"gap-839334325\" class=\"gap-element clearfix\" style=\"display:block; height:auto;\">\n\t\t\n<style>\n#gap-839334325 {\n  padding-top: 30px;\n}\n<\/style>\n\t<\/div>\n\t\n<h2><span data-text-color=\"primary\">The market challenge and how we meet it<\/span><\/h2>\n<p>The motivation to design and initiate the ESIIF came from 10 years of first-hand experience with the stumbling blocks that early-stage social enterprises are facing when trying to raise capital. This is why we reached out to <span style=\"text-decoration: underline;\" data-text-color=\"primary\"><a href=\"http:\/\/www.avesco.de\" target=\"_blank\" rel=\"noopener\">avesco financial services<\/a><\/span> to partner with us and act as the Fund&#8217;s manager. The ESIIF applies a novel approach by using the \u201c<span style=\"color: #eb5200;\">EaSI Guarantee<\/span>\u201d provided by the <span style=\"text-decoration: underline;\" data-text-color=\"primary\"><a href=\"http:\/\/www.eif.org\" target=\"_blank\" rel=\"noopener\">European Investment Fund (EIF)<\/a><\/span> as a derisking mechanism for a portfolio of around 60 social enterprise investments. Together with other features, such as the <span style=\"color: #eb5200;\">layered fund structure<\/span> that offers investors a choice between senior and junior tranches, this derisking mechanism helps to address the systematic financing gap, often called \u201cmissing middle\u201d. Designed as a <span style=\"color: #eb5200;\">passively managed matching fund<\/span>, the ESIIF matches the commitments of one or several direct investors, provides mezzanine capital and builds a broadly diversified portfolio. Here is a short summary of the core design elements:<\/p>\n\t<div id=\"gap-1268760038\" class=\"gap-element clearfix\" style=\"display:block; height:auto;\">\n\t\t\n<style>\n#gap-1268760038 {\n  padding-top: 30px;\n}\n<\/style>\n\t<\/div>\n\t\n\t<div class=\"img has-hover x md-x lg-x y md-y lg-y\" id=\"image_895876653\">\n\t\t\t\t\t\t\t\t<div class=\"img-inner dark\" >\n\t\t\t<img loading=\"lazy\" decoding=\"async\" width=\"1020\" height=\"505\" src=\"https:\/\/fa-se.de\/wp-content\/uploads\/2020\/09\/ESIIF-Features-English-1024x507.png\" class=\"attachment-large size-large\" alt=\"\" srcset=\"https:\/\/fa-se.de\/wp-content\/uploads\/2020\/09\/ESIIF-Features-English-1024x507.png 1024w, https:\/\/fa-se.de\/wp-content\/uploads\/2020\/09\/ESIIF-Features-English-300x148.png 300w, https:\/\/fa-se.de\/wp-content\/uploads\/2020\/09\/ESIIF-Features-English-768x380.png 768w, https:\/\/fa-se.de\/wp-content\/uploads\/2020\/09\/ESIIF-Features-English-1536x760.png 1536w, https:\/\/fa-se.de\/wp-content\/uploads\/2020\/09\/ESIIF-Features-English.png 1884w\" sizes=\"auto, (max-width: 1020px) 100vw, 1020px\" \/>\t\t\t\t\t\t\n\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\t\n<style>\n#image_895876653 {\n  width: 78%;\n}\n<\/style>\n\t<\/div>\n\t\n\t<div id=\"gap-1113154370\" class=\"gap-element clearfix\" style=\"display:block; height:auto;\">\n\t\t\n<style>\n#gap-1113154370 {\n  padding-top: 30px;\n}\n<\/style>\n\t<\/div>\n\t\n<p>On top of the catalytic structure of the ESIIF, there is also a strong non-financial support component in place: All eligible social enterprises need to enter into a transaction support mandate with FASE, which boosts capacity-building, investment readiness and access to potential direct investors. This includes:<\/p>\n<ul>\n<li>Know-how transfer and guidance throughout the entire transaction process, including <span style=\"text-decoration: underline;\" data-text-color=\"primary\"><a href=\"\/?page_id=447\" target=\"_blank\" rel=\"noopener\">investment readiness support<\/a><\/span> (review of financing strategy, business model, suitable investor types and coalitions, preparation of investor materials and impact logframe)<\/li>\n<li>Connections to a pre-selected list of suitable, potential direct investors out of the entire FASE network<\/li>\n<li>Deal structuring support and expertise<\/li>\n<li>Moderation of negotiations between potential direct investors and the social enterprise founders<\/li>\n<\/ul>\n\t<div id=\"gap-1260853308\" class=\"gap-element clearfix\" style=\"display:block; height:auto;\">\n\t\t\n<style>\n#gap-1260853308 {\n  padding-top: 30px;\n}\n<\/style>\n\t<\/div>\n\t\n<h2><span data-text-color=\"primary\">The impact logic and what we have achieved to date<br \/>\n<\/span><\/h2>\n<p>To address the missing middle, the ESIIF measures several indicators. Here is what we have achieved as of January 2023:<\/p>\n<ul>\n<li>Amount of fund commitments raised from investors: <span style=\"color: #eb5200;\">EUR 12.43 million<\/span><\/li>\n<li>Number of social enterprises financed: <span style=\"color: #eb5200;\">13<\/span><\/li>\n<li>Amount of financing provided to social enterprises: <span style=\"color: #eb5200;\">EUR 4.65 million<\/span><\/li>\n<li>Amount of additional capital catalyzed from direct investors: <span style=\"color: #eb5200;\">EUR 13 million<\/span><\/li>\n<\/ul>\n<p>In addition, the following qualitative and catalytic contributions to improving the social enterprise finance ecosystem could be observed since the ESIIF took up its investment activity in Q1 2021:<\/p>\n<ul>\n<li>The ESIIF has become a <span style=\"color: #eb5200;\">major component in the investor coalitions<\/span> of the financing rounds of its target social enterprises and a success factor in bringing these rounds to a close.<\/li>\n<li>The ESIIF allows social enterprises to <span style=\"color: #eb5200;\">raise more capital<\/span> to scale their impactful solutions.<\/li>\n<li>The ESIIF allows social enterprises to <span style=\"color: #eb5200;\">close their rounds more quickly<\/span>.<\/li>\n<\/ul>\n\t<div id=\"gap-1552334664\" class=\"gap-element clearfix\" style=\"display:block; height:auto;\">\n\t\t\n<style>\n#gap-1552334664 {\n  padding-top: 30px;\n}\n<\/style>\n\t<\/div>\n\t\n\t<div class=\"img has-hover x md-x lg-x y md-y lg-y\" id=\"image_1901857694\">\n\t\t\t\t\t\t\t\t<div class=\"img-inner dark\" >\n\t\t\t<img loading=\"lazy\" decoding=\"async\" width=\"1020\" height=\"661\" src=\"https:\/\/fa-se.de\/wp-content\/uploads\/2022\/11\/ESIIF-Impact-Chain-1-1024x664.png\" class=\"attachment-large size-large\" alt=\"\" srcset=\"https:\/\/fa-se.de\/wp-content\/uploads\/2022\/11\/ESIIF-Impact-Chain-1-1024x664.png 1024w, https:\/\/fa-se.de\/wp-content\/uploads\/2022\/11\/ESIIF-Impact-Chain-1-300x195.png 300w, https:\/\/fa-se.de\/wp-content\/uploads\/2022\/11\/ESIIF-Impact-Chain-1-768x498.png 768w, https:\/\/fa-se.de\/wp-content\/uploads\/2022\/11\/ESIIF-Impact-Chain-1-1536x997.png 1536w, https:\/\/fa-se.de\/wp-content\/uploads\/2022\/11\/ESIIF-Impact-Chain-1-2048x1329.png 2048w\" sizes=\"auto, (max-width: 1020px) 100vw, 1020px\" \/>\t\t\t\t\t\t\n\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\t\n<style>\n#image_1901857694 {\n  width: 98%;\n}\n<\/style>\n\t<\/div>\n\t\n\t<div id=\"gap-2086136239\" class=\"gap-element clearfix\" style=\"display:block; height:auto;\">\n\t\t\n<style>\n#gap-2086136239 {\n  padding-top: 45px;\n}\n<\/style>\n\t<\/div>\n\t\n<h2><span data-text-color=\"primary\">The top 4 lessons we have learned to date<br \/>\n<\/span><\/h2>\n<p>While it&#8217;s still relatively early in the Fund&#8217;s lifecycle, the ESIIF has provided us with a plethora of learnings. Here are &#8220;just&#8221; the main ones:<\/p>\n<p><span style=\"color: #eb5200;\">Design &amp; structuring:<\/span> The process from the first idea to the successful implementation of the ESIIF proved to be very time-consuming. The decisive component was the EaSI Guarantee from the EIF, which we secured in 2020. Without this derisking mechanism, raising sufficient capital for the ESIIF to enable better access to finance for European \u201cmissing middle\u201d social enterprises wouldn&#8217;t have been possible.<\/p>\n<p><span style=\"color: #eb5200;\">Investor appetite &amp; preferences:<\/span> Throughout the process, it became evident that 85% of impact investors are still seeking at least market-rate returns (as famously reported by the GIIN each year). Put differently: The efforts from many market actors and us to mobilize more concessional capital and \u201cinvestors for impact\u201d weren&#8217;t successful enough to date. Thus, catalytic capital continues to be crucial, whether in the form of risk mitigation or return enhancement.<\/p>\n<p><span style=\"color: #eb5200;\">Market conditions:<\/span> As the <span style=\"text-decoration: underline;\" data-text-color=\"primary\"><a href=\"https:\/\/www.pioneerspost.com\/news-views\/20221208\/impact-investing-2023-doom-and-gloom-or-silver-linings\" target=\"_blank\" rel=\"noopener\">market environment continues to be in crisis mode<\/a><\/span>, the challenges for social enterprises increase since investors have become more cautious. It is very positive that the ESIIF is well-positioned to be a reliable financing partner in such a challenging fundraising climate. Also, the matching funds provided by the ESIIF can shorten the time for social entrepreneurs to close a round. As a result, there is a lesser risk that time-consuming fundraising efforts will divert founders too much from pivoting business models and\/or adapting to new market environments.<\/p>\n<p><span style=\"color: #eb5200;\">Financial instrument:<\/span> By using mezzanine capital, the ESIIF avoids some disadvantages of equity and debt from the perspective of the investees. Instead, the fund provides patient capital with a tenure of up to 8 years. Using mezzanine capital also has benefits for the Fund&#8217;s investors: As a self-liquidating instrument, mezzanine makes the fund less dependent on favourable exit markets.<\/p>\n<div class=\"is-divider divider clearfix\" style=\"max-width:772px;\"><\/div>\n<h3><span data-text-color=\"primary\">Are you curious to hear more?<\/span><\/h3>\n<p>For deep divers, here are some additional resources on the ESIIF:<\/p>\n<ul>\n<li>Official ESIIF website (in German): <span style=\"text-decoration: underline;\" data-text-color=\"primary\"><a href=\"https:\/\/www.avesco.de\/european-social-innovation-and-impact-fund\/\" target=\"_blank\" rel=\"noopener\">https:\/\/www.avesco.de\/european-social-innovation-and-impact-fund\/<\/a><\/span><\/li>\n<li>FASE ESIIF page (in English): <span style=\"text-decoration: underline;\" data-text-color=\"primary\"><a href=\"https:\/\/fa-se.de\/en\/esiif\/\">https:\/\/fa-se.de\/en\/esiif\/<\/a><\/span><\/li>\n<li>Reading about impact-first capital and the ESIIF (in English): <span style=\"text-decoration: underline;\" data-text-color=\"primary\"><a href=\"https:\/\/www.pioneerspost.com\/news-views\/20210629\/beyond-warm-glow-why-early-stage-social-ventures-need-more-impact-first-finance\" target=\"_blank\" rel=\"noopener\">https:\/\/www.pioneerspost.com\/news-views\/20210629\/beyond-warm-glow-why-early-stage-social-ventures-need-more-impact-first-finance<\/a><\/span><\/li>\n<li>Reading about the EIF and the ESIIF (in English): <span style=\"text-decoration: underline;\" data-text-color=\"primary\"><a href=\"https:\/\/impact-investor.com\/eif-a-closer-look-at-impact-investings-quiet-achiever\/\" target=\"_blank\" rel=\"noopener\">https:\/\/impact-investor.com\/eif-a-closer-look-at-impact-investings-quiet-achiever\/<\/a><\/span><\/li>\n<li>Reading about impact funds and how to choose them (in German): <a href=\"https:\/\/www.fondstrends.lu\/geld-und-markt\/smarte-fonds-fuer-impact-fans\/\" target=\"_blank\" rel=\"noopener\"><span style=\"text-decoration: underline;\" data-text-color=\"primary\">https:\/\/www.fondstrends.lu\/geld-und-markt\/smarte-fonds-fuer-impact-fans\/<\/span><\/a><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>The European Social Innovation and Impact Fund (ESIIF) uses catalytic capital to enable better access to finance for early-stage social enterprises. But how exactly do the catalytic and innovative components [&#8230;]\n","protected":false},"author":3,"featured_media":8531,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"iawp_total_views":52,"footnotes":""},"categories":[217],"tags":[],"class_list":["post-11760","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog-en"],"_links":{"self":[{"href":"https:\/\/fa-se.de\/en\/wp-json\/wp\/v2\/posts\/11760","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/fa-se.de\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fa-se.de\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fa-se.de\/en\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/fa-se.de\/en\/wp-json\/wp\/v2\/comments?post=11760"}],"version-history":[{"count":77,"href":"https:\/\/fa-se.de\/en\/wp-json\/wp\/v2\/posts\/11760\/revisions"}],"predecessor-version":[{"id":12024,"href":"https:\/\/fa-se.de\/en\/wp-json\/wp\/v2\/posts\/11760\/revisions\/12024"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/fa-se.de\/en\/wp-json\/wp\/v2\/media\/8531"}],"wp:attachment":[{"href":"https:\/\/fa-se.de\/en\/wp-json\/wp\/v2\/media?parent=11760"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fa-se.de\/en\/wp-json\/wp\/v2\/categories?post=11760"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fa-se.de\/en\/wp-json\/wp\/v2\/tags?post=11760"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}