Social innovation, which introduces the concept of philanthropy to business while business models to non-profit organizations to solve social problems, is booming. The renewed concept of philanthropy and injection of business capital have provided more possibilities for social enterprises. However, “fund” often hinders projects in their infancy.

Ma Weihua, former president of China Merchants Bank and professional philanthropic project manager, made an appeal “not to allow people who are engaged in philanthropy to go bankrupt.” How to solve financial problems for startup social innovation projects? Who will guide them to find a viable business model? Shunde Foundation for Innovation and Entrepreneurship (SDIEF) is endeavoring to overcome such difficulties.

On May 31, during the 2018 Shape the Future Social Enterprise and Investment Awards ceremony, Liandi Information Accessibility from Shenzhen won “Product Innovation Award”. Through optimization of mobile APPs and websites, more than 200 million visually impaired, hearing impaired, and the elderly can access the Internet easily and smoothly, which drew public attention. As the funder of Liandi Information Accessibility, SDIEF has stepped into the limelight.

SDIEF has stirred up the field of innovation and entrepreneurship. With the label of innovation, it is committed to solving social problems. What is its background? What role does it play in the development of a social innovation project? What support does it provide for social innovation projects?

Promoting the model of “business + public welfare” through philanthropy

Now, let’s move to Shunde District, Foshan, Guangdong Province. In January 2017, with support from the district commission and government of Shunde and local entrepreneurs, SDIEF was established. Kechuang Group, a state-owned enterprise, donated 2 million yuan as the original registered capital, and 300 million start-up capital was from He Xiangjian, a well-known entrepreneur.

For He, the 300 million fund accounts for 5 percent of his 6-billion charitable contribution plan. In 2017, He renamed the previous He Xiangjian Charity Foundation as He Foundation and allocated 6 billion to fund areas such as targeted poverty alleviation, education, health care, services for the elderly, innovation and entrepreneurship as well as cultural heritage.

In the field of philanthropy and charity, it is unprecedented in China to support young people’s innovation and entrepreneurship with capital. But people who are familiar with social innovation will find that this is nothing new in Shunde. As a national pilot area for reform, Shunde has always taken a role of pioneer and advocator in the area of social innovation. As early as June 26, 2012, it has established a district-level social innovation center as the official platform for social innovation.

SDIEF, whose mission is to support innovation and entrepreneurship, assumes the role of “supplement to government”.

Su Pengcheng, Director of Industrial Finance Section of Shunde Economic and Technological Promotion Bureau, noted that “(our) local government has always been promoting innovation and entrepreneurship. Apart from the government, private sector also wants to make contributions. Foundation can serve as a supplement to the government and fund areas where market is not willing to fund.” In infancy of projects, especially social innovation projects, it is not likely to receive commercial investment and government funding. However, SDIEF can provide attention and capital to them.

Unlike traditional foundations that are engaged in charitable projects, SDIEF guides projects for innovation and entrepreneurship to social benefit. Li Yunguan, SDIEF Director and Director General of Shunde Social Innovation Center, said that “business investment focuses on returns, while government support emphasizes public welfare. Foundation can achieve outcomes of both ‘public welfare and business’ and encourage businesses to focus more on social benefits”.

Chen Jiajun, Deputy Secretary General of SDIEF, said that the foundation’s mission is that “future begins with innovation and young people start careers for goodness.” Behind its support to young people for innovation and entrepreneurship, SDIEF hopes to influence these promising and innovative projects to focus on the society through funding.

“Social Value Investment Program” rewards social innovation projects

Currently, SDIEF provides three types of funding for young innovative entrepreneurs aged 18-40: Seed Funding Program, Acceleration Support Program and Social Value Investment Program.

Seed Funding Program is aimed at outstanding young people with financial difficulties. With non-reimbursable seed money, those young people are encouraged to start a business to test new ideas and build new business models. According to SDIEF Project Director Ye Yunqi, application for Seed Funding Program is available throughout the year and is reviewed regularly. Each year, no less than 30 projects will receive funding between 300,000 and 700,000 yuan respectively, and the total amount is no more than 15 million yuan.

Among them, individual applicant can obtain seed funding of 300,000 yuan every year. For group applicants, 100,000 yuan of seed funding will be added for every additional member, with a maximum of 400,000 yuan. Applicants should be between 18 to 35 when submitting applications, and carry out innovative and entrepreneurial activities with recourses of Shunde, as well as have innovative business ideas or projects.

Acceleration Support Program is designed to provide assistance to start-up entrepreneurs to support their projects for further development. Every year, three entrepreneurs will receive 2-10 million of funding in the form of the grant, equity, creditor rights and convertible bonds.

When selecting entrepreneurs, SDIEF will evaluate projects from three aspects: before A round financing, including verified product(s) or service(s), clear profit model and the possibility of rapid replication and promotion. Projects should provide innovative solutions to existing market needs and enjoy prospects of large-scale application; the main products or services have been verified, and its profit model is clear and is possible to be replicated and promoted rapidly; projects can bring social benefits such as creating jobs and improving the sustainable lifestyle of communities.

Social Value Investment Program is for social enterprises and requires their projects to create social and environmental benefits as well as effective business models. To promote the Program, SDIEF currently works with “Startups in Shunde” contest to establish “Social Value Award”.

As a philanthropic foundation to facilitate young people’s innovation and entrepreneurship, SDIEF provides not only financial support but a collaborative platform for entrepreneurs and start-ups.

Chen Jiajun said that rather than providing funding in a traditional way, SDIEF, working as a network and bond, endeavors to achieve strategic cooperation and resource coordination. By building the “partnership platform for innovation and entrepreneurship”, it creates a network that engages experts and investors who are from local industrial, financial and academic communities and non-profit organizations. Through regular exchanges and cooperation with benchmarking incubators and accelerators at home and abroad, it provides support to its projects in a comprehensive way, so as to stimulate their potential and maximize chances of success.

Successful projects with non-reimbursable fund must give back to communities

According to Ye Yunqi, in 2017, 97 projects applied for Seed Funding Program, 13 of which were funded by SDIEF with 6.15 million yuan; 27 projects were recommended for Acceleration Support Program, among which 9 passed the road show.

After the primary selection, project roadshow and decision-making of the investment committee, applicants can finally receive the funding.

After initial screening of submitted application materials by SDIEF project team, selected projects will be shortlisted for roadshows; then about 50% of the projects will be selected according to their roadshow performance; after due diligence, the project team will write investment analysis report for decision-making by the investment committee.

Members of the investment committee are well-known local business managers, investors, and government officials. They make the final decision on projects that will receive funding under specific rules and criteria.

“The demand of a project changes in different stages. Instead of helping those projects cope with their financial difficulties or emergencies, the foundation focuses on their sustainability. We hope those projects will continue to develop and benefit more people with our support.” said Chen Jiajun.

SDIEF provides fund in various areas of social innovation and business, including medicine, technology, education, and manufacturing. Most of them are social innovation projects, including About Our Grandparents, Muxin Innovation Workshop, Cellular Internet Experiment for Children and accessibility solutions. For business innovation, it also emphasizes on the solutions for social problems.

At the same time, SDIEF also values the growth of innovators and entrepreneurs. “Through our funding, we hope to encourage more positive changes in young people, so we are willing to take risks and tolerate failures," said Chen Jiajun.

Since Seed Funding Program requires no commercial return, the Foundation has no commercial return requirements for the funded party. SDIEF and the funded innovators and entrepreneurs reach an oral consensus that the latter should give back to communities when the annual profit of their organizations reaches a certain amount.