Supporting Social Finance in Atlantic Canada

Challenges at the SPO Level

Social Purpose organizations (SPOs) such as nonprofits and mission-driven businesses play a critical role in tackling socio-economic and environmental challenges but remain underfunded in Canada. SPOs in Atlantic Canada, and rural parts of this country, are particularly constrained by several challenges, including:

• Aging demographics, lower population density and outmigration
• Constrained capital availability
• Rigid financing terms that focus on asset-backed lending
• Both perceived and real risk concerns among lenders and investors, especially with newer or smaller businesses
• A lack of financing products that match SPO needs
• A limited set of institutions that can support activity at an adequate scale 

Challenges at the SFI Level

The key way we support SPOs is by working with Social Finance Intermediaries (SFIs). We work to help SFIs grow the financial infrastructure and “connective tissue” that can more repeatably serve SPOs and enable their growth. Nonetheless, there are challenges at the SFI level too. We have observed a recurring, three-part challenge faced by new and emerging fund managers, particularly those based in less-populous or less-resourced regions like Atlantic Canada:

• Demand: Needing enough demand for investment from investees/SPOs. SPOs are the ultimate customers of any fund manager and how investment is productively put to use. A fund manager needs to be able to demonstrate enough well-qualified demand to justify an adequately sized fund. That often implies a market opportunity of many multiples of a fund’s size, as not all potential opportunities will actually be well qualified to merit investment.
• Scale: Needing a sufficient economy of scale to operate. Like any business, SFIs need a sufficient revenue base to support their operating costs. Often that may be through management fees, or through capturing a “margin” on the difference between their cost of capital and what that can earn when deployed. There are often meaningful “economies of scale” to fund operations where fixed costs can be spread across a larger fund base, reducing the effect of this overhead on a fund’s required returns to remain viable. Too small a fund and it’s difficult to support a fund’s operations. But too large a fund, and there may not be sufficient demand from SPOs, creating a meaningful drag on the ability to actually deliver promised returns to investors as capital remains undeployed and less productive.
• Capital: Needing enough capital to service demand. SFIs need to secure capital to address their identified demand from SPOs and to support their own operations. Well-demonstrated demand is needed to justify investment at scale, but less mature operations create real and perceived risks that limit the ability to attract sufficient investable capital. And to generate well-qualified demand requires meaningful operational capacity.

Our Response to SPO and SFI Challenges

There are strong inter-dependencies here: an SFI needs capital to support operations, they need strong operations to generate SPO demand, and they need strong SPO demand to justify capital! SFI strategies that are too narrowly focused can limit potential demand, limiting capital and resulting economy of scale. Strategies that are too broad can loosen their connection to local priorities and be unattractive to potential mission-driven investors.

It is important to recognize these structural constraints because solutions that can address them are likely to result in more lasting improvement and durable operations. The solution is not just more capital, but also better-aligned systems that can deploy capital effectively at the regional level. Here are three ways we’re trying to make systemic progress.

Supporting a Deeper Understanding of Demand

In 2023, Common Good Solutions looked at the challenges that SPOs in Atlantic Canada face. In its report, The Social Impact: Mission Critical, it notes limited financial literacy, risk aversion and the complexity faced in navigating the current financial system. It recommends a regional Atlantic fund as one way to address these challenges.

We have been building on that work. We have supported Purposeful Group to more fully assess the feasibility and scope of an Atlantic Canada-focused impact fund. This work has been focused on assessing some of the demand and supply relationships and gaps for social finance to validate whether and how a regional solution could be developed.

The Purposeful Group’s research suggests that there is a meaningful addressable market for social finance in the region. The group estimates that the social impact economy represents 11-12.5% of regional GDP and generates approximately 191,000 jobs across the region. In Nova Scotia alone, nonprofits contribute around $1B in direct GDP while supporting ~20,000 jobs. But change is also needed because despite nonprofits being a core contributor to regional prosperity and community wellbeing, their existing funding models are highly exposed to funding volatility, policy shifts and macroeconomic shocks. Revenue is heavily weighted towards government grants (~55%), supplemented by earned income (~31%) and donations (~13%). Most organizations are small (≤$500,000 in annual revenue; fewer than 10 staff) and operate with thin margins and limited reserves.

Looking at more qualified demand, the study also assessed the financing need at the SPO level. Around 84% of respondents to a survey reported needing financing within the next 2–3 years, 73% reported difficulties in accessing financing and 74% had never accessed repayable capital. The most frequently cited barriers to financing? Lack of collateral or assets, lender risk perception around community-rooted enterprises and fragmented public funding programs. In Newfoundland and Labrador, as an example, 58% of surveyed SPOs report willingness to consider loans but 68% do not carry debt, reflecting a “willing but wary” posture shaped by perceived risk, eligibility constraints, collateral limitations and the absence of tailored, flexible products.

The findings of this work suggest potential for a regional private investment vehicle designed to provide structured, flexible capital to revenue-generating enterprises and community infrastructure across Atlantic Canada. A proposed vehicle could address SPO demand not otherwise being met (for example, enterprises and community projects deemed too complex, seasonal or place-based for conventional lenders, too mature or capital intensive for grants, and less suitable for venture capital). To meaningfully deploy capital at needed scale across the Atlantic provinces, such a fund needs to have strong origination, be able to tap into both regional and external sources of capital, and achieve adequate economies of scale.

Building a Regional Engine for Venture Growth

What can an effective regional strategy look like? Recently, we chose to invest in Sandpiper Ventures Fund II. Sandpiper is an early-stage investor seeking to back women and other underrepresented founders of technology-enabled businesses. It particularly focuses on opportunities with potential for positive impact in the sectors of health, energy, infrastructure, education and jobs.

We found that Sandpiper’s team reflects strong, female leadership with either direct presence or deep network access across all four Atlantic provinces. While well-rooted locally, Sandpiper is willing and able to invest across the country, creating the flexibility needed as they seek out companies with the greatest potential. By working across the region, it is able to source a wider variety of investable opportunities, while maintaining strong connections to local innovation ecosystems in each province.

Sandpiper has been able to attract both local and national capital. It has attracted investment from public and private institutions, and worked to activate local investors, particularly women, to be empowered to invest in an asset class like venture capital. While public institutions often have more narrow geographic mandates, Sandpiper has been able to strike a careful balance between maintaining flexibility to invest while delivering local economic value. Its work as a national investor has equally been an asset in an industry like venture capital, where investor syndicates and the need for next-stage investors are common. Sandpiper is able to act as a local lead investor, supporting companies at an early stage while helping to bring in other investors that might otherwise not focus on opportunities in the region. In our own Fund I portfolio, we see a strong complement with other early-stage investors in similar themes around health and energy, helping create a more complete capital system that can reach more of the country.

By operating across the region while maintaining flexibility to invest and tapping into both local and national sources of investment, whether individual or institutional, Sandpiper has continued to grow as an impactful franchise in Canadian venture capital. It has continued to build its team, creating stronger operational resilience and the capacity to repeatably attract, manage and deploy capital in service of SPOs in Atlantic Canada.

We believe Sandpiper Ventures II is a potentially great example of working to address the interconnected challenges of demand, scale and capital.

Activating Local Capital

With fewer large-scale institutional investors based locally, one strategy that has been critical to the success of many organizations in Atlantic Canada is focused on the supply side: finding opportunities to activate local capital. Programs like the Community Economic Development Investment Funds (CEDIFS) have long sought to incentivize the activation of local investment that might otherwise leave the province.

Seeking to enable low-barrier pathways to activate retail investment in the region, we supplied some grant funding to Goparity Canada to expand to new provinces, including Newfoundland and Labrador. Goparity Canada is a finance platform that aims to democratize access to impact investing. Through its crowdlending platform, Goparity Canada enables a range of investors to invest in underserved SPOs struggling to access financing through traditional banking institutions. Goparity Canada utilizes a range of marketing strategies and in-person events to reach and recruit investors. Goparity Canada has been able to lower barriers for participation, especially for everyday retail investors, with two-thirds of their users historically being non-accredited.

Goparity Canada investors can find opportunities aligned with their individual investment priorities. The platform allows the SPOs to tap into a broader investor pool, raising funding either from local investors who want to invest in their community or from a wider range of investors motivated by sustainability-focused businesses. One local example of a project funded by Goparity Canada is the Mi'kmaw Cultural Foundation in Newfoundland and Labrador. It received $25,000 in funding from 52 investors on Goparity Canada to purchase and develop a dedicated facility for a Mi’kmaw cultural daycare, office rentals and a cultural events space.

“Across Atlantic Canada, communities are rich in ideas, resilience and purpose, but often constrained by a lack of accessible, flexible capital to bring those visions to life. What we learned in Newfoundland and Labrador is that impact financing, when rooted in place and driven by collaboration, can unlock profound local potential.” - Emily Mercy, Co-founder and Managing Director

By reducing the scale needed to support viability and activating more local sources of investment, fintech applications like Goparity Canada can similarly help extend the reach of social finance in less populous regions, including Atlantic Canada.

More to Come!

We’re excited to continue to identify and enable opportunities that match demand and supply for impactful capital through repeatable and scalable operating models. We continue to learn with partners to explore new models for how SFIs can cost-effectively operate to be able to repeatably and viably serve SPOs in less populated or less resourced regions, including Atlantic Canada. We see strong promise in models that operate regionally while maintaining strong local presence and leverage partnerships as an approach to achieve needed economy of scale while addressing demand from community-driven solutions.

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The information contained herein is for information purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any securities. Any reference to specific investments is provided for illustrative purposes only and may not be representative of other investments made by the fund. Certain information contained herein may include forward looking statements, which are based on current expectations and are subject to risks and uncertainties. Actual results may differ materially.