Three Tips to Access Startup Funds for Community Benefit Corporations

Three Tips to Access Startup Funds for Community Benefit Corporations

Co-authored by Michael Woodnorth and Paul Wright

Does this story sound familiar?


You’ve designed an amazing new product that you think is going to change your industry and be an example of an impactful community benefit corporation. Your new team has worked tirelessly for 6 months on a prototype, getting product validation feedback, and making pre-order sales. Now you only need $200,000 in startup capital to finish your product and go to market.


You’ve asked your accountant and other business owners how to access startup capital but have been met with disappointment because every lead they offered was a dead end. Here is what you experienced:


  • The banker said you did not qualify for a loan as a startup, “come back after a year of operations” and be sure to have collateral and a personal guarantee.
  • The local angel investors group gave great advice after your pitch, but they were not interested in providing seed equity capital because you did not show enough growth and your business model was atypical given the community benefit.
  • The community foundation was interested in your plan to hire and train difficult employees and the environmental benefits of the product, but they were not accustomed to making grants to for-profit corporations.


Where do you turn for help and what are the first steps?


My co-author Michael Woodnorth  and I are committed to helping startup social entrepreneurs access the right type of capital at their stage of growth. So we’ve compiled three stories and three tips that will help you understand how to access startup capital, especially if you are a community benefit corporation or social entrepreneur.


The opening story is a composite of many of the entrepreneurs that I (Paul) encountered as a mission lender to social entrepreneurs. The first thing that I recommend is to understand the difference between the traditional funder vs. non-traditional funder and who they are in your community.


For example, traditional funders do not typically take risks on businesses with less than two years of operations due to bank regulators who monitor their write-offs. According to Investopedia in 2019, the 10-year failure rate of startups was around 90%, with 30% failing in the second year. So you see why financing startups can be a risky investment for both founders and funders.


However, there are an emerging array of non-traditional capital sources for community benefit corporations and social entrepreneurs. From non-depository mission-lenders to philanthropic funds. I’ve written about this in some of my own previous articles and have an on-line course explaining this in more detail.


Tip#1: Research the non-traditional funding sources in your area, industry, or cause. For mission lenders check www.ofn.org. For grants, loans and COVID relief resources go to https://www.covidcap.com/


Our second story is a real-life example of a social enterprise I (Paul) helped with startup financing.


Geoff Marietta wanted to use what he had learned after he extended his successful New England tech company.  He had a vision for an online media company utilizing Appalachia’s digital workers that would provide a livable wage and give folks the choice to stay in their community. He moved his family to East Kentucky and partnered with a non-profit working with young people in media arts called Appleshop in Whitesburg, KY.


Together, they founded Mountain Tech Media (MTM). Geoff provided some seed capital,  Appleshop provided the in-kind space, equipment, and helped them form the cooperative governed LLC. However, they needed more capital to jump-start the operations and a patient capital provider. That is where I entered the story--as the mission lender providing a startup loan through Mountain Association loan fund.


Mountain Tech Media’s revenue projections could not service traditional debt terms during startup. Geoff’s contacts with angel investors were unlikely to provide equity to finance a slow-return cooperatively owned enterprise. So we designed a non-traditional loan with revenue royalty dividend repayments based on quarterly performance.  Within 12 months, MTM was hitting and exceeding revenue growth and paying the loan back on a flexible schedule.


Unfortunately, a very small percentage of equity funds go to start-ups like Mountain Tech. In a 2020 Impact Investor Survey, we learn that 87% of total impact investing dollars are allocated to public equity, public debt, real assets, private debt, and other asset classes that target later-stage companies. These investment structures require that the target company have the financial history of a later-stage company and are thus not an option for startups and early-stage social entrepreneurs.


The reality of the Venture Capital space is also that only 7% of funds go to true startups, whereas the remainder goes towards later-stage investment opportunities. Thus, the opportunity for early-stage innovators is very limited.


Tip#2 Seek out capital providers that can offer patient, flexible capital. Mountain Tech Media is an example of access to non-traditional capital with repayment terms that fit their cash flow. This patient-capital approach helped MTM weather the first 12 months of cash-constrained growth and proved helpful in other ways. To hear the interviews with Geoff and learn more about finding flexible capital, enroll in Raising Capital 101 and get a free assessment with Michael Woodnorth.

Our third example is a for-profit registered as a Public Benefit Corporation. This type of corporation drives positive social impact that is intentionally built into its operations and decision-making processes. I (Michael Woodnorth) selected this example to illustrate the number of nontraditional funding sources that are available to social impact organizations and the importance of tailoring your pitch to your audience.

After spending some time pursuing capital on their own, the founder had not successfully raised money and decided to engage Woodnorth Advisory to pursue nontraditional sources of impact funding. We pursued a different fundraising strategy highlighting both the profit-generating and socially beneficial nature of the business, which opened up more doors in the fundraising process.

We pursued non-traditional impact venture capital, philanthropic grants, program-related investments, and family office impact investment. Each of these investment types seeks both financial and social returns in the capital that they invest.

What we learned was that the founder had an incredible business model and was driving a significant positive social impact. However, they had not clearly communicated the points that are most important to investors, which was a major contributing factor to the unsuccessful initial fundraise.

We helped them better articulate their market size, profitability, growth strategy, use of investment proceeds, and other items that resonated with impact investors and immediately started getting more meetings with investors!



Tip #3: Make sure you speak the language of the investor groups you are targeting and sharing relevant information for their decision-making process


Get your free capital readiness checklist from Paul Wright and discover if you are ready.


If you would like a free consultation to talk about your fundraising process or take an online course to understand the basics of raising impact capital contact Michael Woodnorth at Woodnorth Advisory LLC.