How government funding unlocks impact stack growth

Understanding the types and roles of capital is essential across any investment area, but absolutely critical in social impact. Ensuring that capital is used to unlock impact requires intentional thought on how to structure it, its objectives, and its value. In a recent article, we described the benefits and opportunities of impact stacks. For government, the opportunities for engaging in impact stacks are multilayered, from grants to capability to procurement. Among these roles, government’s position as an anchor customer is often the least recognised, yet one of the most influential in building investable businesses. 

Government support as the foundation 

Often, the first thought for government investment into social impact and stacks is through grants: concessional funds that build the stack, take the risk, and provide the stronger returns needed for private capital to flow. This is a critical structure for many stacks to be successful, and can be seen through a range of programs, including Sefa’s own beginning with investment from the Social Enterprise Development Investment Fund in 2011 and most recently the Housing Australia Future Fund. 

Beyond grants, national governments can use outcomes-based funding to give investors more certainty. Instead of paying for activities, the government commits to paying for proven results. This gives other funders the confidence to put money in upfront, knowing there is a clear, government-backed path to being repaid once the impact is delivered. It ensures taxpayer money is only spent when real-world change actually happens. 

Government support as the catalyst 

Viewing stacks as sequences, we can also see the role of government in providing capability building or industry support. By focusing on building the strength of social enterprises, we reduce risk for further investment. This view of "sequencing" is key to understanding that investing in businesses is not a point-in-time activity, but a process where each type of capital and investor plays a specific role. 

Our Backing the Bold program is built on this thinking, providing capability building to support social entrepreneurs at that key growth stage. Through that coaching, they are then able to access our Backing the Bold capital. These two layers working together reduce risk for future investment. 

Government support as the anchor 

Perhaps our favourite of these roles, is government acting as the anchor customer, often the most powerful role, yet it arguably remains underutilised in practice. Governments of all levels are engaging not only with funding, but through direct payments into enterprises. By providing purchase orders, the government builds credibility and provides a solid anchor for the enterprise to access growth and capital. 

By stepping in as the "first institutional customer," the government provides the certainty that can transform a social enterprise’s balance sheet. Organisations with government contracts can demonstrate their financial strength to investors; building on a government contract creates a clear and reliable revenue base. 

While state and federal governments set the frameworks, it is local government that is closest to the ground. For a growth-stage social enterprise, securing that first local council contract is often the critical "trigger" for the rest of the stack. Local government has the unique ability to procure services from the very entrepreneurs living in their communities, turning everyday service delivery into a high-impact investment. When a local council provides the contract (the anchor), it creates the revenue stream that allows state or national programs to provide the concessional debt (the foundation). 

From participation to system design

The opportunity for government is not only to participate in impact stacks, but to shape the conditions that allow them to work well, again and again. That means investing in the architecture that sits beneath the stack: the mechanisms, relationships and pathways that allow grants, capability support, procurement and private capital to be sequenced with intention. 

Without that architecture, each stack has to be built from scratch. The right partners need to find each other, the right capital has to arrive at the right moment, and social enterprises are left to navigate a fragmented system while trying to grow. With it, government can help create a more consistent pathway where each layer knows its role, reduces risk for the next, and enables capital to move with greater confidence. 

The invitation now is for government to move beyond one-off interventions and invest in the enabling conditions that make impact stacks repeatable. By owning its roles as foundation, catalyst and anchor, government can help ensure the right capital reaches the right layer of the stack – not by chance, but by design.