The Most Notorious Social Enterprise Question
Ahhhh, the F-word. No, not that F-word, but for a social entrepreneur this one might be just as shocking. How do you adequately fund a social enterprise? Securing funding for your social enterprise is likely one of the most significant challenges you are or will be faced with.
You already have the idea, you might even have the team, but how are you going to get your idea out of your head and get your social enterprise off the ground? The path towards funding your social enterprise might be a windy one, but we’re here to give you a leg up.
We’ll provide some pointers for some milestones you’ll want to meet before securing financing, as well as what to do if your social enterprise runs out of money.
How do I successfully and adequately finance my social enterprise?
Start With a Few Milestones
Before you secure funding, you’ll want to meet a few milestones first. Any type of funding source you pursue will likely want to know about you, your social enterprise, and what sustainable impact you’ll have. Ultimately, they’ll want to be provided with assurance that their hard-earned dollars are going towards a worthy cause.
Similarly, you’ll want to be sure that your partnership with an investor doesn’t compromise your organisation or your impact.
What Type of Social Enterprise Are You?
Right off the bat, your social enterprise classification will determine which funding sources you’ll be able to access. Because there is no legal structure or registration process for ‘social enterprise’ in Australia, they can operate as for-profit or not-for-profit entities – one is more suitable than the other for different forms of fundraising.
For for-profit social enterprises, many grants, trusts, and most types of philanthropic funding will be inaccessible as they require grant applicants to be a charitable entity and have DGR1 status. There are, however, a growing pool of funders and initiatives in Australia that provide seed funding and grants open to for-profit social enterprises. If you envision raising funds from private investors your social enterprise might be better served through a company limited by shares. The answer here is to think about the type of funds you wish to raise and what this means in terms of the corporate structure of your social enterprise.
What Type of Funding Best Suits Your Needs?
Different funding sources all have different requirements – and they’ll likely start with compatibility with your organisation’s mission. When looking for funding, do your research to carefully find organisations, groups and individuals with shared interests.
Also, consider what’s possible for your organisation. Some funding streams will involve pretty hefty interest payments, while others will have representatives who want more of a say in your operations. Setting clear boundaries and understanding your limitations before seeking funding will ensure that you end up with something that works for you and doesn’t impede upon your impact.
Develop Your Pitch.
Regardless if you’re a new social enterprise or have been operating for years, it’s helpful to have a concrete pitch. An absorbing pitch is much more than a summary of what you do — it’s a powerful tool to unlock opportunities, form relationships with investors, attract funding, and inspire new audiences.
Our attention spans are shorter than ever these days, which makes your pitch all the more important. Regardless if you plan to speak for 10, 20, or even 60 minutes, those first two minutes are crucial.
So, make sure that you have your ‘what’, ‘why’, and ‘how’ downpat. Be sure that you’re able to communicate them clearly, and do so in a way that is not only memorable but also gets potential funders engaged for the rest of what you’ll be sharing.
The more you (appear to) know the ins-and-outs about what you do, what problems you might run into, and what will be required to solve them, the more convinced your prospective funder will be that you’ve crossed your t’s and dotted your i’s.
You know what this means—practice, practice, practice. Share your pitch with your partner, with your friends, with your team, with your pets. The more you share it, the better you’ll be able to pitch it.
And be sure to convey the following: How will a funder’s contribution further the success of your mission? What’s in it for them?
Have a Financial Plan.
Before meeting with a potential funder, come up with a financial plan. Include projections of profit and loss and be able to explain your cash flow (expenses on equipment, capital to cover initial costs, payroll amounts).
Ultimately, you’ll want to be able to clearly demonstrate your budget and the projected impact of any investment.
Understand your track record to determine how much funding you might be able to access, as well as who to approach. You’ll want to be clear about the following:
- Will there be any support from the board or management team? Will they be able to guarantee a loan or provide any financial support?
- Can you identify any risks? How will you be able to provide comfort to a potentially risk-averse funder?
- Are you aware of your social/environmental impact? How would funding directly contribute to this? Will you have the measurement resources to provide funders with updates and demonstrate what their money is contributing to?
- What resources do you already have? How can you showcase your team and any relevant capacity, partnerships or achievements?
Consider Different Sources of Funding
- Competitions: To put the ‘fun’ in funding, consider a social innovation competition, where a win could earn you some financial support (no equity or grant agreements required!). Check out this roundup of the ten best competitions and awards that celebrate those who are turning the status quo upside down.
- Crowdfunding: Generally, these are small contributions from your network, often for specific projects. Typically, the contributions will be in exchange for a product or service. Our favourites for social enterprises are StartSomeGood and Chuffed.
- Grants: Grants are the funding bread and butter for early-stage social enterprises. They’re typically location-specific, but they’re the closest thing you can get to “free” money. The funding bodies won’t expect a financial return, but will instead be interested in social/environmental impact. If you want to convert your passion and ideas for social good into real social impact, here are the top 10 grants you need to know about.
- Accelerator Programs: Think of these as a toolbox for social entrepreneurs. They provide mentorship, education, start-up capital, and the opportunity to connect with investors. This unique guide profiles over 40 programs currently activate for social entrepreneurs in Australia. Used together with the Social Change Central opportunities portal, it is a useful practical resource that will assist you to navigate the current ecosystem to find the critical support you need.
- Angel Investors: Your angels are those in your life (friends, family, and fools) who can lend a helping hand. This may be the easiest way to secure funding—but as anyone who’s borrowed money from a friend can attest to—it can end up being problematic in the long run.
- Impact Investing: Similar to conventional enterprises, investors will want to support an organisation that provides them with a financial return. However, with impact investing, they will also be motivated by a social impact. Our friends at the Social Impact Hub have developed the Impact Investing Hub, which connects with investors, investees, and intermediaries in Australia and supports the growth of the impact investing community.
What to Do When You Run Out of Money?
As anyone operating a social enterprise during the coronavirus pandemic can attest to, being flexible can help when your organisation is faced with a challenge. If you run out of money, it might be time to think outside the box.
Find out what free resources exist. Are there free facilities that could be used instead of your paid ones? Are there free apps or programs that could be used instead of paid services? Could you cut down on one or a few of your regular expenses, even if just temporarily?
Consider Emergency Funding
There are some funding streams that might not appeal to you initially, but when faced with a financial emergency, they may provide one of the only opportunities for continued operation.
Unfortunately, direct loans may come with unaffordable interest rates, especially if you have unproven sustainability. Also expect to offer some form of collateral, whether your house or other assets you may own.
If you’ve avoided personally investing in your organisation, you may be faced with no other choice if funding isn’t coming from outside sources. As a silver lining, using your own funds and returning profits to the social enterprise won’t require grant requirements, interest repayment, or strings attached with other funding sources. It is one of the most liberating ways to financially support your social enterprise.
There’s one thing many of these funding sources have in common: many of them are shared on our platform for Social Change Central members. If you’re strapped for time and funding, let us help. Our compilation of helpful funding resources and opportunities can help your social enterprise to launch, grow and succeed.