Launching a business isn’t for the faint-hearted. You need a winning concept and a willingness to work long and hard without much in the way of short-term rewards. Most daunting of all, making your idea a reality can require a massive amount of money from investors.
For social entrepreneurs, finding investors is even more difficult. The concept of “social enterprise” is relatively new, and data on the success of social ventures is sparse in comparison to what we know about conventional businesses. That can make investors shy away from social enterprises.
That said, several strategies can help you to attract potential donors and investors to your social enterprise.
Identify the four types of investors
In searching for funding, it’s useful to know the most common kinds of investment resources. PriceWaterhouseCoopers groups them into four broad categories:
- Angel investors. These individuals and philanthropic organizations often provide seed money to social entrepreneurs.
- Venture capitalists. These professional investors aim for long-term growth; they might not necessarily share your social mission.
- Financial institutions (e.g., banks) and investment companies. They look to make investment gains for socially conscious individual investors. They can make large amounts of capital available, but they tend to be more risk-averse than venture capitalists, notes PwC.
- Crowd-funding resources. Crowd-funders use online and other platforms to spread the message about your enterprise and to raise capital, often from many people in small amounts. The common denominator is a focus on your social mission.
Understand your investors’ goals
Once you identify possible investors in your enterprise, take a look at how they will evaluate you. All socially responsible investors attempt to balance three key factors: risk, financial return and social return.
The catch is that they are all different. One investment firm might emphasize financial vs. social return, another firm might take an opposite approach and still another might be unusually risk-averse. To figure this out, examine an investor’s history and published statements on its investment philosophy.
PwC also discovered that most social entrepreneurs come into two distinct categories: people who are mainly entrepreneurial and business-minded, and those who emphasize a social mission. Understanding what motivates you will help you to find investors who are the right match for you and your enterprise. Ultimately, social enterprises are most likely to obtain funding when they demonstrate an ability to achieve both.
Seek out nontraditional investors
The rising popularity of social entrepreneurship has nurtured the rise of a variety of nontraditional funding sources, and you should be aggressive in seeking them out. Many city and state governments fund business accelerators, which often fund social enterprises. Public and private colleges and universities often have similar programs. For either, you can expect to submit a world-class business plan and a pathway to profitability, as well as a commitment to the social aims your proposed company would support.
In some areas and even on the national scene, business competitions aim to reward the “best and brightest” social entrepreneurs with well-deserved startup funding. Philanthropic fellowships and foundation grants can also help dedicated entrepreneurs get off to a good start.
Quite a few investment companies have social-investment arms. It can’t hurt to reach out to these organizations to see how they evaluate potential investments and how yours might qualify for funding. Some publish guides and reports that can help you in securing capital. Two good places to start are the Schwab Foundation for Social Entrepreneurship, which provides a guide to social investment resources, and the Global Impact Investing Network (GIIN). GIIN developed ImpactBase, an online database of individuals and institutions that invest in social enterprises.
Finally, in her blog CauseCapitalism.com, Olivia Khalili lists 15 venture capital firms that should top any budding social entrepreneur’s contact list. Khalili also outlines the causes of most importance to those venture capital resources.
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- "How to Raise Capital as a Social Entrepreneur," PriceWaterhouseCoopers/Netherlands
- Genny Ghanimeh, "Social Entrepreneurs Don't Have It Easy Raising Capital," Entrepreneur.com