How are Swedish social entrepreneurs financing their

businesses?
A survey of Swedish social entrepreneurs’ access to
funding

ELIN RHENMAN

Master of Science Thesis

Stockholm, Sweden 2016

How are Swedish social entrepreneurs financing their
businesses?
A survey of Swedish social entrepreneurs’ access to
funding

Elin Rhenman

Master of Science Thesis INDEK 2016:26

KTH Industrial Engineering and Management
SE-100 44 STOCKHOLM
 Master of Science Thesis INDEK 2016:26

How are Swedish social entrepreneurs financing their

businesses? A survey of Swedish social entrepreneurs’
access to funding

Elin Rhenman

Approved Examiner Supervisor

2016-06-09 Kristina Nyström Johanna Palmberg

Abstract
Social entrepreneurship and related concepts have received an increasing amount of
attention during the last years. Social entrepreneurship is characterized by ventures
with a social mission, seeking to address societal challenges and needs. The social
goal is the primary goal of the business activities whereas generating economic profit
is not the main objective, yet still possible. Social entrepreneurship is often seen as a
powerful tool for creating sustainable development, a fundamental goal of many
businesses, countries and organizations today. Just like any other firm, social
entrepreneurs need finance in order to exist. This thesis seeks to examine how
Swedish social entrepreneurs finance their businesses. A questionnaire was sent out to
Swedish social entrepreneurs and the results suggest that Swedish social
entrepreneurs to a large extent rely on governmental funds and support, personal
resources and internally generated capital. Access to the traditional banking system
seems to be limited compared to traditional entrepreneurs. There seems to be a gap
between the demand and supply of external capital since the majority of the
respondents believe that they have a limited access to external capital. 60 per cent of
the respondents reported a positive economic result in the last fiscal year.
Furthermore, the majority of the respondents want to expand their businesses in the
future but the largest obstacles seem to be lack of financing and political aspects. The
respondents hope for, among other things, an improved attitude towards social
entrepreneurship in general, more financing and increased collaboration with Swedish
municipalities. Altogether the results highlight the role of the government in
supporting and promoting this type of firms in Sweden.

Key-words:
Social entrepreneurship, work integration social enterprises (WISE),
entrepreneurship, Schumpeter, sources of financing, funding, Sweden
ACKNOWLEDGEMENTS

First and foremost, I would like to thank my supervisor Johanna Palmberg for her
guidance, encouragement and valuable feedback throughout the process of writing
this thesis. I would like to thank all the professors that have shared their knowledge
and interest in the courses within the Master’s programme in Economic of Innovation
and Growth at KTH Royal Institute of Technology. Also, I would like to thank all the
respondents that have shared their stories and opinions by responding to the
questionnaire. Last but not least, I would like to thank my family and friends for their
support.

Stockholm, 9th of June 2016

Elin Rhenman
TABLE OF CONTENTS

1. INTRODUCTION – WHY STUDY THE FINANCING OF SOCIAL ENTREPRENEURSHIP? 1

2. ENTREPRENEURSHIP IN THEORY & LITERATURE 3
2.1 ENTREPRENEURSHIP – AN OVERVIEW 3
2.2 THE ENTREPRENEUR AS AN INNOVATOR 4
2.3 MORE THEORIES OF ENTREPRENEURSHIP 6
3. SOCIAL ENTREPRENEURSHIP IN THEORY & LITERATURE 9
3.1 SOCIAL ENTREPRENEURS: PAST & PRESENT 9
3.2 DEFINITIONS OF SOCIAL ENTREPRENEURSHIP 10
3.3 THEORIES OF SOCIAL ENTREPRENEURSHIP 12
3.4 SOCIAL ENTREPRENEURSHIP TODAY 14
3.5 ARE NOT ALL ENTREPRENEURS SOCIAL ENTREPRENEURS? 16
4. THE FINANCING OF SOCIAL ENTREPRENEURSHIP 18
4.1 THE CAPITAL STRUCTURE OF A FIRM 18
4.2 SOCIAL ENTREPRENEURSHIP & SOURCES OF FINANCE 20
4.3 FINANCING PATTERNS OF SOCIAL ENTREPRENEURS 23
4.4 HOW DO SWEDISH SOCIAL ENTREPRENEURS FINANCE THEIR BUSINESSES? 25
5. METHODOLOGY 26
5.1 QUANTITATIVE AND QUALITATIVE RESEARCH 26
5.2 SURVEY METHODOLOGY 27
5.2.1 QUESTIONNAIRE 27
5.2.2 SAMPLE 28
5.3 SURVEY DESIGN & DATA COLLECTION 29
5.4 VALIDITY & RELIABILITY 30
6. EMPIRICAL RESULTS & ANALYSIS 31
6.1 DESCRIPTIVE STATISTICS ON RESPONDENTS 31
6.2 DESCRIPTIVE STATISTICS ON ORGANIZATIONS 33
6.3 SOURCES OF FINANCE 38
6.3.1 SOURCES OF FINANCE DURING START-UP & LAST 12 MONTHS 38
6.3.2 SOURCES OF FINANCE IN CASE OF EXPANSION 40
6.4 OBSTACLES, EXTERNAL CAPITAL & OPEN-ENDED QUESTIONS 41
6.4.1 OBSTACLES 41
6.4.2 EXTERNAL CAPITAL 43
6.4.3 OPEN-ENDED QUESTIONS 45
7. DISCUSSION & CONCLUSIONS 47
7.1 SUMMARY OF EMPIRICAL RESULTS 47
7.2 DISCUSSION 48
7.2.1 SOCIAL ENTREPRENEURSHIP IN THEORY & REALITY 48
7.2.2 FINANCING 49
7.2.3 OBSTACLES & AREAS OF IMPROVEMENT 49
7.3 CONCLUSIONS 50
7.3.1 SUGGESTIONS FOR FUTURE RESEARCH 50
REFERENCES 52
APPENDIX I: QUESTIONNAIRE 58
ORIGINAL QUESTIONNAIRE (SWEDISH) 58
TRANSLATED QUESTIONNAIRE (ENGLISH ) 64
APPENDIX II: SOURCES OF FINANCE 70
1. INTRODUCTION – WHY STUDY THE FINANCING OF SOCIAL ENTREPRENEURSHIP?

“Social entrepreneurs make significant and diverse contributions to their

communities and societies, adopting business models to offer creative solutions to
complex and persistent social problems.”
Zahra, Gedajlovic, Neubaum & Shulman (2009, p.519)

The last couple of years’ economic turmoil, the intensified debate regarding
environmental and climate related challenges, demographic changes and increased
income inequality are just examples of topics that pervades the global and national
debates. There is an increasing need for these and related societal challenges to be
addressed as soon as possible (Larsson & Palmberg, 2015; Backström, 2014;
Augustinsson & Solding, 2013).
The concept of social entrepreneurship has received an increasing amount of
attention during the last years. This type of entrepreneurship is characterized by a
focus on societal challenges and needs, with a primary aim to contribute to the
development of the society and to create social wealth (Backström, 2014). These
entrepreneurs are referred to as social entrepreneurs. Social entrepreneurship is today
an accepted term, although a general definition is yet to be formulated (Volkmann,
Tokarski & Ernst, 2012). Most definitions of social entrepreneurship emphasize a
primary focus on creating societal improvement (Zahra et al., 2009). Creating
economic profit is considered to be less important. There has been a growing focus,
both on the national and regional levels, on developing frameworks that support social
entrepreneurship (Backström, 2014). An example of this is the Global Social Impact
Investment Steering Group (GSG), established in 2015 as a successor to G8-founded
Social Impact Investment Taskforce. This group works to establish a global market
for so-called social impact investments, aiming at generating both social and financial
return (Backström, 2014; GSG, 2016a; Wilson, 2015). The European Commission
(2014, p.14) concludes that social entrepreneurs often have limited access to external
financing, partly as a result of that “Conventional investors and lenders do not
typically understand the dual purpose and hybrid business models of social
enterprises.”. To ensure that social entrepreneurs have access to funding is an
important aspect to consider if one wants to take care of and support this type of
entrepreneurial activities in society. Social entrepreneurship is still a relatively
unexplored area within scientific research and studying the financing patterns of
social entrepreneurs is therefore highly relevant in the context of today’s society
(Braunerhjelm & Stuart Hamilton, 2012).
This thesis aims to investigate the concept of social entrepreneurship and how
Swedish social entrepreneurs finance their activities. More specifically, the research
question has been formulated as follows: How are Swedish social entrepreneurs
financing their businesses? Theories and studies on entrepreneurship, social
entrepreneurship and corporate finance are therefore relevant to examine more in
detail. The empirical section of this thesis is based on a web-based questionnaire that
was sent out to 396 social entrepreneurs in Sweden, with a following response rate of
approximately 41 per cent. The 25 questions in the questionnaire concern the
financing patterns of social entrepreneurs in Sweden and what type of difficulties that
these might face. Most previous studies within this area have been of qualitative

1
nature, often based on case studies, and therefore, there is a need for quantitative
studies of this kind.
Thus, this study contributes to the existing knowledge of social
entrepreneurship and sheds new light on relevant financial aspects by studying social
entrepreneurs and their financing behaviour in Sweden. It is interesting to study social
entrepreneurship from a Swedish perspective since Sweden was ranked the third most
innovative country in the world in 2015 and is not only one of the richest OECD-
countries but also top-ranked when it comes to the well-being of its population.
Furthermore, Sweden has a large public sector and the level of civic participation is
high (Cornell University, INSEAD & WIPO, 2015; OECD, 2016). The findings and
conclusions may therefore be of value not only in Sweden but also for other
countries’ understanding of social entrepreneurship.
In short, the results of the questionnaire suggest that Swedish social
entrepreneurs to a large extent rely on governmental support when it comes financing
their business activities. Personal resources and internally generated funds are also
important sources of finance. Even though 40 per cent of the respondents mean that
they did not have enough money during the last 12 months, 60 per cent report a
positive economic result in their last fiscal year. The majority of the respondents plan
to expand their business activities within the next 2-3 years, preferably financed by
internally generated capital. However, lack of financing and political aspects are seen
as obstacles for expansion. Furthermore, the respondents call for more contracts and
better communication with the Swedish municipalities, business development and an
improved attitude towards social entrepreneurship in general, among other things.
In order to understand social entrepreneurship, the next section consists of an
examination of the theoretical framework on traditional entrepreneurship. Thereafter,
social entrepreneurship within theory and in the context of today’s society is
examined in section 3. Section 4 includes a review of the capital structure of a firm
and an overview on the available sources of finance for and financing patterns of
social entrepreneurs today. Also, the research question is formulated and its relevance
motivated. A discussion on methodology follows thereafter in section 5. The
empirical results are presented and analysed in section 6. Finally, section 7 contains a
summary of and discussion on the empirical results, some concluding remarks as well
as some suggestions for future research.

2
2. ENTREPRENEURSHIP IN THEORY & LITERATURE
This section examines the existing theoretical framework and literature related to
entrepreneurship. The main focus is to examine the role of entrepreneurship in
economic theory and literature. First, there is a brief overview of the development of
the role of the entrepreneur in society. Then, Joseph A. Schumpeter’s theory on
entrepreneurship is studied, followed by a section with other relevant theories.

2.1 ENTREPRENEURSHIP – AN OVERVIEW

Large corporations dominated the global economic activity during the 20th century.
Up until the 1980s, large firms and their economies of scale were believed to be the
keys to development and efficiency (Thurik, 2009). Audretsch and Thurik (2001;
2004) refer to this period as the managed economy, in which traditional inputs such as
labour, capital and land were of great importance for the production of output. Studies
have shown how large corporations drove out entrepreneurship during this time
(Thurik, 2009). However, during the 1970s and 1980s, there was a shift in the
economic activity of some economies, from large corporations to smaller firms. Small
businesses were to an increasing extent expected to be the job creators and source of
renewal of the commercial and industrial business world (Johannisson & Lindmark,
1996). For example, in 1970, 20 per cent of the US work force was employed in the
500 largest corporations in the United States. In 1996, this share had dropped to 8.5
per cent (Carree & Thurik, 2010). A report by the Swedish Federation of Business
Owners (Swe: Företagarna, 2012) illustrates that small and medium sized firms have
been responsible for most of the growth and job creation in Sweden during the past
decades. In the 1990s, 386 000 firms with less than 50 employees accounted for 98.7
per cent of all firms in Sweden. In 2010 this number had grown to 764 000 firms,
corresponding to 99.2 per cent of all Swedish firms. 1 In 2015, there were
approximately 865 000 small and medium sized enterprises (SMEs), with less than
250 employees, in Sweden. This corresponds to 99.9 per cent of all firms in the
country (Ekonomifakta, 2016). This development can be described as the shift from
the managed economy, with greater concentration and centralization, towards the
entrepreneurial economy where small firms are increasingly important (Thurik, 2009;
Audretsch & Thurik, 2001; 2004). In the entrepreneurial economy, knowledge and
entrepreneurial capital are two of the more important factors of production and
sources of competitive advantage (Audretsch & Thurik, 2004). While the
entrepreneurs in the managed economy were followers, they became the source of
economic growth in the entrepreneurial economy.
Together with the growing share of small businesses and the increasing
number of entrepreneurial initiatives, the interest for entrepreneurship and
entrepreneurial research has increased during the last decades. Many disciplines
within academia have tried to capture aspects of entrepreneurship. Having become a
cross-disciplinary area of research, there are a lot of studies and theories on
entrepreneurship today (Acs & Audretsch, 2010). Economists emphasize the
importance of entrepreneurial activity for economic growth since studies have shown
that there is a positive relation between the two (Acs, 2010; Acs, Braunerhjelm &
Carlsson, 2012; Carree & Thurik, 2010).

1
Private sector; excluding the agricultural sector (Företagarna, 2012).

3
2.2 THE ENTREPRENEUR AS AN INNOVATOR
Schumpeter was one of the first economists who emphasized the role of the
entrepreneur in economic theory and is often described as a pioneer within the field of
entrepreneurship (Johansson et al., 2014). Schumpeter once wrote: “The mechanisms
of economic change in capitalist society pivot on entrepreneurial activity.”
(Schumpeter, 1947, p.150). According to Schumpeter, neoclassical economic theory
fails to explain economic development since such change is assumed to be created
outside the economic system. Neoclassical economic theory describes a stationary
economic system and considers only factors that together bring the economy into a
state of equilibrium (Schumpeter, 1911; Swedberg, 1989c). Schumpeter however
wanted to internalize the process of economic change in the theoretical model of the
economy in order to be able to understand economic development. Schumpeter
(1950) argued that the economic reality almost everywhere and at all times is static. In
the static economy, there is no change or only automatic change as a result of changes
in outside factors. The static nature of the economy makes it interesting to examine
why development does or does not take place. Schumpeter proposed that there are
two factors that keep the static economy in place in general. The first one is a
sociological factor, namely that if one person tries to do something new or something
different, there is a tendency of other people to react negatively. The second factor is
of psychological nature and concerns the resistance of human beings to do something
new as opposed to doing things in a familiar way (Swedberg, 2006).
Schumpeter asked: how does the economy develop and transit from one level
to another? Schumpeter structured his work according to the principle of
methodological individualism, departing from the individual (Swedberg, 1989b).
Development, he argued, is something that arises from within and requires a Man of
Action – an entrepreneur. The entrepreneur is a fundamental agent in society, being
the primary source of economic development (Schumpeter, 1942, as cited in
Audretsch & Thurik, 2000). The entrepreneur is an economic leader who wants to
change the reality and who enjoys being in a power position (Swedberg, 2006). The
motivational force behind an entrepreneur is not necessarily money but rather a dream
to create change (Swedberg, 1989a; b; 1995; Schumpeter, 1934). Entrepreneurs do
not form a class in society since it is neither a profession nor an everlasting function.
The entrepreneur can, but need not to be, a manager or a business leader. In other
words, having your own business does not make one an entrepreneur and most
business owners are not entrepreneurs (Johansson et al., 2014). However, anyone can
be an entrepreneur as long as he “carries out new combinations” (Schumpeter, 1911;
1934, p.78). 2 The entrepreneur is responsible for the formation of the new
combinations, the innovations, which cause changes in the fundamental structure of
the economy (Schumpeter, 1911). An innovation is an invention that is
commercialized by being brought to the market, i.e. not all inventions become
innovations. Also, the entrepreneur does not need to be the inventor. Furthermore,
innovations do not need to be technological in their nature, as the general debate often
assumes (Schumpeter, 1994; Johansson et al., 2014). According to Schumpeter
(1934), there are five possible ways for an entrepreneur to create new combinations:
i. by presenting a new good or new quality of a good;
ii. introducing a new production technique;
2
The entrepreneur was always a ”he” according to Schumpeter (Swedberg, 2007).

4
 iii. opening a new market;
iv. finding a new source of supply;
v. structuring the organization of an industry in a new way.
Innovations are catalysts for economic development and tend to come in
clusters and disturb an economy in equilibrium, affecting entire sectors at the same
time. The actions of entrepreneurs can therefore explain the existence of business
cycles (Swedberg, 1989a;b). Schumpeter (1934) emphasized the discontinuity and
spontaneity of new combinations in order for development to take place. With the
entrepreneurs’ innovations, new firms emerge and force established firms out of
business, something that Schumpeter referred to as the process of creative
destruction. The process of creative destruction, which has come to be referred to as
the Schumpeter Mark I, forces incumbent firms out of the market by making current
products and technologies obsolete (Swedberg, 1989a;b; Carree & Thurik, 2010).
Schumpeter (1950) argued that the process of creative destruction is the core of
capitalism and that economic development arises within the economic system
(Swedberg, 2006).3 There is a difference between development and adaptation in the
economy. The static economy with its movement towards equilibrium adapts as a
response to small changes outside the economy system. The small changes and the
following adaptation process, which over time may result in large changes, can be
explained by the theory of the static economy. However, the theory of the static
economy cannot explain changes that come from within and without changes from
within, there cannot be economic development. Without development, the economy
only adapts to changes in the surrounding world (Schumpeter, 1959).
Schumpeter (1934) suggested that in an economic system without
development, capital only has a technical value; to accommodate the usual exchange
in the marketplace. When there is economic development however, capital is essential
since it is a means of payment that can be transferred to the entrepreneurs.
Entrepreneurs are able to create new combinations through the existence of credit
(Schumpeter, 1994). The entrepreneur must have access to credit “…in order to
produce at all, to be able to carry out his new combinations, to become an
entrepreneur” (Schumpeter, 1934, p.102). The financier is thus a central agent in the
economic system and its existence is essential for economic development. An
entrepreneur’s ambitions for expansion and development affect the need for external
capital. An entrepreneur with no such ambitions needs no additional external capital.
Debt and equity are the forms of capital that a financier can offer the entrepreneur.
The financier can either be active or passive in the firm’s operations and studies have

3
In Schumpeter’s later work he described a different process, which he called creative accumulation,
often referred to as Schumpeter Mark II (Carree & Thurik, 2010). Most of the research on
Schumpeter’s work has been focused on this latter concept (Swedberg, 1989c). Schumpeter argued that
large firms, especially in the case of a monopoly market structure, are superior the smaller firms when
it comes to producing technological innovations. The larger firms have more resources to devote to
research and development activities and are therefore a more fruitful environment when it comes to
producing innovations (Carree & Thurik, 2010). Therefore, the majority of the innovations are created
in a market that is not characterized by perfect competition (Schumpeter, 1950; Swedberg, 1989b).
Carree and Thurik (2010) explain that which of the regimes, Mark I or II, that dominates depends on
many factors. For example, the institutional environment, the degree of economies or diseconomies of
scale, the type of knowledge that is required to innovate, etc. In industries where the Mark I regime
dominates, it is likely that small firms thrive whereas the Mark II regime is likely to create a
concentrated market.

5
shown that active owners can become as important as the entrepreneur is to the firm
(Johansson et al., 2014).

2.3 MORE THEORIES OF ENTREPRENEURSHIP

Despite several attempts, modern economic theory has failed to incorporate the
entrepreneur in its framework (Johansson et al., 2014). Since the 1930s, economic
theory has to a large extent been expressed in mathematical terms. Hebért and Link
(1982) argue that Walras, amongst many other economists, made a choice between
realism and mathematical precision. In 1957, Nobel laureate Robert Solow estimated
that approximately four fifths of the growth in US output per worker between 1909-
1949 could be attributed to technical change and the remaining part to an increased
use of capital. Solow (1957) proposed that labour and physical capital was the main
forces of economic growth and did not investigate technical progress further. Solow’s
work contributed to the focus on the role of capital and labour when it comes to
economic growth within economic theory (Acs, Audretsch & Strom, 2013; Audretsch
& Thurik, 2004). Carree and Thurik (2010, p.572) claim that “One reason that
entrepreneurship disappeared from economic theory is that it played no role in the
neoclassical growth model developed by Solow…”.
Johansson et al. (2014) argue that since entrepreneurship is closely related to
human behaviour, social interaction and creativity, it is, and most probably will
continue to be, difficult to conceptualize and formalize a model that takes into
account how the entrepreneur’s activities influence economic growth. Acs (2010)
suggests that despite the lack of formal theory of entrepreneurship within economics,
there is an extensive literature on areas that are highly relevant for entrepreneurship.
Therefore, the understanding of entrepreneurship within the economic framework is
not incomplete. Many others but Schumpeter have been interested in entrepreneurial
research and contributed in different ways to the body of knowledge in the field.
Some of these are listed in Table 1 and discussed more in detail thereafter.

6
Table 1. The role of the entrepreneur

Scholar The role of the entrepreneur within the economy Active between
R. Cantillon Identifies and make use of business opportunities. Risk bearer. 1680-1734

J. B. Say Gathers and combines production factors; creating higher 1767-1832

productivity.

J. A. Schumpeter Makes new combinations, innovations; source of economic 1883-1950

growth; not a risk bearer.

F. H. Knight Takes on uncertainty in business related matters. 1885-1972

F. A. von Hayek Identifies opportunities, which arises from uncertainty and 1899-1992
knowledge disparities.

P. Drucker Searches for and acts on change. 1909-2005

W. J. Baumol Economic leader; being the source of economic growth. 1922-

I. M. Kirzner Arbitrageur; finds prices disparities. 1930-

Source: Johansson et al. (2014); Martin & Osberg (2007); Sarasvathy, Dew, Velamuri &
Venkataraman (2010)

Richard Cantillon is often mentioned in the context of entrepreneurship and

Schumpeter (1934) endorsed Cantillon’s early analysis of entrepreneurship.
According to Cantillon, to recognize and make use of business opportunities is what
identifies an entrepreneur. Schumpeter (1934) also referred to Jean-Baptiste Say, who
said that the function of the entrepreneur is to gather and combine productive factors
in the economy. Frank Knight introduced a distinction between risk and uncertainty
and proposed that an entrepreneur is someone who is willing to take on uncertainty in
business related matters. The entrepreneur is according to Israel Kirzner an
arbitrageur who seeks to find disparities in prices and make use of these. The
entrepreneur is therefore a part of the equilibrium process (Johansson et al., 2014).
William J. Baumol (1968) defines the entrepreneur in line with Schumpeter
and emphasizes the leadership skills of an entrepreneur. He observes the absence of
the entrepreneur in economic theory and the danger in disregarding the importance of
the entrepreneur for economic growth. Baumol means that any innovation requires
some form of entrepreneurial initiative, independent of the nature of the change.
Baumol calls for an increased focus on the role of the entrepreneur within economy
theory, especially if one wants to stimulate economic growth. Baumol does not
criticize the neoclassical model, which he, just like Schumpeter, believes serves its
purpose well. However, he emphasized that there is no room for the entrepreneur in
the neoclassical model, which focuses on “…optimality analysis of well-defined
problems…” (Baumol, 1968, p.57). In order to stimulate economic growth, economic
policy should target factors that stimulate the supply of entrepreneurship. Baumol
continues to argue that such interventions might involve “…matters of social
psychology, of social arrangements, of cultural developments and the like.” (Baumol,
1968, p.69). Baumol emphasizes the importance of acknowledging the possible
directions that entrepreneurship can take. Entrepreneurship can be allocated in

7
productive, unproductive and destructive directions and it is the payoff structure in the
economy that will determine the allocation (Baumol, 1996). Productive
entrepreneurship, like innovative activities, will contribute positively to the society,
whilst unproductive and destructive entrepreneurship, for example rent seeking
activities, will not. 4 Instead, the latter two can have negative effects on the society
and the economy. In order to make the best use of entrepreneurship, policymakers
need to address areas in which unproductive and destructive entrepreneurship can be
directed into a more productive nature.
Acs (2010) makes, just like Schumpeter, a distinction between the creators of
new businesses, who are copying other businesses, and entrepreneurs. The
entrepreneurs find opportunities and introduce growth- and wealth-creating
innovations on the market. Wennekers and Thurik (1999) have defined three types of
entrepreneurs in today’s society (Table 2).

Table 2. Entrepreneurs - 3 types

Self-employed Employees
Entrepreneurial Schumpeterian entrepreneurs Intrapreneurs

Managerial Managerial business owners Executive managers

Source: Wennekers and Thurik (1999)

Schumpeterian entrepreneurs are often owners of small firms, which penetrate

markets and change existing market structures. Intrapreneurs are individuals with a
type of leadership who are responsible for entrepreneurial initiatives in larger firms.
These can become Schumpeterian entrepreneurs if they decide to take their
entrepreneurial activities and start new firms. It is the Schumpeterian entrepreneurs
and the intrapreneurs who are responsible for innovations and creative destruction.
Managerial business owners, for example franchisees and shop-owners, together form
the largest share of small corporations in society and entrepreneurial projects can be a
result of these. However, the managerial business owners are not responsible for the
creative destruction in the economy. Nevertheless, their activities are essential for the
economy (Wennekers & Thurik, 1999).

4
Example of rent-seeking activities may be tax evasion, litigation etc. (Baumol, 1996)

8
3. SOCIAL ENTREPRENEURSHIP IN THEORY & LITERATURE
The following sections examine social entrepreneurship within economic theory and
literature. First, an introduction to and some examples of social entrepreneurship are
presented. What defines social entrepreneurship is then discussed, followed by an
examination of social entrepreneurship within economic theory and previous
empirical studies on the topic. Finally, social entrepreneurship in the context of
today’s society and the difference between social entrepreneurship and traditional
entrepreneurship is discussed.

3.1 SOCIAL ENTREPRENEURS: PAST & PRESENT

“Entrepreneurship has emerged as the engine of economic and social development
throughout the world”
(Audretsch & Thurik, 2004, p.144)

The introductory quote highlights the importance of entrepreneurship, not only for
economic development and growth, but also for social change. Social
entrepreneurship is a term that has been used to an increasing extent during the last
years and Florence Nightingale, who founded the modern nursing practice, is often
mentioned as an example of an early social entrepreneur (Ernst, 2012). Nobel
Laureate Muhammad Yunus, founder of Grameen Bank, is often said to have brought
attention to the area of social entrepreneurship in present time (Volkmann, Tokarski
& Ernst, 2012; Acs, Boardman & McNeely, 2013). By providing microcredit and
other financial services to poor people in Bangladesh, Yunus’ primary goal was to
alleviate poverty (Martin & Osberg, 2007).
Social entrepreneurship has received an increasing amount of attention more
recently in Sweden. During the 1980s, social entrepreneurship was discussed in the
context of regional economic development. In 1989, “social economy” became an
official term within the European Union (EU) and when Sweden joined the EU in
1995 the term was introduced in the country. The social economy is a natural
marketplace for social entrepreneurs. There is not a clear definition of social
enterprises in Sweden but work integration social enterprises (WISEs) tend to be in
focus. Some firms may not see themselves as social entrepreneurs even though they
display such characteristics (Gawell, Johansson & Wihlborg, 2014; Gawell,
Johannisson & Lundqivst, 2009). Johan Wendt is an example of a Swedish social
entrepreneur. Wendt (2013) founded Mattecentrum in 2008, an organization that
strives to improve the mathematical learning of young students in Sweden. Wendt
argues that somewhere in between commercial firms and governmental organizations,
there is room for other types of activities that strive to solve societal challenges by
applying sustainable practices. This is how Wendt defines social entrepreneurship.
However, there are many different views on what defines social entrepreneurship,
something that the following section seeks to explore.

9
3.2 DEFINITIONS OF SOCIAL ENTREPRENEURSHIP
Despite the last years’ increased focus on social entrepreneurship, not only in the
academic world but also for example among policymakers, the area is still relatively
young and a clear and universal definition is yet to be formulated (Zahra et al. 2009;
Braunerhjelm & Stuart Hamilton, 2012; Acs et al. 2013b; GEM, 2009). There are
many definitions of social entrepreneurship, more or less similar to each other. For
example, some mean that social entrepreneurship in general can be defined by the
activities of non-profit organizations. Others argue that social entrepreneurship is
closely tied to philanthropy and/or related activities with social objectives.
Furthermore, some separate economic value from social value whilst others argue that
economic value is a form of social value (Acs et al., 2013b). Table 3 provides an
overview of some of the available definitions to date.
A central feature in the term social entrepreneurship is the term
entrepreneurship, which indicates that the activities are organized around a business
model (Dees, 2001). Austin et al. (2006) propose that social entrepreneurship requires
an innovative approach and that one simply cannot copy existing business ideas
and/or models. The other central feature is the social mission, which can be described
as the engine of social entrepreneurs (Austin et al. 2006; Zahra et al. 2009). Palmås
(2003) defines social entrepreneurship, similar to Larsson and Palmberg (2015), as a
term describing firms with business models that, unlike most traditional commercial
firms, do not primarily aim to maximize the wealth of the shareholders and/or the
economic profit. Instead, social entrepreneurs use entrepreneurship and the market
mechanisms to address social problems and thereby aim to contribute to an increased
welfare in the society (Austin et al., 2006; Larsson & Palmberg, 2015). Economic
profit can be seen as a means of use in order to reach the social goal. The economic
profit may enable a greater capability to address the perceived societal challenges
(Larsson & Palmberg, 2015). Social entrepreneurship is not defined by the legal form
of a firm but can take on various forms within the non-profit, corporate and
governmental sector (Austin et al., 2006). Austin et al. (2006) illustrate the concepts
of entrepreneurship and social entrepreneurship as a spectrum, ranging from
entrepreneurship at the one extreme and social entrepreneurship at the other. At both
extremes, elements of the other extreme are still present. For example, “…charitable
activity must still reflect economic realities, while economic activity must still
generate social value.” (Austin et al., 2006, p.3). Acs et al. (2013b) suggest that it may
not be necessary or valuable to distinguish between entrepreneurship and social
entrepreneurship. They mean that commercial entrepreneurship can be socially
responsible and that social entrepreneurship may not be characterized by pure
altruism.

10
Table 3. Definitions of social entrepreneurship

Source Definition
Acs, Boardman & McNeely Productive entrepreneurship; entrepreneurship creating both social
(2013) and economic value.

Austin, et. al (2006, p.2) “…innovative, social value creating activity that can occur within or
across the nonprofit, business, or government sectors”

Dees (2007) Identifies social needs and challenges; wants to create social value.

Global Entrepreneurship “…individuals or organizations engaged in entrepreneurial activities

Monitor (GEM) (2009, p.44) with a social goal.”

Larsson & Palmberg (2015) An aim to create social welfare by addressing societal problems. An
economic interest may exist (secondary), which can increase the
possibilities to create even more social wealth.

Martin & Osberg (2007, p.35) “1. Identifying a stable a stable but inherently unjust equilibrium that
causes the exclusion, marginalization, or suffering of a segment of
humanity that lacks the financial means or political clout to achieve
any transformative benefit on its own; (2) identifying an opportunity
in this unjust equilibrium, developing a social value proposition, and
bringing to bear inspiration, creativity, direct action, courage, and
fortitude, thereby challenging the stable state’s hegemony; and (3)
forging a new, stable equilibrium that releases trapped potential or
alleviates the suffering of the targeted group, and through imitation
and the creation of a stable ecosystem around the new equilibrium
ensuring a better future for the targeted group and even society at
large.“

European Union & OECD “Social enterprises are a new type of business, characterised by an
(2015, p.4) entrepreneurial approach to delivering activities that are aligned with
an explicit social mission. “

Palmås (2003) Business models that address social problems; aim to increase the
social welfare in society.

Schumpeter (1950) The development caused by entrepreneurs also comes with social
change. Social entrepreneurship is “…a form of dynamic behaviour
in one of the non-economic areas of society” (Swedberg, 2006, p.33).

Zahra et al. (2009, p.522) “Social entrepreneurship encompasses the activities and processes
undertaken to discover, define, and exploit opportunities in order to
enhance social wealth by creating new ventures or managing existing
organizations in an innovative manner.”

Braunerhjelm and Stuart Hamilton (2012) discuss if social value creation is

the primary objective of social entrepreneurs or if there is a blended value creation
objective. Some researchers suggest that social entrepreneurs can pursue goals of
economic, social and socio-political type at the same time. However, Nyssens (2006)
suggests that the core of these should be the social goal and the others being in
support of this. However, Martin and Osberg (2007, p.34) argue that “…it is
important to dispel the notion that the difference can be ascribed simply to motivation

11
– with entrepreneurs spurred on by money and social entrepreneurs driven by
altruism.” Zahra et al. (2009) suggest that any evaluation of social entrepreneurship
should consider both the creation of social and economic value. One should consider
the total wealth, which is the sum of economic wealth and the social wealth. 5
However, using total wealth in practice is probably associated with some difficulties
since social wealth can be difficult to measure (Zahra et al., 2009).
Looking from the point of a social entrepreneur, Wendt (2013) discusses the
Centre of Social Entrepreneurship Sweden’s (CSES, Swe: Center för Socialt
Entreprenörskap Sverige) definition of social entrepreneurship. CSES is a Swedish
business incubator that focuses on “…start-ups and early-stage organizations
developing socially, environmentally and commercially sustainable business ideas.”
(CSES, 2016a; Hansson et al., 2014). They define social entrepreneurship as “Firms
in which the core business not only generates revenue to owners and employees but
also, in a significant manner and preferable in a measurable way creates wealth for
individuals and society; locally, regionally or globally.” (Wendt, 2013, p.13). Wendt
argues that this definition in its entirety does not correspond to his experience of
being a social entrepreneur. Wendt means that a social enterprise might not generate
any revenue during the first couple of years. Furthermore, Wendt’s Mattecentrum is
organized as a non-profit association with no owners but only members whom do not
receive any revenues from the firm’s activities. Wendt means that CSES’s definition
is too focused on the economic effects of the business activities instead of the effect
on the public welfare. This is a good example of the complexity in how to define
social entrepreneurship.

3.3 THEORIES OF SOCIAL ENTREPRENEURSHIP

Historically, social entrepreneurship has been scarcely represented within the
entrepreneurship literature (Volkmann et al., 2012). Swedberg (2006, p.21) explains
that the notion of social entrepreneurship is not related to a general theory of
entrepreneurship but has evolved more as a “…slogan or inspiring phrase…” and that
most literature does not refer to any theoretical frameworks. Swedberg (2006) relates
the concept of social entrepreneurship to Schumpeter’s theory on entrepreneurship,
which is relevant since Schumpeter is one of the most important contributors to the
theory of entrepreneurship. Schumpeter’s theory on entrepreneurship is applicable to
social entrepreneurship since the theory on entrepreneurship was worked out before
approaching social entrepreneurship. Therefore, it is possible to distinguish the
differences between the two (Swedberg, 2006). Schumpeter argued that economic
theory needs to incorporate a social perspective and emphasized for example the
importance of economic history and sociology when discussing economics in general
as well as economic change more specifically (Swedberg, 1989a; b; 1995).
Schumpeter (1950, p.82) emphasized the importance of remembering that “…the
economic life goes on in a social and natural environment which changes and by its
change alters the data of economic action”. It is essential that non-economic aspects
are considered when looking at the economy as a whole (Schumpeter, 1950). Here
Schumpeter shifts from methodological individualism to methodological holism. The

5
Economic wealth = economic value – economic costs – opportunity costs;
Social wealth = social value – social costs. (Zahra et al., 2009)

12
development caused by entrepreneurs also comes with social change. Swedberg
(2006, p.33) concludes that: “Social entrepreneurship, to use a term that is popular
today, can be translated into Schumpeterian terminology as a form of dynamic
behaviour in one of the non-economic areas of society”.
Swedberg (2006, p.34) relates Schumpeter’s theories on entrepreneurship with
the area of social entrepreneurship and Table 4 illustrates this. Schumpeter proposed
that his theory on the difference between development and adaptation in the economic
system also is applicable to non-economic features in society. In the dynamic,
entrepreneurial economy therefore, it is social entrepreneurs that will create
development. The static, non-entrepreneurial economy on the other hand only adapts
to the small changes that characterize social evolution.

Table 4. Schumpeter - Economic change and social entrepreneurship

Economy Society
Dynamic or entrepreneurial Development Social entrepreneurship
economy
Static or non-entrepreneurial Adaptation Social evolution
economy
Source: Swedberg (2006, p.34)

Acs et al. (2013b) link social entrepreneurship to Baumol’s concept of

productive, unproductive and destructive entrepreneurship. Social value creation and
entrepreneurship needs to be understood in terms of the allocation of entrepreneurial
activities. Productive entrepreneurship can be defined as entrepreneurship that creates
both economic and social value. Hence, increasing shareholder wealth and creating
social value need not to be in conflict. Unproductive and destructive entrepreneurship
on the other hand only create economic value for the entrepreneur whilst there is no
net social value. In fact, the effect of these could even be negative when looking from
a societal perspective.
Zahra et al. (2009) compare the work of Hayek, Kirzner and Schumpeter and
identify three types of social entrepreneurs: the Social Bricoleur, the Social
Constructionist and the Social Engineer (Table 5). These three types of social
entrepreneurs differ in for example how they identify societal challenges and how
their actions affect the social system but share the passion for engaging in social
issues. Social Bricoleurs are entrepreneurs that use their local, sometimes tacit
knowledge to find local opportunities to address social problems. The Social
Bricoleurs move the society towards a social equilibrium with peace and order. These
do not rely on external contributors and/or resources and are therefore often not able
to expand their operations. Social Constructionists on the other hand do not primarily
use their local knowledge to exploit local opportunities but introduce innovations that
address social needs that are being overlooked by existing institutions. These often
grow out of the tendency of existing institutions not having an incentive to address
broader social needs. Even though the Social Constructionists might not encounter too
much competition, the competition for resources can be intense. The Social Engineers
are inspired by the work of Schumpeter. These bring about revolutionary change as a
response to an identification of challenges in the social system and often replaces

13
incumbent institutions by introducing more socially effective solutions. The need for
support is high in order for Social Engineers to introduce their reforms, which most
often are of large scope and scale (Zahra et al., 2009).

Table 5. The Social Bricoleur, Social Constructionist & Social Engineer

The role of the social entrepreneur

Social Bricoleur identify and address local, small-scale social needs.
Hayek

Social Constructionist fill gaps in the social system by introducing innovations and reforms.
Kirzner

Social Engineer address challenges in the social system by bringing revolutionary change.
Schumpeter

Source: Zahra et al. (2009)

3.4 SOCIAL ENTREPRENEURSHIP TODAY

Apart from arguing that “…social is the “new black”, Hansson, Björk, Lundborg and
Olofsson (2014, p.14) suggest that social entrepreneurship and innovation have been
assigned two roles: to be the buffers against negative change and the drivers of
positive societal development. Social entrepreneurs that seek to address societal needs
and challenges that are being overlooked by governments, businesses and non-
governmental organizations (NGOs) have become increasingly common in today’s
societies. This type of entrepreneurship might be especially important in developing
countries, where for example resource scarcity and corruption often prevent societal
needs to be addressed efficiently or at all. Sectors in many countries have been
affected by a development characterized by privatization and marketization during the
last years. In some countries, the social service sector is a good example, where
entrepreneurial ventures to an increasing extent are expected to deliver solutions when
the government emphasize the role of the market. Furthermore, it has become
increasingly difficult for non-profit organizations and NGOs to raise money and at the
same time, the complexity and number of social challenges for these to address has
increased. Altogether, this can explain the increasing relevance and prevalence of
social entrepreneurs (Zahra et al., 2009; Backström, 2014). The increasing focus on
corporate social responsibility (CSR), sustainable business models and business ethics
is closely related to the increasing focus on social entrepreneurship (Gawell,
Johannisson & Lundqvist, 2009).
The increasing focus on social entrepreneurship might partly be a result of
data suggesting that this type of entrepreneurship makes the fastest growing type of
organizations in the US (Austin et al., 2003). The UN Millennium Development
Goals and Sustainable Development Goals have increased the relevance of and
opportunities for entrepreneurs who seek to address societal needs and challenges
associated with these goals. The report Think Global, Trade Social (British Council
and Social Enterprise UK (SEUK), 2015) highlights the relation between the UN
goals and businesses with a social impact approach. The report states that “Social

14
enterprise offers an inspiring model and mechanism to help us achieve our shared
objectives for more equitable and sustainable development. [...] We need to promote
and support the development of social enterprise and create the conditions under
which conventional businesses will adopt more environmentally and socially
responsible behaviour.” (British Council & SEUK, 2015, p.14).
The Global Social Impact Investment Steering Group (GSG, 2016b; Wilson,
Silva & Richardson, 2015) concludes that the financial crisis of 2008 opened up for a
shift in the way of thinking in the capital markets. By incorporating impact as the
third dimension of these markets, with the other two being risk and return, it is
possible to develop and build a healthier society and economy. Directing attention and
investments to businesses that strives to create positive social development is the core
of so-called social impact investment. The European Commission (2014, p.1)
concludes that the spreading consensus of a global economic system that is not
functioning, following the financial crisis, has resulted in an increasing interest for
“…more inclusive and pluralistic economic systems.”. Governments are recognizing
models within the private sector as possible effective approaches to produce
innovative responses to the social and economic challenges that need to be addressed
(Wilson, 2014; Wilson et al., 2015). By the formulation of the Europe 2020-strategy,
the EU wants to create smart, inclusive and sustainable growth. Europe must get back
on track after the economic and financial crisis and the strategy is focused on
employment, innovation and research, climate change and energy, education and
combating poverty. The social economy and social entrepreneurship are seen as tools
for achieving the goals associated with the Europe 2020-strategy (European
Commission, 2010; 2013).
The EU has estimated that 10 per cent of all corporations in Europe can be
classified as social enterprises, firms that combine a desire to make a difference in
society with an aim to generate financial profit (Augustinsson & Solding, 2013). The
European Commission (2016c) estimates that more than 11 million people are
employed in the social economy in Europe. The Global Entrepreneurship Monitor
(GEM, 2009) concludes that the average prevalence of social entrepreneurship in its
early stage in 49 countries is 1.8 per cent (ranging between 0.1 per cent and 4.3 per
cent). Sweden falls in the middle of the European countries (GEM 2009;
Braunerhjelm & Stuart Hamilton, 2012). The number of WISEs in Sweden has grown
significantly from approximately 150 in 2007 to almost 300 in 2012. Possible
explanations to this development are that there is more and better support and an
increasing recognition for this type of firms, but also increased unemployment and
social exclusion, problems that WISEs seek to address. Swedish WISEs improve the
quality of life for many people but also contribute positively to the society. The
economic effect of the activities of WISEs has been estimated to range between 300
000 and 1 million SEK per employee (Tillväxtverket, 2012). The number of social
entrepreneurs in Sweden, not defined as WISEs, is unclear. The unclear definition of
the term makes it difficult to find this type of businesses in business registers and data
sources (Gawell, Johansson & Wihlborg, 2014).

15
3.5 ARE NOT ALL ENTREPRENEURS SOCIAL ENTREPRENEURS?
Are not all entrepreneurs social entrepreneurs? This is a relevant question to ask when
examining the area of social entrepreneurship. Entrepreneurial activities create work
opportunities, which is an important contribution to society. In this sense, all types of
entrepreneurship can be said to be social. Acs et al. (2013b) argue that it might not be
useful to distinct social entrepreneurship entirely from entrepreneurship. To distinct
social entrepreneurship from the commercial aspect of entrepreneurship might not be
entirely appropriate since social entrepreneurs often have both social and commercial
purposes. This is, social entrepreneurs often have the aim to be self-sustaining,
possibly even generating profit, while creating societal value. Also, commercial
entrepreneurs can generate economic and social value at the same time. Acs et al.
(2013b) compare Microsoft Corporation with Grameen Bank, the former illustrating
traditional commercial entrepreneurship and the latter social entrepreneurship.
Despite different explicit motivations and goals, both firms have created social and
economic value and are for-profit. Microsoft was established with a commercial
focus, with the aim of creating commercial growth and profit. Even though Microsoft
was not established to address a specific societal problem, the firm has created
technological as well as societal change. Grameen Bank was established with the aim
to alleviate poverty by helping poor to be able to access credit. The primary purpose
of Grameen Bank was to create social value, while the commercial aspect was
considered as a secondary, instrumental aspect. The two firms are both examples of
productive entrepreneurship, creating both economic and social value. Acs et al.
(2013b) conclude that economic and social values are closely connected and
potentially overlapping. Braunerhjelm and Stuart Hamilton (2012) argue that, with
regards to the overlaps between entrepreneurship and social entrepreneurship, both
types of entrepreneurship must exist in society.
The traditional economic standpoint is that organizations seek to maximize
their profit or shareholder wealth. More specifically, organizations strive to find the
level of production where the marginal cost is equal to the marginal income.
However, social enterprises do not seem to act according to this principle. There are
some theories however, for example that of Baumol, Williamson and Marris, that are
based on neoclassical economic assumptions but make room for other types of
motives. For example, there can be different opinions on what the objective(s) of a
firm should be if the owners and management team are two separate functions in a
firm. Also, the producers and consumers of a social enterprise may be the same
people. In such cases it is not uncommon that economic profit is not prioritized to the
same degree as other things. For example, the price and/or quality of the firm’s
products and/or services may be of greater importance. A distinction between
traditional entrepreneurship and social entrepreneurship can be made with regards to
the purpose/objective of the entrepreneurial activities. Traditional entrepreneurship is
focused on maximizing shareholder wealth whereas social entrepreneurs have other
goals. These may in turn be easier to achieve if the firm generates economic profit but
this is not the primarily focus of the business activities (Tynelius, 2011). Austin et al.,
(2006) resonate similarly and suggest that the main difference between social and
other forms of entrepreneurship is the intention with the business, or what the firms
are seeking to maximize. Maximizing shareholder wealth can be contrasted with the
aim to address a social challenge or need and maximizing the social impact. Are not
social entrepreneurs essentially the same thing as non-profit organizations then?

16
According to research the main difference between these two is the innovative nature
of social enterprises, the entrepreneurial approach as well as these firms’ engagement
in education (Thompson & Doherty, 2006).

17
4. THE FINANCING OF SOCIAL ENTREPRENEURSHIP
The following sections examine the capital structure of a firm and the financing of
social entrepreneurship. First, a brief overview of the capital structure of a firm is
provided. Thereafter follows a section on the available sources of finance for social
entrepreneurs. A literature overview is then provided, examining previous studies on
the financing patterns of social entrepreneurs. Thereafter, the research question is
formulated and its relevance discussed.

4.1 THE CAPITAL STRUCTURE OF A FIRM

It is, and has always been, of great importance for firms to consider their financial
structure. To be able to finance the operations of a firm is crucial for the everyday
business as well as for the long-term development of the firm. The goal of the
financial decision is to find the appropriate funding that enables the firm to carry out
its operations in the most efficient way (Larsson, 2014; Francke, 2014). When
deciding on which source(s) of funding a firm should use, the firm needs to consider
many aspects. For example, one needs to take into account the legal implications of
different alternatives, if there is an optimal capital structure for the firm and how the
funds are going to be used. Not all types of funding are available to every firm either.
It is important to remember that there are at least two agents that are involved in a
firm’s decision on how to finance its business. Apart from the firm, which is seeking
capital, there is a capital provider. However, a firm’s financial decision can involve
many more agents (Larsson, 2014).
Apart from the need of capital before and during the start-up phase of a new
firm, there are in general two types of need for capital. Investment capital is the
capital needed to make investments in for example properties and machines, while
working capital is the capital needed to manage the business activities on a day-to-day
basis. The sources of capital can be divided into two separate parts: equity and debt.
Equity includes private equity, which is capital that has been exchanged for shares of
ownership and retained earnings. Debt represents loans from banks and/or other
institutions, accounts payable etc. (Garmer & Kyllenius, 2014). One of the most
important financial decisions of a firm is the choice between equity and debt and the
allocation between these. A firm’s financial structure, how one chooses to combine
debt and equity, will have different implications and it is therefore important that a
firm carefully considers its financial structure. For example and in short, if a firm’s
business activities are generating economic profit, there will be advantages with debt
financing. However, a larger share of debt implies larger interest payments that need
to be paid even in times of financial difficulties (Francke, 2014).
A firm’s access to and need for capital generally differs depending on which
stage of development that the firm is going through. Figure 1 is based on the work of
Braunerhjelm, Eklund and Henrekson (2012) and illustrates three central phases of a
firm’s development and sources of financing during each of these.6

6
According to Garmer & Kyllenius (2004), there are traditionally four different periods during a firm’s
life cycle where the need for capital typically differs. These are the (1) pre-start up phase, (2) the start-
up phase, (3) when the firm is not yet profitable and (4) when the firm has become profitable. During
the first phase, the entrepreneur is often investing his/her own money and it is typically difficult to be

18
 Start-up Development Growth
• Owners: 1 or more • Small but growing firm • Growing firm mature
• Negative cashflows with some cashflows for IPO, trade sale or
requires equity • Growth requires Management Buyout
financing external equity (MBO)
• Business angels as financing • VC exit
potential partners • Venture capital (VC)
flows in

Figure 1. Sources of financing during development of a firm

Source: Braunerhjelm, Eklund & Henreksson, 2012, p.84

Two concepts are often discussed in the context of a firm’s financial decision;
information asymmetry and adverse selection. These concerns the challenges that
might arise when the borrower and lender(s) in a credit situation do not have access to
the same information that might be relevant for the financial contract (Larsson, 2014;
Landström, 2003). A lender needs to have all relevant information in order to assess
the risk in lending funds to the borrowing firm. However, it is the borrowing firm that
owns the information and there is a possibility that the firm does not provide the
lender with all the relevant information. Since the risk might be different to what the
lender expects, there is a tendency of the lender to be precautious. The development
during the last decades has increased the transparency when it comes to firm-specific
information, which would imply a lower probability of information asymmetry.
Though, the problem still persists, especially when it comes to small firms and sole
proprietorship since information on this type of businesses does not need to be public
(Larsson, 2014). One way for firms that are not publicly traded to lower the
probability of information asymmetry is to use venture capital. When venture
capitalists invest in firms it is common that a representative of the VC-firm becomes a
member of the board, which will reduce the possible information asymmetry between
the two (Landström, 2003).

offered traditional bank loans. Studies have shown that an entrepreneur’s private savings are important
for the entrepreneur to establish a venture (Johansson et al. 2014). To be supported by a business angel
might be an alternative during this phase, whilst venture capitalists are often not yet interested until the
business is up and running. The second phase is the start-up phase and the firm is often still relying on
the entrepreneur’s own equity capital during this phase. Also, the entrepreneurs often try to seek grants
and governmental loans. There is still probably a limited access to bank loans (Garmer and Kyllenius,
2004). Here, business angels have shown to play an important role by investing money and time and
offering experience to entrepreneurs (Johansson et al., 2014). During the third phase, there is still no
economic profit and the firm needs money in order to finance its growth. It might however be possible
to exchange equity capital for ownership at this point and there is a higher probability of being able to
access the banking system (Garmer and Kyllenius, 2004). During the fourth phase, the firm is
generating economic profit and there is a higher probability to get bank loans. Venture capitalists and
business angels are probably still interested in investing (Garmer and Kyllenius, 2004).

19
4.2 SOCIAL ENTREPRENEURSHIP & SOURCES OF FINANCE
Historically, businesses with social objectives have not been associated with the
possibility of generating financial returns. Instead, a financial trade-off, possibly even
a negative financial result, has been associated with such enterprises. Today however,
there is an increasing number of examples showing that social investments not only
can generate social but also financial return. In order to be able to address social
needs and challenges, various forms of social investments are needed. To encourage
the activities of social entrepreneurs might be a good idea in order to address the
challenges in society today (Dees, 2007). For example, the EU wants the governments
of their member countries to become more effective in their social work in order to
address societal challenges at an early stage. Data indicates that approximately 120
million people, 24 per cent of the population in the EU, lives below or close to the
poverty line and/or in some form of social marginalization. New platforms have been
developed as a response to the increasing need for innovative societal solutions and
the following increasing demand for different sources of funding (Augustinsson &
Solding, 2013; Silfverstolpe, 2013). Venture philanthropy, impact investment, social
investment funds, microcredit and crowdfunding are examples of funding sources that
have become increasingly common (Augustinsson & Solding, 2013).
Policies, frameworks and support mechanisms related to social investments
have been introduced in several OECD countries (Wilson, 2014). The EU has
introduced a number of frameworks and initiatives in order to support social
enterprises and the social economy. An example is the Social Investment Package
(SIP), which aims to combat the economic crisis and demographic challenges in
Europe (Augustinsson & Solding, 2013; European Commission, 2016b). The Social
Business Initiative (SBI) has been introduced in order to establish structures and
standards for a common European political agenda with the aim to stimulate social
entrepreneurship (European Commission, 2016a). Within SBI, a certification system
of social entrepreneurship funds named the European Social Entrepreneurship Funds
(EuSEF) has been designed. This system strives to make it easier for investors to
invest capital in businesses with a societal focus. Though, some practical problems
still exist before this system can be implemented since there is no common practice of
how to measure the results and effects of social investments, which is necessary to be
able to compare different funds (Augustinsson & Solding, 2013). There is a need for a
methodological approach on how to measure the effects of these types of businesses
and investments. Methods that consider both the financial and societal results and
effects are currently being developed. The European Venture Philanthropy
Association (EVPA) has presented a guide on how to measure the effects of social
investments. Social Return on Investment (SROI) is a way of measuring the economic
as well as the social and environmental impact created by an organization
(Augustinsson & Solding, 2013; Hansson et al., 2014; Silfverstolpe, 2013). SROI is
based on the Socially Generally Accepted Accounting Principles (SGAAP) and seeks
to offer an approach on how to measure values and effects in monetary terms
(Backström, 2014). The Global Impact Investing Network (GNII) has introduced the
Impact Reporting and Investment Standards (IRIS), a framework with more than 500
indicators relevant for impact measurement. Organizations that receive impact
investment capital should, by the use of the standardized metrics in IRIS, be able to
measure and evaluate their financial, social and environmental impact. These types of
frameworks are seen as necessary in order to increase the credibility of impact

20
investments (Backström, 2014; Wilson et al., 2015). However, some conceptual
challenges still exist. Using measurement tools to achieve greater impact and not just
as means for accounting and reporting purposes is an example of such conceptual
challenge. Also, the frameworks should not restrict the innovative capability of the
social sector (European Union & OECD, 2015).
Social investments can be described in terms of a spectrum, ranging from
philanthropy to sustainable investments (Figure 2). The investment spectrum can
range between “impact-first” and “financial-first”, depending on the investor’s risk
and return preferences. Investors with an impact-first preference provide funds to
organizations that are not able to generate market returns. Financial-first investors on
the other hand are more similar to traditional investors but still have a preference for
impact, what one can call responsible investments. Furthermore, investors with an
impact-first approach are willing to take on more risk while the opposite, risk
aversion, can describe financial-first investors (Wilson, 2014; Backström, 2014).
Another aspect to consider is the time-perspective of the investor. Despite the higher
risk, the support of venture philanthropists often lasts between 3 and 5 years or even
longer (Hehenberger & Harling, 2014; Wilson et al., 2015).

IMPACT INVESTMENT

Financial
return with Socially
responsible Focus on
Focus on measurable financial
Philantrophy effect investing
societal return
(SRI)
effects

Figure 2: Impact Investment

Source: Backström (2014)

Venture philanthropy is an increasingly common term that is being used to

describe philanthropic activities, including both financial and non-financial support,
that aim to generate societal development in a more efficient way by the use of
traditional investment methods (Augustinsson & Solding, 2013; Hehenberger &
Harling, 2014). Venture philanthropy is characterized by a demand for societal effect,
whereas traditional philanthropy most often does not stipulates such demands
(Backström, 2014). The financial instruments used in venture philanthropy cover the
entire spectrum, including grants, debt, equity etc. and venture philanthropy is
therefore a wider term than impact investment (Hehenberger & Harling, 2014).
Impact investments have attracted private investors and philanthropist during the last

21
years and are expected to generate both financial profit as well as societal outcomes.
According to Hehenberger & Harling (2014), the market for venture philanthropy and
social investments grows continuously and more than €2.5 billion have been invested
in organizations with a societal purpose since inception. One of the first to engage in
impact investment was the Rockefeller Foundation, which also founded the Global
Impact Investing Network (GIIN) (Augustinsson & Solding, 2013; Silfverstolpe,
2013; Wilson, 2014). GIIN defines impact investment based on the following four
core characteristics:
i. Intentionality;
ii. Return expectations on investment;
iii. Range of asset classes and expectations of return;
iv. Impact measurement (Wilson, 2014; Backström, 2014).

Impact Invest Scandinavia is an example of a Scandinavian network that

strives to direct investments toward and promote the growth of businesses with a
social and sustainable impact approach (Impact Invest Scandinavia, 2016; Hansson et
al. 2014).
An increasing number of social investment funds are being established. In
Sweden, several municipalities have or are about to establish social investment funds,
typically targeting areas related to children, young adults and job creation. Social
investment funds attract public capital to a larger extent compared to impact
investments. These aim to invest in firms with entrepreneurial and innovative
solutions to societal and climate-related issues. An example of such fund is the Social
Venture Fund that was established in Europe in 2012. The investors in this fund are
banks, foundations, institutional investors and private investors (Augustinsson &
Solding, 2013; Hansson et al., 2014).
Social Impact Bonds (SIBs) are one of the most innovative financial products
with a financial and societal focus that has been developed to date. Governments and
the public sector can use SIBs to raise funds from private investors in order to target a
specific societal problem. By quantifying a goal related to a societal problem, the
public actor can evaluate the effect of the intervention. If there is a positive outcome,
the investors are paid back their initial investment plus a compensation for the
financial risk. However, if the goal is not reached, the investors carry the risk and are
not repaid their initial investment. SIBs exist in many varieties and are seen as
promising investment product. However, the effect of SIBs is still to be evaluated
(Backström, 2014).
The growth of the microfinance market is sometimes referred to as a
benchmark of the potential growth of other types of social investments. In terms of
the number of clients, the microfinance industry grew by 38 per cent per year between
1997 and 2007 and the industry has been estimated to exceed USD 50 billion in loans,
financing the businesses of approximately 100 million entrepreneurs (Wilson, 2014).
Mikrofonden Väst is a Swedish example of an organization providing micro loans
and/or collateral in the case of larger external loans to firms and cooperatives with a
social purpose. The Swedish innovation agency Vinnova has introduced innovation
checks, which serve as a source of funding for innovative initiatives. These checks
should make it possible for firms with undeveloped ideas to access finance.
Crowdfunding is another source of financing that can be relevant for social

22
entrepreneurs, also as a way to gather collateral in order to be able to seek external
loans (Hansson et al. 2014). Svensson and Herlitz (2007) emphasize the need for
project-based funding during the start-up of social enterprises. During this phase,
social enterprises may not be able to access venture capital like other start-up and/or
high-growth firms and rely therefore on project-based funding to a greater extent.

4.3 FINANCING PATTERNS OF SOCIAL ENTREPRENEURS

The development of the financial industry during the last decades has brought many
changes, one of them being that the number of possible sources of finance for firms
has increased, especially so for large or medium sized corporations (Larsson, 2014;
Francke, 2014). Generally and historically, SMEs have shown to be more financially
constrained compared to large firms (Muzi & Amin, 2015). In the 1930s, evidence of
what is today called the Finance Gap was first presented, suggesting that external
financiers such as banks and external stakeholders have a tendency to discriminate
small businesses when it comes to capital (Landström, 2003). Studies have suggested
that this type of discrimination arises due to a larger information asymmetry problem
associated with smaller firms (Winborg, 2003). It is still often claimed that SMEs’
access to external capital is limited and that these firms therefore rely on internal
sources of financing to a greater extent compared to large corporations (Muzi &
Amin, 2015). Looking from an international perspective, Sweden is a highly ranked
country when it comes to firms’ access to financial services. Just like the general case
however, SMEs in Sweden seem to be more limited when it comes to accessing
finance compared to large corporations (Muzi & Amin, 2015). According to the
Swedish Federation of Business Owners (Företagarna, 2014), eight out of ten small
and medium-sized businesses in Sweden want to grow but face difficulties in
accessing finance.
In order for social entrepreneurs to be able to carry out their business
activities, access to capital is necessary, just like for any other firm (European
Commission, 2014). Studies have suggested that social entrepreneurs have some
difficulties when it comes to accessing the traditional sources of financing, especially
due to the lack of market-based return (European Commission, 2014; Gawell,
Johansson & Wihlborg, 2014; Larsson & Palmberg, 2015; Sharir & Lerner, 2006).
The European Commission (2016c) states that limited access to finance is one of the
main factors that thwart the growth of social enterprises in Europe. The EU (2015)
reports that difficulties in accessing the public markets and external finance are
general obstacles for social enterprises across Europe. Also, lenders, the general
public, consumers etc. seem to have a poor understanding of the concept social
enterprise. This affects these firms negatively when it comes to aspects related to
growth and financing. A report based on interviews with 13 Swedish social
entrepreneurs illustrates the difficulties that these face when it comes to financing
their activities (Svensson & Herlitz, 2007). Lack of collateral is mentioned as a
critical factor when it comes to accessing credit and a need for increased financial
support during the start-up phase is emphasized. Also, the need for different sources
of finance, particularly appropriate for social entrepreneurs, is highlighted.
Furthermore, the authors demand that education should be provided to social
entrepreneurs as well as to the relevant public advisors, administrators. According to
the Swedish government, social entrepreneurs in Sweden face difficulties when it

23
comes to financing the start-up as well as the development of their business
(Näringsdepartementet, 2010). Tynelius (2011) presents the results of a survey based
on 43 WISEs. These firms express a need for improved financing, most importantly
during start-up and in case of expansion. Also, the public support mechanisms do not
suit them and the public actors’ as well as lenders’ attitude towards and poor
knowledge of social entrepreneurship and related concepts affect them negatively.
Between 2012 and 2014, there was a growing awareness of the financial issues
of social entrepreneurs in Sweden and new solutions to address these were presented.
Despite this positive development however, many challenges still existed in 2014
(Herlitz, 2015). Hansson et al. (2014) highlight the need for diversified sources of
finance and a financial support system in order to promote social entrepreneurship
and social innovation in the Swedish society. Larsson and Palmberg (2015) mean that
there is room for governmental actions aimed at increasing the investments within this
area and creating a better environment for the social entrepreneurs to be active in.
According to Larsson and Palmberg (2015), social entrepreneurs generally do not use
the traditional sources of finance. Instead, business angels, venture philanthropists and
impact investors are often involved in the financing process of social entrepreneurial
ventures (Wilson et al., 2015). Public as well as private grants are still important
however since there might not be commercially viable solutions to the societal and/or
environmental challenges that social entrepreneurs seek to address (Palmås, 2003;
Wilson, 2014). Public contracts through procurement account for a large share of the
activity in the Swedish economy and studies have shown that Swedish social
enterprises find it difficult to access the public market due to related regulations. If
social enterprises would be prioritized politically when it comes to the public
procurement process, the public market would become more accessible for social
entrepreneurs. This would in turn improve the financial situation of social
entrepreneurs in Sweden (Hansson et al. 2014). This was also one of the
recommendations following a study on the financing of social enterprises in Sweden
in 2012 (Andersson & Ingster Hofgren, 2012; Herlitz, 2015). This study examined,
among other things, the financial statements of 137 WISEs in Sweden. The Swedish
markets for public and welfare services have during the last years been opened up and
allow competition to a greater extent today. This is something that has benefited
Swedish WISEs and other type of social firms since the majority of these produce
products and services for the public sector (Gawell, Johansson & Wihlborg, 2014).
Social Entrepreneurship as a Force for more Inclusive and Innovative
Societies (Seforis), an international research project on social enterprises, published a
report on the financing of social enterprises in Sweden in 2014 (Alamaa, 2014). This
report is based on interviews with 96 Swedish social entrepreneurs, conducted by the
research project Social Entrepreneurs as Lead Users for Service Innovation (Selusi) in
2009/2010 (Huysentruyt, Rimac, Stephan, von Essen & Vujic, 2010). The findings
suggest that one of the main obstacles for social entrepreneurs in Sweden is lack of
financing, not only during the start-up phase but also when it comes to up-scaling and
for the businesses to be able to pursue their activities for a longer period of time. The
most commonly used financing source was “sales and/or fees” (73 per cent of the
respondents used this) and the second most common investor capital (approximately
13 per cent of the respondents used this) (Alamaa, 2014, p.19). A 2015 CSES survey,
based on approximately 50 firms that have been enrolled in CSESs incubator
program, is interesting to examine. For example, 53 per cent of the social

24
entrepreneurs in the survey finance their business activities by the funds they receive
from sales while 20 per cent finance their activities by using grants and 20 per cent
use other sources of financing.
In addition to the studies mentioned above, the results of some studies on
Swedish firms in general as well as Swedish SMEs more specifically will be used in
the empirical section as a means of comparison. These studies have been published by
for example the Swedish Federation of Business Owners and the Confederation of
Swedish Enterprises (Swe: Svenskt Näringsliv).

4.4 HOW DO SWEDISH SOCIAL ENTREPRENEURS FINANCE THEIR BUSINESSES?

This thesis aims to investigate the following research question: How do Swedish
social entrepreneurs finance their businesses? This question is highly relevant in
today’s society, in which entrepreneurs and smaller businesses have an increasingly
important role. Being a relatively young area within scientific research, it is important
that social entrepreneurship is investigated further within all sorts of contexts.
Braunerhjelm and Stuart Hamilton (2012) conclude that there are not many empirical
studies on social entrepreneurship and particularly very few quantitative studies. Most
studies that have been made on this area are of qualitative nature and furthermore, the
majority of these are case studies. Interviews form the basis of the case studies and
the majority consists of 10 or fewer cases. Explanatory and descriptive studies are
most often the result of this type of research. Furthermore, there is a lack of
generalizability since the samples that are used differ in scope. Some studies have
focused on social enterprises in general while others have studied more narrow types,
for example WISEs. The aim of this study is to contribute to the existing knowledge
in the area of social entrepreneurship and specifically examine Swedish social
entrepreneurs’ access to finance. The sample is relatively large compared to previous
studies and includes both WISEs as well as other social entrepreneurs. Furthermore,
the continuous development increases the relevance of new and updated research
within the area of social entrepreneurship.

25
5. METHODOLOGY
The following sections discuss the implications of the methodological approach used
in this thesis work. There are some aspects that are worth mentioning in the context of
scientific research and when comparing this form of knowledge-based activity with
other types of the same. Scientific research aims to generate new knowledge and help
us to develop our understanding of the reality in a systematic way. The goal of social
sciences is to discover and explain social regularities (Halvorsen, 1989; Holme &
Solvang, 1996). Halvorsen (1989, p.13) means that the “…method is the craft of the
scientific activity”. What kind of scientific method that is used will determine and
affect the results of the scientific research. It is therefore of great importance that the
chosen method is appropriate with regards to the formulated research question and
that the method is applied with awareness of its advantages, disadvantages and
implications.

5.1 QUANTITATIVE AND QUALITATIVE RESEARCH

There are two main types of methodological approach within the social sciences,
namely qualitative and quantitative methods (Holme & Solvang, 1996). With regards
to the data that is being studied, one of these often accommodates the scientific
research better than the other. Both approaches have their strengths and weaknesses,
which are important to consider. To combine qualitative and quantitative research
methods is often possible and many times preferable. Combining the two can allow
the researcher to combine the methods’ strengths and make the weaknesses less
influential (Holme & Solvang, 1996).
Qualitative methods are often used when one wants to understand a
phenomenon but does not need to be able to generalize the results to a greater extent.
These methods are often close to the source of data and give the user not only the
ability to gain a deeper understanding of the area of research but also a deeper
knowledge of the context of the same. However, qualitative methods are in general
influenced by the researcher’s ideas and interpretations of the information that is
associated with the research. It is important to consider and question these in order to
understand how these might affect the study (Holme & Solvang, 1996).
Quantitative methods are generally characterized by more structure and
formalization compared to qualitative methods. Quantitative methods often use
numbers and figures to describe relevant information within an area of research.
Statistical methods are often used to analyse the quantitative data and the researcher is
often able to control the variables of interest to a larger extent. Even though
quantitative methods previously have been perceived as the only scientific method
that can achieve data objectivity, it is important to stress that this method does not
eliminate the values and subjectivity of a researcher entirely. The researcher brings
knowledge and values with him/her into the research project and this will influence
the formulation of the research problem as well as the process and structure of the
research project (Holme & Solvang, 1996).
Since the aim of this thesis project is to examine how social entrepreneurs in
Sweden finance their business activities, it is preferable to gather more data compared
to less. Therefore, a quantitative method seems appropriate to use. Also, most studies

26
that have been made previously within this field are of qualitative nature and therefore
it is interesting to apply a quantitative approach. More specifically, a questionnaire,
which is a form of survey, has been used.

5.2 SURVEY METHODOLOGY

Surveys are a non-experimental type of method. Surveys should aim at gathering
standardized information, a feature that enables a researcher to direct the focus to a
certain area of interest and allows the number of variables to be limited. The questions
should be the same for all people responding to the survey, the respondents. A
common feature of surveys is that the researcher uses sampling to construct a sample
of respondents (Lundahl & Skärvad, 1999; Halvorsen, 1989). There are two main
methods in survey research, questionnaires and interviews. Questionnaires are defined
as a quantitative method to gather information whereas interviews are often of
qualitative nature. However, if the questions in an interview are standardized, just like
in questionnaires, then the interview can be described as quantitative (Halvorsen,
1989). Interviews and questionnaires are suitable methods when it comes to gathering
information about a population’s values, opinions and knowledge, etc. (Ejvegård,
2003). Since surveys require respondents there is a possible disadvantage in the data
being individualistic (Halvorsen, 1989). One needs to prepare questions and
determine who is going to be asked to participate in the survey, among many other
things (Ejvegård, 2003). There is a possibility of misinterpretation and
misunderstanding of the questions in a survey. Therefore, it is of great importance that
the questions are carefully formulated. Also, one should remember that there is a
possibility that people do not respond truthfully or that they respond strategically for
some reason, something that is called response bias (Halvorsen, 1989).
The area of research ethics is important to consider when conducting a study
based on a questionnaire or interviews. It is important that the researcher respects and
protects the integrity of the people that participates in a scientific study. Also, it is
important to state the true conditions of the survey so that each person can make their
own judgment if they wanted to participate in the study or not (Holme & Solvang,
1996; Halvorsen, 1989). In the case of the survey conducted in this thesis, this
concerns the protection of the anonymity that was promised to the respondents of the
questionnaire.

5.2.1 QUESTIONNAIRE
Questionnaires are a self-administrative type of survey with predetermined questions
being answered by the respondents (Ejvegård, 2003). Questionnaires are often
considered to be less time-consuming, less expensive and simpler compared to
interviews. By using questionnaires one can often reach out to a larger number of
people compared to interviews, at least for the same cost and using the same amount
of time. Also, the responses of questionnaires are often easier to analyse (Ejvegård,
2003). Distributing a questionnaire by e-mail can be far more effective and less
expensive compared to traditional mailing services (Lundahl & Skärvad, 1999). The
questionnaire needs to be thoroughly processed before being sent out to the
respondents and it is preferred if the questionnaire is simple and not too extensive in

27
terms of both the number of questions and the topic being covered. It is important to
keep in mind that the response of every respondent is equally valued in a
questionnaire.
There are two types of questions, open and fixed. Open questions allow the
respondent to answer with his/her own words while fixed questions come with a
number of suggestions of which the respondent can choose from. Questions can also
be partially structured if the respondent is allowed to choose several of the answer
choices. Open questions allow the respondents to remember something and it is easier
to discover misunderstandings in the responses. However, the data from this type of
questions is often more time-consuming and difficult to analyse compared to that of
fixed questions. Fixed questions allow the respondents to recognize something among
the suggested answer choices. The data from this type of questions is not only easier
to analyse but also easier to compare between respondents. However, one must ensure
that the respondents are able to choose from all thinkable answers to the questions
being asked (Halvorsen, 1989). It might be a good idea to have some open-ended
questions in the end of a questionnaire. This gives the respondents the chance to
express their thoughts not only regarding the question being asked but also regarding
other factors or aspects they have found to be unclear etc. (Ejvegård, 2003).
There is a tendency that the number of participating respondents in
questionnaires is low, especially compared to interviews where the respondents often
face the interviewer physically. There are two types of non-responses. First, a unit
non-response is when the respondent does not respond to the questionnaire as a
whole. Second, an item non-response is when a respondent for some reason has left
one or several questions in the questionnaire unanswered. If one wants to be able to
analyse the results statistically, the unit and item non-responses should not be too
many (Ejvegård, 2003). However, the responses of a questionnaire with a low
response rate need not to be of any use. The size and layout of the questionnaire, how
long time the respondents have to respond and how many reminders that are sent out
are examples of factors that affect the number of respondents (Ejvegård, 2003).

5.2.2 SAMPLE
Most of the time, researchers are not able to study the whole population that is
relevant for a scientific study. Studying the whole population can be too costly, too
time-consuming or simply not possible. Therefore, a sample is constructed. By
studying a sample, one hopes to be able to say something about the whole population
by generalizing the results of the study. In order to do so one needs to define the
population of interest and then design a sample that represents the population in the
best possible way (Lundahl & Skärvad, 1999). There are two possible sampling
techniques that can be used, probability sampling and nonprobability sampling.
Probability sampling is often described as the ideal way to construct a sample.
Probability sampling is when the probability of each agent within a population to
become a part of the sample is known. Knowing the probabilities enables a more
precise statistical analysis and this in turn increases the possibility of being able to
draw general conclusions from the results of a study (Lundahl & Skärvad, 1999;
Halvorsen, 1989). It is not possible to make the same type of statistical analysis with
studies that are based on nonprobability sampling methods. Nonprobability sampling

28
techniques are much more time-efficient and less expensive compared to probability
sampling methods. There are some situations where nonprobability sampling, despite
its disadvantages, is chosen before probability sampling. For example, apart from the
time and cost aspects, one might not have a list of the whole population that the
sample is going to represent. Nonprobability sampling and more specifically,
judgmental or purposive sampling, is the method that has been used to construct the
sample used in this thesis work. In judgmental or purposive sampling, it is the
researcher that decides which research objects that are to be included in the sample.
The researcher should be able to describe how the sample was constructed and
according to which aspects the researcher finds the chosen research objects to be a
good representation of the whole population (Halvorsen, 1989). This is what the
following section discusses.

5.3 SURVEY DESIGN & DATA COLLECTION

In order to examine how social entrepreneurs in Sweden finance their businesses, a
questionnaire was designed and sent out by e-mail to 396 social entrepreneurs in
Sweden. The questionnaire consisted of 25 questions, of which 22 were fixed
questions and three open-ended, located in the end of the questionnaire. The
questionnaire was designed to gather information about the financing patterns of
social entrepreneurs in Sweden as well as their opinions regarding what types of
challenges they face in their work. The questionnaire as a whole was independently
formulated whilst the formulation of some of questions were inspired by previous
questionnaires on similar topics. 7 Before the questionnaire was sent out,
approximately 5-10 people were asked to answer the questions and provide general
feedback on the questionnaire. By doing so, the researcher was able to correct for
mistakes and/or formulations that could have led to possible misinterpretations. The
questionnaire was sent out to the respondents by e-mail on March 11 2016. The
deadline for completing the survey was on March 31st and two reminders were sent
out, the first one on March 20th and the second one early in the morning on March
31st. 163 responses had been registered by March 31st, which corresponds to a
response rate of approximately 41 per cent.
The 396 social entrepreneurs that received the invitation to participate in the
survey can be divided into two groups. The first group, consisting of 337 social
enterprises, was found through Sofisam, an online-accessible register consisting of
WISEs in Sweden. The register is a result of the Swedish government’s work related
to firms that seek to help unemployed people to find employment. The firms have
listed their contact details voluntarily on the Sofisam-website.8 As of February 4th
2016, when the list was downloaded for the purpose of this thesis, there were 355
firms registered. There were some duplicates, some firms with no contact details
and/or incorrect e-mail addresses. After having processed the list with regards to these

7
For example, in order to be able to compare the results of this questionnaire with the results of the
study of Jakobsson and Herin (2012), the questions were similarily formulated.
8
It is important to note that the 337 WISEs have listed themselves voluntarily on the Sofisam-website.
The firms might have done so for different reasons, which in turn can have implications on the sample
of the empirical research in this thesis. For example, a firm might be hoping to be contacted regarding
financing opportunities and/or wanting to express their thoughts on different topics in order to pursue
their own agenda.

29
aspects, the list consisted of 337 firms. The remaining 59 firms were found through
websites such as CSES, Reach for Change and Forum for Social Innovation Sweden.
This list was constructed through independent research, seeking to find active social
entrepreneurs in Sweden. The aim was to find as many entrepreneurs of this kind as
possible before the questionnaire had to be sent out. Compared to previous studies,
which are used to compare the results of the empirical section, the sample in this
study is relatively large. The previous studies are based on interviews and/or
questionnaires with social entrepreneurs in Sweden. Svensson and Herlitz (2007) base
their study on 13 respondents, Tynelius (2007) on 43, CSES (2016) on approximately
50, Selusi (Huysentruyt et al., 2010) on 96 and Andersson and Ingster Hofgren (2015)
on 137 respondents.

5.4 VALIDITY & RELIABILITY

Validity and reliability are two important aspects to consider within scientific
research. Validity concerns how relevant the empirical data is with regards to a
study’s research question and theoretical framework (Halvorsen, 1989; Ejvegård,
2003). There is no way to measure validity in pure empirical terms. Therefore,
validity is subject to judgment. Reliability describes how reliable the empirical results
are. If the reliability is high, one would expect that a similar, independent study would
yield the same result. For the reliability to be high it is important that the empirical
process has been conducted with thoroughness and precision (Halvorsen, 1989;
Ejvegård, 2003). If the reliability of a measuring instrument is low, then the
measurements will not be reliable and in turn, the validity will be low. However, there
is no guarantee that the validity will be high if the reliability is high (Ejvegård, 2003).
The validity of this thesis should be high. The questions were thoroughly
formulated with the aim to gather relevant information with regards to the research
question. The results can only be generalized in a Swedish context, if at all, since only
Swedish social entrepreneurs participated in the study. The reliability is probably
relatively high as well. The questionnaire can be found in Appendix 1 and the
construction of the sample has been described in detail, which should make it possible
to replicate the study. However, since the respondents were anonymous and the
response rate was less than 100 per cent it is not possible to make an exact replica of
the study. There is a possibility that the results would change if the respondents
change their responses. A person’s memory, opinions and/or interpretations can
change with time. However, the questions have been thoroughly formulated so to
minimize this risk. Since the questionnaire was sent out over the Internet there is a
low possibility that the responses were influenced by interaction between the
researcher and the respondents. The three open-ended questions lower the reliability
of the empirical part since there is a possibility that the respondents change the
formulation of their responses if they were asked the same questions again. Also, the
researcher might interpret the responses differently. However, the open-ended
questions can help to reveal misunderstandings and are valuable since the respondents
are able to formulate their thoughts into their own words. By including these
questions in the questionnaire it is possible to develop a greater understanding of the
respondents’ opinions.

30
6. EMPIRICAL RESULTS & ANALYSIS
The following sections discuss the results of the questionnaire. Descriptive statistics
on the respondents and organizations are first presented. Thereafter, financing
patterns during start-up and the last 12 months are presented. What type of financing
the respondents would use in case of expansion is then examined. Finally, the
respondents’ thoughts on obstacles, expansion and external capital are considered.9

6.1 DESCRIPTIVE STATISTICS ON RESPONDENTS

Some of the questions in the questionnaire aimed to gather basic information
regarding the respondents themselves. One of the questions concerned if the
respondents viewed themselves as a social entrepreneur or not. The respondents were
not given a definition of social entrepreneurship but marked this question based on
their own definition. The majority of the respondents, approximately 92 per cent,
viewed themselves as a social entrepreneur. This is a good confirmation that the
questionnaire was sent out to the target group. It would have been interesting to
discuss this matter with the respondents who marked either of the alternatives “No”
and “Don’t know/want to respond”. However, due to the anonymity of the
respondents, this is not possible.
Table 6 presents descriptive statistics on the respondents of the survey. The
respondents seem to be evenly distributed between men and women and the average
age (median) is approximately 53 years (51). With a standard deviation of
approximately 11 years, the age does not vary much within the sample. However, the
range is wide with the oldest respondent being 72 years old and the youngest 22 years
old. This indicates that young social entrepreneurs are underrepresented in the sample.
The majority of the respondents are well-educated. Approximately 21 per cent have
continued studying for less than three years after completing secondary education
(high school) and 45.5 per cent have studied 3 years or more at university level.

9
The questions of the questionnaire can be found in Appendix 1.
The number of responses varies from question to question since some respondents have not answered
all questions (item non-response). If nothing else is specified, responses marked with “Don’t
know/want to respond”, “Other” or left blank are left out in tables and/or graphs below. However, if
many respondents have marked “Don’t know/want to respond” or “Other”, a discussion on why this
might have happened is included.

31
Table 6. Descriptive statistics – Respondents 10

N
Gender Share (%)

Women 50.6 79
Men 49.4 77
100 156
Age # of years

Average age 53
Median age 51.3
Range 22-72
Standard deviation 11.4
157
Educational background Share (%)

Pre-secondary education 3.5 5

Secondary education 30.0 43
Tertiary education (<3 yrs) 21.0 30
Tertiary education (3+ yrs) 45.5 65
100 143

Table 7 shows where the respondents live (left columns) and where the
majority of their business activities take place (right columns). The distribution of the
respondents’ business activities is similar to that of where the respondents live,
suggesting that the respondents often live and work in the same area. There are
representatives of all but one (Norrbotten) of the 21 Swedish counties among the
respondents in the sample, indicating that social entrepreneurs seem to be spread out
almost all over Sweden. This is positive when it comes to analyzing the results of the
study from a Swedish perspective since most parts of the country are represented.
However, the majority of the respondents lives and works in Stockholm County and
Västra Götaland County (where Gothenburg is located). This may be a result of the
fact that these two counties are the most populated ones in Sweden but it can also be
an indication that Stockholm and Gothenburg, and the areas nearby these cities, are
fruitful environments for social entrepreneurs.

10
Question 1, 2 & 3. See Appendix I for questionnaire.

32
Table 7. Location of respondents and their business activities 11

Respondents Business activities

County Share (%) N Share (%) N

Blekinge 3.9 6 4.6 6
Dalarna 5.2 8 5.3 7
Gotland 3.3 5 3.1 4
Gävleborg 4.6 7 5.3 7
Halland 3.9 6 3.1 4
Jämtland 2.6 4 2.3 3
Jönköping 2.0 3 0.8 1
Kalmar 1.3 2 1.5 2
Kronoberg 3.3 5 2.3 3
Skåne 5.2 8 3.8 5
Stockholm 22.7 35 22.9 30
Södermanland 2.0 3 3.1 4
Uppsala 3.9 6 4.6 6
Värmland 3.9 6 3.8 5
Västerbotten 4.6 7 5.3 7
Västernorrland 3.9 6 3.1 4
Västmanland 1.3 2 1.5 2
Västra Götaland 16.9 26 16.8 22
Örebro 2.6 4 3.8 5
Östergötland 3.3 5 3.1 4
Total 100 154 100 131

6.2 DESCRIPTIVE STATISTICS ON ORGANIZATIONS

The typical firm in the sample is an economic association or a non-profit organization
engaged in human health and social work activities and/or other service activities. The
firm has been operating for more than three years, has six or more owners and up to
nine employees. The typical firm has an annual turnover between one million and five
million SEK.

11
Question 2 & 8. See Appendix I for questionnaire.

33
 Share (%)

0 10 20 30 40 50 60 70 80 90 100

Economic assocation 57.5

Foundation 1.3

Limited company 15.0

Limited company with special dividend
4.6
restriction
Limited partnership 0.0

Non-profit association 21.6

Partnership 0.0

Sole proprietorship 0.0

Figure 3. Legal form 12

N=153

Figure 3 illustrates the distribution of the legal organizational forms among the
respondents’ businesses. The majority of the organizations are registered as economic
associations (Swe: ekonomisk förening). A possible explanation to this is that many
of the firms use cooperative structures to organize their business activities, a general
pattern among social enterprises in Sweden. A cooperative is not a legal form in itself
and most cooperatives are economic associations. This way of managing a business is
useful since new owners/members easily can join and old ones leave (Gawell,
Johansson & Wihlborg, 2014; Tillväxtverket, 2016). The second most common form
is the non-profit association (Swe: ideell förening) and the third the limited company
(Swe: aktiebolag). Approximately 4.6 per cent of the respondents are so-called limited
companies with special dividend restriction (Swe: aktiebolag med begränsad
vinstutdelning).13 These figures are quite different from the results of the 2015 CSES
survey, in which the majority (61 per cent) of the firms were registered as private
corporations, 29 per cent as non-profit association and seven per cent as economic
associations (CSES, 2016). A possible explanation to this is that the majority of the
respondents of the questionnaire in this thesis are registered as WISEs and that these
prefers to be organized as economic associations (many being cooperatives).

12
Question 4. See Appendix I for questionnaire.
13
”Aktiebolag med begränsad vinstutdelning” (SVB) can only distribute a limited amount of its funds
to its owners. This legal form was introduced by the Swedish Government in 2005 and is regulated in
the 32nd chapter of aktiebolagslagen (ABL, 1995:551). By introducing this form, the Swedish
Government hoped to provide a legal framework for firms with other ambitions than to maximize the
wealth of the shareholders. For example this form could suit firms working within the public sector,
providing for example health services and education, but also firms active in the private sector. Since
this type of corporation only can distribute a certain proportion of its funds it might be associated with
an increased public trust for the operations of such firms (ABL, 1995:551; Moll, 2007).

34
 There were 21 areas of business/industries from which the respondents could
mark the one(s) in which they operate (Figure 4). These 21 areas form the Swedish
Industrial Classification Standard of 2007 (Swe: Standard för Svensk
Näringsgrensindelning, SNI) and are used by Statistics Sweden to classify
organizations based on their activities. The most common business areas in the
sample are health and social work, service activities and education. The activities of
some respondents overlap the categories since some respondents have marked several
alternatives. Many of the respondents have chosen the alternative “Other”, an
indication of that it might have been preferable to use another way of categorizing
areas of business in this questionnaire. Another explanation might be that many of the
respondents did not know which of the different business areas that their activities
were to be classified as. Examining the responses of the alternative “Other” however
enables a greater understanding of what type of organizations that the respondents are
engaged in. Examples are supported work experience services, support functions,
coffee shops and restaurants, recycling activities, gardening services, mentorship
programs and mobile application development. The majority of the respondents
belongs to the Sofisam register and seeks to be work integrative, helping people with
different needs and challenges to be able to participate in the labour market (Sofisam,
2016). According to the 2010 Selusi study, the majority of the 94 respondents were
engaged in the following five areas: (i) agriculture, forestry and fishing, (ii)
construction, (iii) community, social and related services, (iv) education and (v)
health and social work (Alamaa, 2014; Huysentruyt et al., 2010). Compared to the
questionnaire responses of this thesis it seems as if the share of social enterprises with
business activities within agriculture, forestry and fishing have declined whilst
different service activities, health and social work and educational activities are still
commonly provided by social enterprises.

35
 Share (%)
0 10 20 30 40 50 60
Other (please specify) 50.6
Human health & social work activities 23.7
Other service activities 19.9
Education 15.4
Manufacturing 13.5
Administrative & support service activities 9.6
Construction 9.0
Accommodation & food service activities 9.0
Arts, entertainment & recreation 8.3
Real estate activities 7.7
Information & communication 6.4
Agriculture, forestry & fishing 5.1
Wholesale & retail trade 4.5
Transportation & storage 3.2
Activities of households as employers 1.9
Professional, scientific & technical activities 1.3
Water supply; sewerage, waste mgmt, remediation 0.6
Financial & insurance activities 0.6
Public administration & defence 0.6
Activities of extraterritorial organisations, bodies 0.6
Mining & quarrying 0.0
Electricity, gas, steam, air conditioning supply 0.0

Figure 4. Industry classifications 14

N=156

Table 8 provides some basic statistics on the organizations. Most firms have
been operating for more than three years. The share of firms that still operates after
five years is high (approximately 27 per cent), indicating that a large proportion
survive the first years. Young firms seem to be relatively underrepresented in the
sample. Despite the growing interest for social entrepreneurship it does not seem as if
the number of newly established social entrepreneurs have increased to the same
extent.
The majority of the firms have more than six owners/member and 16 per cent
of the firms report more than 25 owners/members. In terms of number of employees
the majority of the firms are fairly small with approximately 71 per cent of the firms
having up to nine employees. In 2012, 96.6 per cent of all firms in Sweden had up to
nine employees. Approximately 27 per cent of the firms in the sample have between
10-49 employees, compared to 2.8 per cent of Swedish firms in general
(Tillväxtverket, 2014). This could be an indication that social enterprises are
relatively larger compared to Swedish firms in general. Possibly this can be a result of
the fact that the sample consists of many WISEs, which seek to employ people who
have been unemployed. Employing people is a large part of these firms’ businesses.

14
Question 7. See Appendix I for questionnaire.

36
 Approximately 38 per cent per cent of the respondents report an annual
turnover less than one million SEK. The majority, approximately 62 per cent, report
an annual turnover of more than one million SEK and furthermore, a fairly large share
(16 per cent) report a turnover larger than five million SEK. This can be compared to
a 2012 study based on 137 firms listed in the Sofisam-register, where 22 per cent of
the firms had an annual turnover of six million SEK or more. 28 per cent had less than
one million SEK in turnover (Andersson & Ingster Hofgren, 2014). This could be an
indication of a decline in the annual turnover among this type of firms in Sweden.

Table 8. Descriptive statistics 15

Share (%) N
Years of operating activities

<1 year 5.2 8

1-2 years 9.1 14
2-3 years 9.7 15
3-5 years 23.4 36
5-10 years 26.6 41
>10 years 26.0 40
154
Number of owners/members

1 7.1 11
2 6.4 10
3 16.0 25
4 4.5 7
5 8.3 13
6-9 24.4 38
10-24 14.1 22
>25 16.0 25
N/A 3.2 5
156
Number of employees

1-4 35.8 54
5-9 35.1 53
10-14 9.9 15
15-19 8.6 13
20-49 8.6 13
>50 2.0 3
151
Turnover

0-249 999 kr 13.1 19

250 000 – 499 999 kr 6.9 10
500 000 – 999 999 kr 17.9 26
1 Mkr – 4 999 999 kr 45.5 66
>5 Mkr 16.4 24
145

15
Question 5, 6, 9 & 10. See Appendix I for questionnaire.

37
 Approximately 60 per cent of the respondents reported that their firm’s
activities resulted in a positive economic result during their most recent fiscal year. 86
per cent reinvested this profit in the firm, three per cent donated the profit to charity
and only one firm (less than one per cent) distributed the profit to members/owners.
This can be an indication that social entrepreneurs, who generate economic profit, are
not focusing on maximizing the wealth of their owners. It can also be an indication
that the firms believe that they have growth potential, having investment opportunities
that they can finance by investing the profit. Approximately 38 per cent of the
respondents reported that their business activities did not generate an economic profit.
This might in turn be an indication that many social entrepreneurs experience
difficulties in getting their businesses to go around. It can also be an indication of that
there are other objectives with the business activities but to generate economic profit,
for example if the producers and consumers are the same people.

6.3 SOURCES OF FINANCE

6.3.1 SOURCES OF FINANCE DURING START-UP & LAST 12 MONTHS

Graph 1 illustrates the distribution of the sources of finance that the respondents used
during their start-up phase and the last 12 months.16 When the respondents were to
mark all of the sources of funding that they used during the start-up phase, personal
resources and governmental grants/support (including the EU) were the most
commonly used ones. Grants from funds and foundations, bank loans and funds from
ALMI (an organization owned by the Swedish government) are also relatively
common. When analyzing the responses in the open-end alternative “Other” it
becomes evident that support from and/or contracts with Swedish municipalities also
is an important source of funding. Worth noticing is that this can be seen as a form of
governmental support. Some respondents have used support from the two
governmental authorities Arbetsförmedlingen and Allmänna Arvsfonden. Thus,
governmental support seems to be an important source of funding during the start-up
phase. The respondents seem to have used a mix of different financing options since
some respondents have marked several alternatives.
When the respondents were asked which of the financing sources was the
most important (i.e. accounted for the largest share) during the start-up phase, the
majority (approximately 20 per cent) marked “Governmental grants/support”.
“Personal resources” was the second most marked alternative. Comparing this with a
2011 study conducted by the Confederation of Swedish Enterprises based on 2000
Swedish firms (up to 50 employees in various sectors), the most important source of
financing was personal savings and second most important bank loans (Jakobsson &
Herin, 2012). A relatively small share of the social entrepreneurs in this sample uses
bank loans compared to Swedish SMEs in general. The responses in the open-end
alternative “Other” are similar to that of the previous question. Thus, this indicates
again that the support from public institutions is even more important.

16
Graph 1 contains the 10 most marked options. See Appendix II and Graph 2 in which all sources of
finance that the respondents could choose from are included.

38
 Graph 1 also illustrates the sources of finance during the last 12 months. Once
again, governmental grants/support and personal resources are two of the most
commonly used ones. However, the most commonly used source, marked by 51 per
cent of the respondents, is “Internal funds”. This is in line with Selusi-data from 2010,
which indicated that “sales and/or fees” was the most important financing source for
the social entrepreneurs at the time (Huysentruyt et al., 2010). The responses in the
open-end alternative “Other” are similar to that of the two previous questions, with
support from and contracts with municipalities being important for the financing of
the daily business activities of the respondents. A study on Swedish SMEs in 2015
show that internally generated funds and/or existing equity is by far the most
important source of finance during the most recent six months (89 per cent of 1206
firms used this). It is interesting to note that governmental support is not represented
among the different options to choose from in this study (Företagarna, 2015). Once
again this indicates that social entrepreneurs are dependent on support from the
government and perhaps even more so compared to Swedish SMEs in general.

60%

50%

40%

30%

20%

10%

0%

Most important source of financing during start-up Sources of financing during start-up
Sources of financing last 12 months

Graph 1. Sources of finance during start-up & last 12 months 17

N =151/147/151

17
Question 13, 14 & 15. See Appendix I for questionnaire. See Appendix II for all sources of finance.

39
 Approximately 40 per cent of the respondents did not have enough capital
during the last 12 months. Lack of internal capital and difficulties finding appropriate
funding were the main reasons for the perceived capital constraint. General economic
conditions/business cycle related aspects was another reason. However, the majority
(approximately 60 per cent) meant that they did have enough capital.

6.3.2 SOURCES OF FINANCE IN CASE OF EXPANSION

Approximately 70 per cent of the respondents aim to expand their businesses within
2-3 years. This can be compared to the 68 per cent of Swedish SMEs that expressed a
desire to grow in 2014 (Tillväxtverket, 2014). To finance an expansion,
approximately 36 per cent of the respondents would use internal capital and 17 per
cent would use grants or support from the government.18 Only approximately two per
cent of the respondents would use bank loans to finance an expansion. This can be
compared to the 2011 study on 2000 Swedish firms. These firms preferred (1)
internally generated funds, (2) bank loans and (3) personal savings to finance an
expansion (Jakobsson & Herin, 2012). More than 30 per cent of the newly established
firms and about 40 per cent of the established firms in this study would have used
bank loans to finance an expansion. This indicates that the social entrepreneurs in the
sample of this thesis survey do not use the banking system to the same extent as
Swedish SMEs in general.
Examining the distribution of the preferred financing source by size of
turnover provides an interesting perspective (Table 9). The majority, 56 per cent, of
the respondents who reported a turnover of five million SEK or more (approximately
15 per cent) would have used internally generated capital to finance an expansion.
The preference for governmental support does not seem to decline with turnover
whilst the preference for internally generated funds seems to increase with turnover.

18
Some respondents replied that funds and support from their local municipality would be their
preferred source of finance in case of expansion. These responses have been included in the alternative
“Governmental grants/support (incl. EU)” in Table 9.

40
 Table 9. Preferred source of financing in case of expansion & turnover 19
N=112

Turnover
Preferred source of financing 0-249 999 250 000- 499 999- 1 000 000- 5 000 000 Total (%)
in case of expansion SEK (%) 499 999 999 999 4 999 999 SEK, or
SEK (%) SEK (%) SEK (%) more (%)
Additional capital from 0 0 5 0 0 1
existing external owners

Bank loans 0 13 0 2 11 4

Crowdfunding 0 13 0 0 0 1

Governmental grants/support 31 25 14 28 26 25
(incl. EU)20

Grants from funds/foundations 31 0 23 9 0 13

Internally generated capital 25 38 45 60 58 50

New external owners 6 0 0 2 5 3

Sponsoring 6 0 9 0 0 3

Venture capital, business 0 13 5 0 0 2

angels

Total 100 100 100 100 100 100

6.4 OBSTACLES, EXTERNAL CAPITAL & OPEN-ENDED QUESTIONS

6.4.1 OBSTACLES
Lack of financing is the most common obstacle according to the respondents when it
comes to past attempts and future plans of expansion (Table 10). Approximately 45
per cent of the respondents believe that a lack of financing affects their ability to
expand negatively. This is a higher share compared to Swedish SMEs in general,
where 12 per cent believe that lack of access to credit is an obstacle for growth and
8.5 per cent that lack of external finance affects their ability to grow negatively
(Tillväxtverket, 2014). 33 per cent of the respondents in the study of this thesis
believe that political factors affect their expansion attempts negatively. It seems as if
social enterprises are not as concerned about competition (approximately nine per
cent of the respondents see this as an obstacle for expansion) as Swedish SMEs in
general (28 per cent) (Tillväxtverket, 2014). The same comparison can be made with
difficulties related to labour. The share of respondents in this survey who mean that
high cost of labour and/or difficulties recruiting competent labour affects their ability
to expand is 28 per cent, compared to 22 per cent of Swedish SMEs (Tillväxtverket,

19
Question 10 & 19. See Appendix I for questionnaire.
20
Including the open-ended responses expressing that support from local municipalities was the
preferred source of finance in case of expansion.

41
2014). Examples of responses of the alterative “Other” are “Lack of support from the
municipality – difficult being a entrepreneur in Gothenburg” and “Regulations
associated with public procurement that disfavour firms within the social economy”.

Table 10. Obstacle(s) for expansion? 21

Answer options Share (%) N

Haven't wanted/don't want to expand 10.6 16
General economic/business-cycle related factors 16.6 25
Limited capacity 31.8 48
Lack of financing 45.0 68
High cost of labour, difficulties recruiting competent labour 27.8 42
Competitive factors 9.3 14
Regulations, legal framework 21.2 32
Political aspects (e.g. political unpredictability) 33.1 50
Taxes and/or other related costs 9.9 15
Haven't experienced any difficulties 6.6 10
Don't know/want to respond 4.6 7
Other (please specify) 11.3 17
Total 100 151

It is interesting to examine how the respondents’ attitude towards expansion is

related to economic profit and access to capital. Table 11 and 12 illustrate the relation
between these. Almost 90 per cent of the respondents who reported a positive
economic result during their last fiscal year plan to expand their businesses (Table
11). The majority of the respondents that did not generate an economic profit have the
same plans. This is interesting, indicating that most respondents have a positive
attitude towards the future of their business activities. A chi-squared test has been
included in order to test if a firm’s expansion plans are independent of the firm’s
economic profit (the null hypothesis). The p-value of the chi-squared test is 0.022,
which is less than 0.05 (5 per cent significance level). Therefore, one can conclude
that the results are significant at the 95 per cent level (can reject the null hypothesis).
In other words, the expansion plans of the firms in the sample do not seem to be
independent of the firms’ economic result. This is perhaps not too surprising since 36
per cent of the respondents would use internally generated capital to finance an
expansion. If the firm is not able to generate a positive economic result then it may be
difficult to finance an expansion. However, the majority of the respondents with a
negative economic result, yet a smaller share compared to those with profit, also have
future expansion plans. Possibly these believe that an expansion in the next coming
years is still possible, despite a recent negative economic result.

21
Question 20. See Appendix I for questionnaire.

42
Table 11. Economic profit & expansion plans 22

Profit?
Expansion plans? Yes (%) No (%) Total (%)

Yes 89.9 74.5 84.1

No 10.1 25.5 15.9

N 79 47 126
2
P-value of Chi test 0.022

Table 12 examines if the respondents had enough capital during the last 12
months or not in relation to expansion plans. Just like in the previous case, most of the
respondents seem positive when it comes a future expansion of their business. Here,
the share of respondents with enough capital and expansion plans is close to the share
of respondents who did not have enough capital but still have expansion plans. The p-
value of the chi-squared test in this case is 0.154, which is more than 0.1 (10 per cent
significance level). Therefore, we cannot reject the null hypothesis (that a firm’s
expansion plans is independent of if the firm had enough capital or not). Possibly,
since the question on a possible future expansion stretches 2-3 years into the future,
having enough capital during the last 12 months might not be what determines the
future expansion plans of a firm.

Table 12. Enough capital & expansion plans 23

Enough capital?
Expansion plans? Yes (%) No (%) Total (%)

Yes 89.6 80.4 86.2

No 10.4 19.6 13.8

N 77 46 123
P-value of Chi2 test 0.154

6.4.2 EXTERNAL CAPITAL

Approximately 60 per cent of the respondents perceive the supply of external capital
to be constrained (very limited and limited). This indicates a gap between the supply
and demand of external capital. This can be compared to 72 per cent of WISEs in
2011 and 47 per cent among SMEs in Sweden in 2015 (Tynelius, 2011; Företagarna,
2015). This indicates that social entrepreneurs perceive the supply of external capital

22
Question 11 & 18. See Appendix I for questionnaire.
23
Question 16 & 18. See Appendix I for questionnaire.

43
 to be less constrained today compared to a couple of years ago. However, these firms
perceive the supply of external capital to be more constrained compared to Swedish
SMEs in general. Only approximately 10 per cent of the respondents perceive the
supply of external capital to be good (very good and good). Since most of the
respondents in the sample represent relatively small firms, the explanation that there
is a positive relation between the size of a firm and its access to external capital might
be true for this sample. This is also the case for Swedish firms in general, with smaller
firms being more likely to be credit constrained compared to larger ones (Muzi &
Amin, 2015).
The majority of the respondents, almost 80 per cent, would find it interesting
if external investors could contribute not only with capital but also with for example
knowledge and professional network contacts. Table 13 illustrates how interested the
respondents are in external investors that could contribute in other ways but
financially in relation to how they perceive the access to external capital. Those who
believe that they have very limited or limited access to external capital are those who
are the most interested in external investors providing not only capital but other useful
resources. Relatively many of the respondents have marked the alternative “Either
or/no opinion” in either of the two questions. This could suggest that many of the
respondents are not very familiar with external capital and external investors.

Table 13. Contribution of external investors 24

External investors providing not only capital but knowledge, network etc.?

Access to Very Interesting Either or/no Uninteresting Very uninteresting Total

external capital? interesting (N) opinion (N) (N) (N)
(N)
Very good 1 0 0 0 1 2

Good 6 5 2 0 0 13

Either or/no 17 14 10 2 2 45
opinion
Limited 20 18 4 2 1 45

Very limited 24 14 5 1 1 45

N 68 51 21 5 5 N=150

24
Question 21 & 22. See Appendix I for questionnaire.

44
 6.4.3 OPEN-ENDED QUESTIONS
Two questions in the questionnaire were open-ended. These concerned what aspects
that the respondents believe could have facilitated their work during the start-up phase
as well as their work today. Examining the responses from these two questions
provides some interesting insights. Figure 5 below serves as an attempt to categorize
the major different areas that the respondents mentioned. All of the factors, except
business development (in bold), are aspects that many of the respondents believe
could have improved their work during start-up as well as today. Business
development however is something that only applies to the question on what could
improve their work today.

Tangible aspects

Contracts & collaboration Financial matters

with functions in the public
sector

Political factors
External factors Business development Internal factors

Support functions

Attitude towards and

knowledge of social Education & mentorship programs
entrepreneurship

Intangible aspects

Figure 5. Areas of improvement during start-up & today 25

Many of the respondents mean that their work would be easier if they were
able to participate in Swedish public procurement processes and were to be prioritized
by the public sector. Contracts with the regional municipalities would imply more
steady flows of revenue and increased sales, among other things. One of the
respondents means that: “A more open and supportive attitude from the municipalities
and coordination associations etc. in order to understand WISE’s need for support
initially. An obstacle seems to be LOU, which one refers to as a reason to why one
cannot procure from WISEs.”26 This is in line with the results of Hansson et al.
(2014). Social entrepreneurs often provide services and products to the public sector
and this becomes a problem when the firms are not able to fully enter the public
market. Data from 2011 also revealed the same unfavourable attitudes towards social
enterprises in Sweden (Tynelius, 2011). Another respondent has a similar opinion,

25
Question 23 & 24. See Appendix I for questionnaire.
26
LOU is an abbreviation of Lagen om Offentlig Upphandling, the Swedish public procurement act.

45
meaning that it would have been good if “Politicians and officials within the public
sector would believe in and direct resources towards social enterprises.”. Many
respondents mean that better support functions, appropriate for social enterprises,
would have benefited their activities. The respondents also request more and better
education and mentorship programs. In the 2011 survey by Growth Analysis, all of
these are mentioned as the largest obstacles for social entrepreneurs (Tynelius, 2011).
This indicates that the same type of problems still exist today.
The respondents mention business development as an aspect that would
improve their daily work today, just like in the 2011 survey by Growth Analysis
(Tynelius, 2011). Improved marketing skills, larger office spaces, being able to hire
more personnel as well as educating the existing work force are factors mentioned by
the respondents. All of these are closely related to limited finances. Since lack of
financing still seem to be an obstacle for Swedish social entrepreneurs, it is not very
surprising that they are not able to finance this kind of business development. Also,
this is in line with the fact that the majority of the respondents who reported a positive
economic result reinvested their profit into their businesses, possibly trying to address
some of these needs. Business development is probably also associated to the firms’
attitude towards a future expansion. Since most of the respondents want to expand
their businesses in the near future, perhaps they believe that they are able to finance
the development of their businesses. Since the majority of the respondents would use
internally generated funds to finance an expansion, this is also in line with reinvesting
an economic profit to finance the business development.

46
7. DISCUSSION & CONCLUSIONS
The purpose of this thesis was to examine how social entrepreneurs in Sweden
finance their businesses. By analyzing and examining the responses of the
questionnaire, some valuable insights have been achieved. First in this section, there
is a summary of the empirical results. A review of the theoretical section follows
together with a discussion on how this relates to the results of the questionnaire. A
discussion on the implications of the empirical results follows thereafter and finally,
some concluding remarks and suggestions for future research are presented.

7.1 SUMMARY OF EMPIRICAL RESULTS

The results of the empirical section can be summarized as follows:
Ø Social entrepreneurs in Sweden seem to rely primarily on governmental
grants/support, personal resources and internally generated capital to finance the
start-up of their businesses as well as their operations during the last 12 months.
Social entrepreneurs do not seem to use bank loans to the same extent as Swedish
SMEs in general.

Ø 60 per cent of the respondents reported a positive economic result in their most
recent fiscal year. The majority of these reinvested the money in the firm.

Ø 60 per cent of the respondents had enough capital during the last 12 months (40
per cent did not).

Ø 70 per cent of the respondents aim to expand their businesses within 2-3 years.
There seems to be a relation between a firm’s economic result and expansion
plans. A larger share of the firms that generated economic profit during their last
fiscal year have expansion plans compared to those who reported a negative
economic result. However, the majority of the latter group still have expansion
plans.

Ø If a firm had enough capital during the last 12 months or not does not need to be
related to a firm’s expansion plans.

Ø The largest obstacles for expansion are lack of financing, political factors, labour
related aspects and factors related to regulations/legal frameworks. A larger share
of social entrepreneurs sees lack of financing as an obstacle for expansion
compared to Swedish SMEs in general. The opposite seems true when it comes to
competition, with a smaller share of social entrepreneurs seeing this as an obstacle
compared to Swedish SMEs in general.

Ø 60 per cent of the respondents believe the supply of external capital to be

constrained, possibly a larger share than Swedish SMEs in general. 80 per cent of
the respondents would find it interesting if external investors could provide them
with for example knowledge and access to professional networks, apart from
capital. Those who perceive the access to external capital to be limited are the
ones who are the most interested in this.

47
Ø More contracts and improved collaboration with the municipalities, business
development, better support functions, more education and mentorship programs,
better attitude towards social entrepreneurship and political and financial
improvements are aspects that would have facilitated the start-up as well as the
work today of the social entrepreneurs.

7.2 DISCUSSION

7.2.1 SOCIAL ENTREPRENEURSHIP IN THEORY & REALITY

Schumpeter (1950) argued that the economic life takes place in a social and natural
context and the economic system is highly affected by changes in this environment.
Entrepreneurs generate economic development but also social change. Social
entrepreneurship can be described as dynamic actions in non-economic areas of the
society, which creates development (Swedberg, 2006). Social entrepreneurship and
related concepts have received an increasing amount of attention during the last years,
commonly being referred to as an important tool in order to be able to address societal
challenges. For social entrepreneurship to be a useful and effective tool, governments
and relevant institutions need to ensure that there is a fruitful environment for social
entrepreneurs to be active in. Stimulating social entrepreneurship might be a good
idea if one wants to generate sustainable development, like in the case of the Europe
2020-strategy. Furthermore, all entrepreneurs need access to credit in order to become
an entrepreneur (Schumpeter, 1950). So, for social entrepreneurs to exist they need to
be able to access finance. If social entrepreneurship is seen as a tool to achieve the
goals of the Europe 2020-strategy, one needs to ensure that social entrepreneurs are
able to finance their businesses. However, lack of finance has shown to be and still
seem to be, according to the results of this study, an obstacle for these entrepreneurs.
According to Baumol (1996), productive entrepreneurship generates both
economic and social value. This helps to explain how social entrepreneurship and
traditional entrepreneurship may overlap and that generating economic profit and
creating social value need not to be in conflict (Acs et al., 2013b). This is confirmed
by the fact that the majority of the respondents of the questionnaire in this thesis
reported that their activities generated an economic profit in their most recent fiscal
year. The large majority of these chose to reinvest their profit, which is in line with
what most definitions of social entrepreneurship suggest: that the economic profit, or
maximizing the shareholders’ wealth, is not is the primary objective. Also, the social
enterprises that did not generate an economic profit might be firms in which the
producers and consumers are the same people. This would also suggest that there are
other primary objectives but an economic one. The social entrepreneurs’ expansion
plans seem to be related to the economic result of the business activities. This
indicates once again that there are overlaps between social entrepreneurship and
traditional entrepreneurship. The economic result of the activities of social
entrepreneurs is important in order for these to be able to address the societal
challenges and also to do so to a greater extent by expanding their activities.
Furthermore, the ambition for expansion and development is positively related to the
need for external capital according to Johansson et al. (2014). Therefore, since most
of the respondents want to expand their businesses in the near future, the demand for

48
external capital should be high. This seems to be true since there seems to be a gap
between the supply and demand of external capital.
Not all the respondents of the questionnaire may be social entrepreneurs based
on Schumpeter’s view of entrepreneurial activity. The sample may contain a mix of
the three types of social entrepreneurs formulated by Zahra et al. (2009), namely the
social bricoleur, social constructionist and social engineer. Some of the respondents,
WISEs in particular, seem to be highly engaged in local societal challenges and can
be described as social bricoleurs, while others introduce new innovations and perhaps
do so more or less radically.

7.2.2 FINANCING
The literature overview gave the general impression that social entrepreneurs face
some obstacles in pursing their businesses. Difficulties in accessing finance was one
of these and this was also the area of focus in this thesis. The majority of the
respondents believe that lack of financing is one of the main obstacles that they
encounter. Government funding and support seems to be the most commonly used
source of finance, more so compared to Swedish SMEs in general. Very few of the
respondents use bank loans as a source of financing. For Swedish SMEs in general,
bank loans are commonly used, especially in case of expansion. This could be an
indication that Swedish social entrepreneurs have difficulties in accessing the banking
system. A reason to this might be that there are not be commercially viable solutions
to the challenges that the social entrepreneurs seek to address and therefore the banks
do not want to lend money to the social entrepreneurs to the same extent as SMEs in
general. However, it could also be an indication that social entrepreneurs prefer other
sources of finance. Approximately 60 per cent perceive the supply of external capital
to be constrained, which indicates a gap between the supply and demand of external
capital. This gap might be smaller today compared to a few years ago but larger
compared to Swedish SMEs in general. Furthermore, since the majority of the
respondents aim to expand their businesses in the near future, the demand of external
capital is likely to continue to be high.

7.2.3 OBSTACLES & AREAS OF IMPROVEMENT

Many of the respondents mean that there is an unfavourable attitude towards social
entrepreneurship in Sweden. This may be related to the lack of a universal definition
of social entrepreneurship and related concepts, which cause a general confusion
about what characterize these businesses. Since 92 per cent of the respondents see
themselves as social entrepreneurs, without being given an exact definition of the
term, it seems as if the entrepreneurs are familiar with addressing themselves as such.
One of the main factors that the respondents believe could improve their daily
work is more and better contracts and a closer collaboration with the public sector.
Since social enterprises in general often provide services and products to the public
sector it would seem reasonable if the government could make it easier for these firms
to operate in the public market. This would improve the financial situation of the
firms, possibly increasing their internally generated capital, which in turn would
enable them to launch business development projects and carry out their expansion

49
plans. This, together with the importance of governmental support when it comes to
financing this type of firms, highlights the important function that the Swedish
government can have in supporting and promoting this type of entrepreneurial
activity. However, the effectiveness and appropriateness of governmental support
must be considered before any governmental support mechanisms are implemented.
This is further discussed in terms of a suggestion for future research.

7.3 CONCLUSIONS

Entrepreneurs that seek to address societal challenges and needs of today’s societies
are receiving an increasing amount of attention. Social entrepreneurs, with their
inherent social mission, are certainly important components in establishing and
maintaining a path to sustainable development. As mentioned before, social
entrepreneurship is considered a tool in Europe’s 2020-strategy for creating smart,
inclusive and sustainable growth. Not only European countries but all countries in the
world today need to establish a foundation that enables and ensures a sustainable
future development. Therefore, research on social entrepreneurship is important. This
thesis highlights the difficulties in accessing finance that Swedish social entrepreneurs
experience. Many of the firms rely on governmental financial support and it is
therefore important to study the existing support mechanisms and see if there is need
for any kind of improvement of these. However, it is at the same time highly relevant
to examine and discuss the effectiveness of governmental intervention when it comes
to supporting social entrepreneurship. Governmental funds can be used in many ways
and whenever directed to a certain area, the effectiveness of the funds used must be
evaluated in order for such governmental intervention to be justified. Governmental
support can, but need not to be, the most effective solution to the obstacles that
Swedish social entrepreneurs face and this is something that must be kept in mind
when interpreting the results of this thesis. On a positive note however, Swedish
social entrepreneurs seem to be optimistic about the future, despite the different
difficulties and obstacles that they face in pursuing their social mission.

7.3.1 SUGGESTIONS FOR FUTURE RESEARCH

It would be valuable if future research on social entrepreneurship were to be of both
qualitative and quantitative nature. As mentioned before, most previous studies have
been of qualitative nature. Adding studies with a quantitative approach would make it
possible to distinguish aspects that are not captured, at all or in its entirety, by
qualitative studies. Conducting in-depth interviews and presenting these together with
related quantitative research may enhance the understanding of social
entrepreneurship. Comparing different kinds of social enterprises in terms of which
challenges and opportunities that these experience would be interesting. By doing so
one could get a more nuanced picture of the market in which these firms operate. It
could also be interesting to examine if there are differences between the Swedish
counties that affect the social entrepreneurs. Conducting studies comparable to the
one of this thesis but in other countries would also be interesting. This kind of
comparison could provide valuable insights on differences in the conditions that
social entrepreneurs face. Examining other countries’ relevant legal frameworks

50
might be a good idea in order to develop an understanding of which policies seem to
be the most effective ones. Many of the respondents express a variety of political
factors in Sweden to be obstacles for their businesses. Research on the effects of
different policies on the activities of social entrepreneurs, examining which types of
policies that the entrepreneurs themselves want to see in place and how these firms
can be promoted in general would be interesting. For example, many of the firms call
for an increased collaboration with the Swedish municipalities and therefore it would
be interesting to evaluate how such can be achieved. This can possibly result in
valuable policy implications. Also, this thesis does not examine the prevalence of the
relatively new types of financial instruments and investment types associated with
social entrepreneurship, such as Social Impact Bonds and Social Investment Funds, in
Sweden. It would be interesting to examine if social entrepreneurs have heard of
and/or noticed such investments and how effective these have been.
A continued discussion on the definition of social entrepreneurship is
necessary for the area to become established and acknowledged. Many of the
respondents of the questionnaire in this thesis express a concern when it comes to the
attitude of the general public, the public sector and other relevant institutions towards
social entrepreneurship and its related concepts. Research on why this attitude
persists, despite the increased focus on and activity within this area, and how one can
work to change the attitude would be valuable.

51
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APPENDIX I : QUESTIONNAIRE

ORIGINAL QUESTIONNAIRE (SWEDISH)

Hej,

Jag heter Elin Rhenman och är student vid Kungliga Tekniska Högskolan, KTH, i Stockholm.
Under vårterminen 2016 skriver jag min masteruppsats om socialt entreprenörskap och dess
finansiering i Sverige. Uppsatsen kommer att baseras på denna enkät som syftar till att
kartlägga hur sociala entreprenörer i Sverige har finansierat och finansierar sina
verksamheter. Enkäten riktar sig till verksamhetsansvarig för er organisation.

Enkäten görs online och svaren skickas direkt till mig. Du är garanterad anonymitet och
resultaten från undersökningen kommer enbart att användas i forskningssyfte. Inga enskilda
svar kommer att rapporteras. Du behöver inte lämna några personliga uppgifter. Enkäten
består av 25 frågor och tar ca 10-15 minuter att besvara.

Jag skulle vara mycket tacksam om du har tid och möjlighet att svara på enkäten, gärna före
torsdagen den 31 mars 2016. Vid eventuella frågor, hör gärna av dig till Elin Rhenman via e-
mail, erhenman@[Link].

Stort tack för ditt bidrag!

Med vänliga hälsningar,

Elin Rhenman

Följande frågor riktar sig till dig som är verksamhetsansvarig.

1. Är du kvinna eller man?

a. Kvinna
b. Man
c. Vill inte svara

2. Hur gammal är du och vilket postnummer har ni där du bor?

Ålder:
Postnummer:

3. Vilken är din högsta genomförda utbildning?

Vänligen markera det alternativ som stämmer in på dig eller komplettera med eget
svar på sista raden om alternativen inte passar.

a. Förgymnasial utbildning
b. Gymnasial utbildning
c. Universitets- eller högskoleutbildning, kortare än 3 år
d. Universitets- eller högskoleutbildning, 3 år eller längre
e. Vet ej/vill inte svara
f. Annat (vänligen specificera):

Övergripande frågor

4. Vilken juridisk form har er verksamhet?

58
 Vänligen markera det alternativ som stämmer överens med er verksamhet eller
komplettera med eget svar på sista raden om alternativen inte passar.

a. Aktiebolag
b. Aktiebolag med begränsad vinstutdelning
c. Ekonomisk förening
d. Enskild firma
e. Handelsbolag
f. Ideell förening
g. Kommanditbolag
h. Stiftelse
i. Vet ej/vill inte svara
j. Annat (vänligen specificera):

5. Hur länge har ni varit verksamma?

a. 0-12 månader
b. 1-2 år
c. 2-3 år
d. 3-5 år
e. 5-10 år
f. 10 år eller längre
g. Vet ej/vill inte svara

6. Hur många ägare/medlemmar har er verksamhet?

a. Inte applicerbart (vid [Link]. stiftelse som organisationsform)

b. 1
c. 2
d. 3
e. 4
f. 5
g. 6-9
h. 10-24
i. 25 eller fler
j. Vet ej/vill inte svara

7. Inom vilket/vilka områden bedriver ni huvudsakligen er verksamhet?

Vänligen markera det/de alternativ som stämmer bäst överens med er verksamhet
och/eller komplettera med eget svar på sista raden om alternativen inte passar.

a. Jordbruk, skogsbruk och fiske

b. Utvinning av mineral
c. Tillverkning
d. Försörjning av el, gas, värme och kyla
e. Vattenförsörjning; avloppsrening, avfallshantering och sanering
f. Byggverksamhet
g. Handel; reparation av motorfordon och motorcyklar
h. Transport och magasinering
i. Hotell- och restaurangverksamhet
j. Informations- och kommunikationsverksamhet
k. Finans- och försäkringsverksamhet
l. Fastighetsverksamhet
m. Verksamhet inom juridik, ekonomi, vetenskap och teknik
n. Uthyrning, fastighetsservice, resetjänster och andra stödtjänster
o. Offentlig förvaltning och försvar; obligatorisk socialförsäkring
p. Utbildning
q. Vård och omsorg; sociala tjänster

59
 r. Kultur, nöje och fritid
s. Annan serviceverksamhet
t. Förvärvsarbete i hushåll; hushållens produktion av diverse varor och tjänster för
eget bruk
u. Verksamhet vid internationella organisationer, utländska ambassader o.d.
v. Vet ej/vill inte svara
w. Annat (vänligen specificera)

8. På vilket postnummer finns er huvudsakliga verksamhet?

Postnummer:

9. Hur många anställda har er verksamhet i dagsläget?

Antalet anställda i verksamheten (inklusive dig själv).

a. 1-4
b. 5-9
c. 10-14
d. 15-19
e. 20-49
f. 50 eller fler
g. Vet ej/vill inte svara

10. Hur stor var er omsättning under föregående räkenskapsår?

a. 0 - 249 999 kr
b. 250 000 - 499 999 kr
c. 500 000 - 999 999 kr
d. 1 000 000 - 4 999 999 kr
e. 5 000 000 kr eller mer
f. Vet ej/vill inte svara

11. Sammantaget, gick er verksamhet med ekonomisk vinst under föregående räkenskapsår?
Om "Nej" - vänligen fortsätt till fråga 13.

a. Ja
b. Nej
c. Vet ej/vill inte svara

12. Hur använde ni det ekonomiska överskottet?

Vänligen markera så många alternativ som stämmer överens med er verksamhet
och/eller komplettera med eget svar på sista raden om alternativen inte passar.

a. Delade ut till ägare/medlemmar

b. Välgörande ändamål
c. Återinvesterade i verksamheten
d. Vet ej/vill inte svara
e. Annat (vänligen specificera):

Finansiering vid start, under de senaste 12 månaderna & vid ev. expansion

13. Vilken/vilka av nedan finansieringsformer använde ni för att starta er verksamhet?

Vänligen markera så många alternativ som stämmer överens med er verksamhet
och/eller komplettera med eget svar på sista raden om alternativen inte passar.

60
 a. ALMI
b. Banklån
c. Anslag från fonder, stiftelser etc.
d. Crowdfunding
e. Egna medel
f. Externa delägare
g. Gåvor från privatpersoner
h. Lån från familj/släkt, vänner
i. Riskkapital, affärsänglar
j. Sponsring
k. Statliga bidrag/stöd (inkl EU)
l. Vet ej/vill inte svara
m. Annat (vänligen specificera):

14. Vilken av finansieringsformerna var viktigast vid starten av er verksamheten?

Dvs. den finansieringsform som stod för den största delen av finansieringen.
Vänligen markera ett alternativ eller komplettera med eget svar på sista raden om
alternativen inte passar.

a. ALMI
b. Banklån
c. Anslag från fonder, stiftelser etc.
d. Crowdfunding
e. Egna medel
f. Externa delägare
g. Gåvor från privatpersoner
h. Lån från familj/släkt, vänner
i. Riskkapital, affärsänglar
j. Sponsring
k. Statliga bidrag/stöd (inkl. EU)
l. Vet ej/vill inte svara
m. Annat (vänligen specificera)

15. Hur har ni finansierat verksamheten under de senaste 12 månaderna?

Vänligen markera så många alternativ som stämmer överens med er verksamhet
och/eller komplettera med eget svar på sista raden om alternativen inte passar.

a. ALMI
b. Banklån
c. Belåning av fakturor
d. Anslag från fonder, stiftelser etc.
e. Checkkredit
f. Crowdfunding
g. Egna medel
h. Gåvor från privatpersoner
i. Lån från familj/släkt, vänner
j. Nya externa delägare
k. Riskkapital, affärsänglar
l. Sponsring
m. Statliga bidrag/stöd (inkl. EU)
n. Tillskott från befintliga ägare
o. Verksamhetens interna kapital (löpande intäkter, befintligt kapital)
p. Vet ej/vill inte svara
q. Annat (vänligen specificera)

16. Har ni haft tillräckligt med kapital under de senaste 12 månaderna?

Om "Ja" eller "Vet ej/vill inte svara" - vänligen fortsätt till fråga 18.

61
 a. Ja
b. Nej
c. Vet ej/vill inte svara

17. Vilken var anledningen till att ni inte hade tillräckligt med kapital under de senaste 12
månaderna?
Vänligen markera så många alternativ som stämmer överens med er verksamhet
och/eller komplettera med eget svar på sista raden om alternativen inte passar.

a. Allmänna ekonomiska/konjunkturrelaterade faktorer

b. Svårigheter att hitta/få lämplig finansiering
c. Har inte haft tillräckligt med internt kapital (verksamhetens interna kapital)
d. Vet ej/vill inte svara
e. Annat (vänligen specificera)

18. Under de kommande 2-3 åren, planerar ni att expandera er verksamhet?

a. Ja
b. Nej
c. Vet ej/vill inte svara

19. Vilket av följande finansieringsalternativ skulle ni använda vid en eventuell expansion av

er verksamhet?
[Link]. för att växa/skala upp/etablera er verksamhet på nya marknader, ta fram nya
produkter, tjänster mm.
Vänligen markera det alternativ som ni helst vill använda eller komplettera med eget
svar på sista raden om alternativen inte passar.

a. ALMI
b. Banklån
c. Bidrag från fonder, stiftelser etc.
d. Crowdfunding
e. Gåvor från privatpersoner
f. Lån från familj/släkt, vänner
g. Nya externa delägare
h. Riskkapital, affärsänglar
i. Sponsring
j. Statliga bidrag/stöd (inkl. EU)
k. Tillskott från befintliga ägare
l. Verksamhetens interna kapital (löpande intäkter, befintligt kapital)
m. Vet ej/vill inte svara
n. Annat (vänligen specificera)

20. Har någon/några av följande faktorer varit eller är ett hinder för er verksamhets
expansion?
Vänligen markera så många alternativ som stämmer överens med er verksamhet
och/eller komplettera med eget svar på sista raden om alternativen inte passar.

a. Har inte velat/vill inte expandera

b. Allmänna ekonomiska/konjunkturrelaterade faktorer
c. Begränsad kapacitet/förmåga
d. Brist på kapital/finansiering
e. Höga arbetskraftskostnader och/eller svårigheter att rekrytera kompetent
arbetskraft
f. Konkurrensrelaterade faktorer
g. Lagar och regelverk

62
 h. Politiska faktorer ([Link]. politisk oförutsägbarhet)
i. Skatter och/eller liknande kostnader
j. Har inte upplevt några hinder med att expandera
k. Vet ej/vill inte svara
l. Annat (vänligen specificera)

Externt kapital & externa faktorer

21. Hur uppfattar ni tillgången på externt kapital?

1. Mycket begränsad
2. Begränsad
3. Varken eller/ingen uppfattning
4. God
5. Mycket god

22. Hur intressant är det för er verksamhet att en investerare inte bara bidrar finansiellt utan
även med kunskap och/eller nätverk?
Kunskap och nätverk inom [Link]. ert affärsområde, strategi, affärsutveckling och
ekonomiska frågor.

1. Helt ointressant
2. Ointressant
3. Varken eller/ingen uppfattning
4. Intressant
5. Mycket intressant

23. Vad skulle ha kunnat underlättat starten av er verksamhet?

Dela gärna med er av en/ett par faktorer som ni tror skulle ha underlättat arbetet med
att starta upp er verksamhet.

24. I dagsläget, vad skulle kunna underlätta arbetet med er dagliga verksamhet?
Dela gärna med er av en/ett par faktorer som ni uppfattar som problematiska i er
dagliga verksamhet och hur ni tror att dessa skulle kunna förbättras.

25. Ser ni er själva som en social entreprenör?

a. Ja
b. Nej
c. Vet ej/vill inte svara

Vänligen motivera varför/varför inte.

63
TRANSLATED QUESTIONNAIRE (ENGLISH )

Hi,

My name is Elin Rhenman and I am a student at KTH Royal Institute of Technology in

Stockholm. I am writing my master’s thesis on social entrepreneurship and its sources of
finance during the spring semester 2016. The thesis will be based on this questionnaire,
which aims to map out how social entrepreneurs in Sweden have financed and are financing
their business activities. The questionnaire turns to the person who is responsible for your
business activities.

The questionnaire is available online and the responses are sent directly to me. You are
guaranteed anonymity and the results of the survey will only be used for scientific research
purposes. No single responses will be reported. You do not need to leave any personal
information. The questionnaire consists of 25 questions and takes approximately 10-15
minutes to answer.

I would really appreciate if you have the time and opportunity to respond to the questionnaire,
st
preferably before 31 of March 2016. If you have any questions, please contact Elin
Rhenman by e-mail, erhenman@[Link].

Thank you very much for your contribution!

Best regards,

Elin Rhenman

The following questions are directed to the person who is responsible for your
business activities.

1. Are you a woman or a man?

a. Woman
b. Man
c. Don’t want to respond

2. How old are you and in which postal code do you live?

Age:
Postal code:

3. What is your highest level of education?

Please mark the alternative that best applies or add your own response in the last
row.

a. Pre-secondary education
b. Secondary education
c. Tertiary education, less than 3 years
d. Tertiary education, 3 years or more
e. Don’t know/want to respond
f. Other (please specify)

General questions

4. Legal form of your business?

Please mark the alternative that best applies to your business or add your own
response in the last row.

64
 a. Limited company
b. Limited company with special dividend restriction
c. Economic association
d. Sole proprietorship
e. Proprietorship
f. Non-profit association
g. Partnership
h. Foundation
i. Don’t know/want to respond
j. Other (please specify)

5. How long have you been running your business?

a. 0-12 months
b. 1-2 years
c. 2-3 years
d. 3-5 years
e. 5-10 years
f. 10 years or longer
g. Don’t know/want to respond

6. How many owners/members does your business have?

a. Not applicable (e.g. foundation as legal form)

b. 1
c. 2
d. 3
e. 4
f. 5
g. 6-9
h. 10-24
i. 25 or more
j. Don’t know/want to respond

7. Which business area(s)/industry(-ies) describes the majority of your business activities?

Please mark the alternative that best applies to your business or add your own
response in the last row.

a. Agriculture, forestry & fishing

b. Mining and quarrying
c. Manufacturing
d. Electricity, gas, steam and air conditioning supply
e. Water supply; sewerage, waste management and remediation activities
f. Construction
g. Wholesale and retail trade; repair of motor vehicles and motorcycles
h. Transportation and storage
i. Accommodation and food service activities
j. Information and communication
k. Financial and insurance activities
l. Real estate activities
m. Professional, scientific and technical activities
n. Administrative and support service activities
o. Public administration and defence; compulsory social security
p. Education
q. Human health and social work activities
r. Arts, entertainment and recreation

65
 s. Other service activities
t. Activities of households as employers; undifferentiated goods- and services-
producing activities of households for own use
u. Activities of extraterritorial organisations and bodies
v. Don’t know/want to respond
w. Other (please specify)

8. In which postal code area can the majority of your business activities be found?

Postal code:
9. How many employees does your company have today?
Number of employees (including yourself).

a. 1-4
b. 5-9
c. 10-14
d. 15-19
e. 20-49
f. 50 or more
g. Don’t know/want to respond

10. Size of your turnover during your last fiscal year?

a. 0 - 249 999 SEK

b. 250 000 - 499 999 SEK
c. 500 000 - 999 999 SEK
d. 1 000 000 - 4 999 999 SEK
e. 5 000 000 SEK or more
g. Don’t know/want to respond

11. Altogether, did your business generate economic profit during your last fiscal year?
If ”No” – please continue to question 13.

a. Yes
b. No
c. Don’t know/want to respond

12. How did you use the positive economic result?

Please mark the alternative(s) that describes your business and/or add your own
response in the last row.

a. Distributed to owners/members
b. Donated to charity
c. Reinvested in the business
d. Don’t know/want to respond
e. Other (please specify)

Sources of financing during start-up, last 12 months and in case of future expansion

13. Which of the below sources of finance did you use to finance the start-up of your
business?
Please mark the alternative(s) that describes your business and/or add your own
response in the last row.

a. ALMI

66
 b. Bank loans
c. Grants from funds, foundations etc.
d. Crowdfunding
e. Personal resources
f. External investors (share capital)
g. Gifts from individuals
h. Borrowing from family, friends
i. Venture capital, business angel investments
j. Sponsoring
k. Governmental grants/support (incl. EU)
l. Don’t know/want to respond
m. Other (please specify)

14. Which of the below sources of finance was the most important one during the start-up
phase of your business?
I.e. which source of finance accounted for the largest share of the financing used
during the start-up phase.
Please mark the alternative(s) that describes your business and/or add your own
response in the last row.

a. ALMI
b. Bank loans
c. Grants from funds, foundations etc.
d. Crowdfunding
e. Personal resources
f. External investors (share capital)
g. Gifts from individuals
h. Borrowing from family, friends
i. Venture capital, business angel investments
j. Sponsoring
k. Governmental grants/support (incl. EU)
l. Don’t know/want to respond
m. Other (please specify)

15. How have you financed your business activities during the last 12 months?
Please mark the alternative(s) that describes your business and/or add your own
response in the last row.

a. ALMI
b. Bank loans
c. Factoring
d. Grants from funds, foundations etc.
e. Overdraft facilities
f. Crowdfunding
g. Personal resources
h. Gifts from individuals
i. Borrowing from family, friends
j. New external investors (share capital)
k. Venture capital, business angel investments
l. Sponsoring
m. Governmental grants/support (incl. EU)
n. Additional capital from existing external owners
o. Internal funds (generated by the firm)
p. Don’t know/want to respond
q. Other (please specify)

16. Have you had enough capital during the last 12 months?

67
 If ”Yes” or ”Do not know/want to respond” – please continue to question 18.

a. Yes
b. No
c. Don’t know/want to respond

17. For what reason did you not have enough capital during the last 12 months?
Please mark the alternative(s) that describes your business and/or add your own
response in the last row.

a. General economic conditions/business cycle related aspects

b. Difficulties finding/accessing appropriate funding
c. Lack of internal capital
d. Don’t know/want to respond
e. Other (please specify)

18. In the next 2-3 years, are you planning on expanding your business?

a. Yes
b. No
c. Don’t know/want to respond

19. Which of the following sources of finance would you use in case of expansion?
E.g. to grow/scale up/establish your business in new markets, launch new products,
services etc.
Please mark the alternative that you would prefer or add your own response in the
last row.

a. ALMI
b. Bank loans
c. Grants from funds, foundations etc.
d. Crowdfunding
e. Gifts from individuals
f. Personal resources
g. External investors (share capital)
h. Borrowing from family, friends
i. New external investors (share capital)
j. Venture capital, business angel investments
k. Sponsoring
l. Governmental grants/support (incl. EU)
m. Additional capital from existing external owners
n. Internal funds (generated by the firm)
o. Don’t know/want to respond
p. Other (please specify)

20. Have any of the below been/is an obstacle for expanding your business?
Please mark the alternative(s) that describes your business and/or add your own
response in the last row.

a. Haven't wanted/don't want to expand

b. General economic/business-cycle related factors
c. Limited capacity
d. Lack of financing
e. High costs of labour, difficulties recruiting competent labour
f. Competitive factors
g. Regulations, legal framework
h. Political aspects (e.g. political unpredictability)

68
 i. Taxes and/or other related costs
j. Haven't experienced any difficulties
k. Don't know/want to respond
l. Other (please specify)

External capital & external factors

21. How do you perceive the supply of external capital?

a. Very limited
b. Limited
c. Either or/no opinion
d. Good
e. Very good

22. How interesting would it be if external investors not only could provide capital but also
knowledge and/or network etc.?
Knowledge and network for example related to your area of business, business
development and questions regarding financing etc.

a. Very uninteresting
b. Uninteresting
c. Either or/no opinion
d. Interesting
e. Very interesting

23. What could have facilitated the start-up of your business?

Please share one/several aspects that you believe could have facilitated the work
with starting-up your business.

24. What could facilitate your daily work with your business today?
Please share one/several aspects that you believe to be problematic in your daily
work with your business and how these could be improved.

25. Do you see yourself as a social entrepreneur?

a. Yes
b. No
c. Don’t know/want to respond

Please motivate why/why not.

69
 APPENDIX II: SOURCES OF FINANCE

60%

50%

40%

30%

20%

10%

0%

Most important source of financing during start-up Sources of financing during start-up

Sources of financing during last 12 months

Graph 2. Sources of finance during start-up & last 12 months 27

N =151/147/151

27
Question 13, 14 & 15. See Appendix I for questionnaire.

70