At the recent European Venture Philanthropy Association conference in Berlin on 17 and 18 November, I chaired a panel called ‘The Role of the Large Welfare Associations in Germany – Partnerships or Competition?’ The session title suggests that German – and for the sake of the panel: Austrian – welfare associations are players in the field of venture philanthropy and social impact investing themselves despite being large, traditional non-profits.

These large non-profits play a unique role in the German state welfare system: originating from social entrepreneurship initiatives as far back as the last third of the 19th century, they have grown to be a segment of the non-profit sector which includes some of the largest providers of social services in Europe. Non-profit in form and competitive in nature, they are active in government-regulated quasi-markets, in which citizens enjoy legally guaranteed entitlements to services, but these welfare associations (which legally in many cases are operating foundations or charitable companies) provide the actual services.

They are challenged by two factors: the path dependencies that plague all large and traditional organizations, and the new start-up social entrepreneurs, driven by social innovation. There is a mutual challenge here: while the start-ups are desperate for growth and dissemination of their innovations, the large welfare associations need social innovations which can help them to improve the effectiveness of their services. However, the panel discussion also identified a lot of intrapreneurship initiatives by the welfare associations leading to their own innovative responses to societal challenges.

For all players in the field of venture philanthropy and social impact investment, it is crucial to identify where an income stream for their services can come from. In a highly hybrid market in principle characterized by market failure, this income, which has to be the basis of any business model, can only be generated from a diversity of sources including welfare system funding, At the same time this needs to be supported by political advocacy. As a consequence, the discussion with participants from as far as China concluded that the German concept of subsidiarity, ie the actual service is provided by non-profits (competing with for-profits in many of the markets!) on behalf of the state, which alone can guarantee its citizens’ entitlements, has a lot of potential to inform future welfare policies and the framework conditions of social impact investment. The welfare associations, as large non-profits, are preparing to invest in that impact market themselves and are exploring vehicles to structure the risk and return potential of such investments.

The lesson learned: a combination of social entrepreneurship start-ups and entrepreneurial, traditional non-profits is a particularly interesting way to address the challenges of our societies.

Volker Then is executive director of the Centre for Social Investment at Heidelberg University.