Social Enterprise Funding 101
Finding funding is one of the biggest challenges faced by social entrepreneurs. You can have what you think is the best idea in the world but without the moolah to make it happen it’ll be close to impossible to even get off the ground.
Your options get thin when your business is focused on maximising social impact rather than profits. The problem is that many traditional investors view social impact as a financial cost and therefore a lousy investment decision. To make things even more difficult, for-profit social enterprises are ineligible for funding from many grant-makers, trusts, and other philanthropic funders which are limited to funding organisations with charitable status.
But it’s not all doom and gloom. From competitions to crowdfunding, there are still a range of ways a budding social entrepreneur can get the funding they need to convert their passion and ideas for social good into real social impact. To help you, here is a list of ways that you can get your social enterprise the support and funding it needs.
Social enterprise accelerator programs are specifically designed to help social entrepreneurs create and grow sustainable for-purpose businesses. Whether you’re in ideation phase or already in operation, a pit stop at a social enterprise accelerator is a great way to fast track your progress. As the sphere of social entrepreneurship has expanded in the past few years, so too has the number of accelerators (and incubators). In general, these programs offer a combination of access to experienced entrepreneurs and mentors, business model refinement, start-up capital, and the opportunity to pitch to potential investors.
There are a number of well-known social innovation competitions that reward winners with cold hard cash usually without needing to sacrifice equity. While winning alone does not guarantee success, competitions can be a great way to get attention and build recognition.
Friends, Family & Fools (aka The Three Fs aka Angel Investors)
This is likely the most common funding source for a social enterprise as it can be the easiest and least time-consuming. On the down side, acquiring funding this way can and often does result in unforeseen problems since The Three Fs usually don’t have an appropriate understanding of the risks involved with investing or lending money, particularly when it comes to startups. Mixing personal and professional relationships is rarely a good idea. Things can get VERY awkward when things don’t go as planned and money is lost, which is HIGHLY likely.
Crowdfunding is a way of financing your social enterprise by collecting small amounts of ‘contributions’ from a large number of people. You publicly share your social enterprise idea and people can donate money toward your financial goal if they believe in what you’re doing. Crowdfunding is on the rise and is projected to become a $90-96 billion dollar industry by 2025. To understand how crowdfunding is changing the game for social entrepreneurs take some time to review current and previous successful online crowdfunding campaigns. By far the best crowdfunding platforms for social enterprise in Australia are Chuffed and StartSomeGood.
Some social entrepreneurs opt to self-fund their enterprise by using their own cash. If you have the bankroll available, bootstrapping provides you with absolute financial and creative control. You own all the equity so there’s no one else (partners, banks, investors etc.) that can influence your decisions. However, to make self-funding work, you need to be very financially disciplined – have a minimum burn rate and prolong your runway for as long as possible.
While grants are sporadic and often location-specific they are hard to beat. You receive money free of charge (or equity) that you can use to launch or scale your social enterprise. It’s as good as it sounds. Finding and securing grants can be very difficult, but you’ve got to be in it to win it. Check out the best grants available to see if one might apply to your social enterprise.
Social enterprise funding is available through direct loans (both secured and unsecured). The term, security and interest rate varies depending on the creditor as well as your enterprise’s needs. For a range of tailored financing solutions specifically dedicated to social enterprises and mission led organisations, check out the SEFA Loan Fund, the Social Enterprise Development and Investment Funds (SEDIF) and the Social Impact Investment Trust.
Impact Investment refers to a group of investments that expect both positive social impact as well as a financial return. And this is where things get a little tricky. While financial returns are fairly simple to measure, tracing and assessing the social and environmental returns on investments takes a bit more skill. Impact investors vary in their investment preferences as well as their appetite for risk and return. They include governments, private individuals, philanthropic trusts, businesses and institutional investors (such as superannuation funds). For more information on impact investing, take a look at the Impact Investment Group.