The number one question I get is “where do I find the money to start, grow or scale my social enterprise?” This article provides you an introduction to:
We all know that non-profit agencies are able to get grants to serve a charitable purpose, which may include a social enterprise program. Grant-makers expect an impact return on their investments depending on the cause or the mission of their fund.
Small businesses typically use credit cards, personal savings, and home equity loans to fund their startups. Once their business gains some market traction they may be able to fund growth through selling shares of their company to equity investors or be able to get larger loans from banks.
The traditional sources of capital (debt or equity) are not always a fit for social enterprises. Why?
Debt must be repaid from a reliable source of revenue and requires collateral in case of default.
Equity is repaid based upon high growth rates or valuations of shares in the company. However, equity often requires giving up a percentage of ownership of the enterprise.
Given these expectations, social enterprises often can not access these sources of capital because they are designed to reinvest profits back into their enterprise. Or they don’t have a high growth rate in revenues to be eligible for debt or to attract traditional equity investors.
The Spectrum of Investors graphic (below) illustrates that those on the far left make traditional grants with only social impact return expectations while those on the far right make traditional investments with high financial returns expectations. The investors in the middle often have more flexible financial products and returns expectations; often both financial and social impact valued.
There is a growing movement of investors interested in supporting social enterprises who are willing to offer capital at lower cost of funds to support social, environmental impact. These include:
The Spectrum of Impact Capital graphic demonstrates a list of a few new capital products in the three basic types (grants, debt, equity). These financial products are designed to be flexible and fit the financing needs of the social enterprises based upon their financial projections and preferences.
Although these Impact Investors have differing interests, keep in mind that most want both financial and impact returns. They each have risk tolerance and investment requirements. It’s up to you to explore the right impact investors and products based upon your projections and preferences.
If you are seeking investment capital for your social enterprise start by taking these next steps:
I look forward to guiding you to discover the right types of capital and investors that are best aligned for you.