The 2020 Taiwan Social Innovation Survey shows that over the past five years the percentage of people who know about social enterprises has increased from 18.7 to 33.6 percent. This means that one-third of Taiwanese know what such a company is.
However, studies show that a lack of capital is making it difficult for social enterprises to take off. It is clear that they cannot rely on volunteers’ passion alone.
The survey shows that 77 percent of respondents expressed support for social enterprises after they were explained, and nearly 48 percent said they were willing to purchase products from such companies in the next six months.
Still, the number of people who would purchase a social enterprise’s goods if they were more expensive than other similar products fell by 11.9 percent over the past three years, while the number of people willing to recommend social enterprise products to relatives and friends also declined by 10 percent during the same period.
It is clear that if such products are not competitively priced, it would be difficult to promote them, especially during the economic downturn.
Most social enterprises have fewer than five employees, the survey showed. Twenty-eight percent of these businesses are profitable, while those that have operated for more than six years are more likely to be profitable.
This indicates that most social enterprises have to make it through a period of market validation during the preliminary stages to survive. In addition to adjusting their business models, it is even more important for these operations to find external resources, such as through venture capital or outside help to eliminate potential blind spots.
Social enterprises are facing several challenges: financing, marketing, public awareness and personnel shortages. Key to these problems is money, because with sufficient capital, recruiting talented staff, marketing and advertising would not be a problem.
More than 80 percent of the funds a social enterprise has in its preliminary stage are self-financed, while crowdfunding, angel investment and venture capital account for a paltry 7.3 percent. Given the lack of systematic financing, it is not surprising that 37.4 percent are losing money.
Start-up investment in Taiwan is mainly focused on the information, communication and biomedical sectors. Even start-up capital provided by the government seldom goes to social enterprises, be it from business incubators, accelerators or start-up hubs.
There are two reasons for this: There is no tool to assess a social enterprise’s development potential, which makes it hard to evaluate whether the company is worthy of investment, and the National Development Fund, which leads the nation’s start-up investments, has restricted its funding methods in a way that makes it difficult for small social enterprises to win favor with investors. Social enterprises also have no extra manpower to manage stock affairs.
The fund in 2013 launched a fundraising board for start-ups and accelerators. Since the platform can only raise funds and is restricted from engaging in open trading, it has had difficulty attracting investors. For this reason, the Financial Supervisory Commission plans by the end of the year to launch a new start-up board, which is only to be open to professional investors, thus starting all over again.
An evaluation of whether a social enterprise is worthy of investment could be made through a “social impact assessment,” which is what Singapore is doing. The fund should break out of the existing framework so it can offer assistance to more start-ups.
Lin Chao-chen is a research fellow at the National Policy Foundation.
Translated by Eddy Chang
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