A 5-step guide to fundraising for social entrepreneurs
Wednesday January 24, 2018,
9 min Read
Raising funds for a social enterprise is an exercise that requires nuance and skill. Here are ways you can go about it.
Fundraising is the simplest job on paper, but the hardest in execution. When investors think of startups, they think of profitability and big returns. But as a social enterprise, the playing field is different. You are trying to gain profits and returns, no doubt, but while creating large-scale social change. This can be difficult to explain to traditional investors, but, thankfully, today there are many more investors who understand this language of social impact.
But before you start looking for funding, remember to ask yourself what you want to achieve in six months, a year, five years and ten years? You have an idea and maybe you have even started production, but do you want to expand nationally and/or internationally? Reach a level of success and then be acquired? This is not simply to pitch to potential donors, but for you to frame the right growth plan and then pick the right donors to pitch to. Which brings me to my second point: pitching to the right people.
You’re crunching numbers and money is very important. But this should not translate into pitching to just about everyone. A relationship with a donor is more than just money – they hold the potential power to change the course of your business! As a social entrepreneur, it is essential to pick funders who are socially conscious i.e., have social impact in the forefront of their expectations.
Don’t rely on just one or two prospects. Fundraising is tricky, and you can never have enough leads. Try and tap into at least two sources of funding at a given time to cover all bases. Have a Plan B for your Plan A. Have a Plan C for your Plan B…. have a Plan Z for your Plan Y. And, remember - it’s not final till there’s a signature on the dotted line and the money’s in your account.
Now that you’ve gotten the basics down, let’s get down to business and explore five funding options for your social enterprise.
Incubators and accelerators exist for the sole purpose of helping your business grow. Most incubators fund enterprises, with ticket sizes starting from Rs 20 lakh. Being attached to an incubator also comes with a whole host of added benefits beyond just funding, like mentoring, access to networks, legal services, business expertise, among others. Incubators usually have strict diligence checks and being associated with an incubator increases the credibility of your organisation. Today, incubators are in high demand, and the application process to an incubator can be a highly competitive one.
Each incubator has a different sector focus, company stage preference and offerings. It is important to research this to ensure that you fit the incubator’s mandates. This will also ensure that their offerings will suit your needs and you get the best out of the incubator as their expertise will be rooted in these factors. Some incubators can have a year-long application process, while some have a cohort approach. Once you’ve found the perfect match, mindfully track their application deadlines. As a social entrepreneur, it is useful to apply to social enterprise incubators as they will keep the return expectations in line with the impact focus. For example, Villgro Innovations Foundation incubates, funds and mentors early-stage social enterprises in health, education and agriculture sectors. CIIE (energy, healthcare, agriculture), IIM Ahmedabad’s incubator, UnLtd India (multiple sectors) and Deshpande Foundation (health, education, agriculture) are some other social impact incubators
The good news is that thanks to Schedule VII of the Companies Act (2013), corporates must mandatorily spend two percent of the average net profits over the last three years in corporate social responsibility. The bad news is that since social enterprises are for-profit entities, corporates cannot fund social enterprises directly. But, it can be routed through a government-approved technology business incubator (TBI) - currently, there are 130 of them in India. And that’s where the access to networks and other funding opportunities stem from an incubator. Corporate funding is a fantastic way to build credibility. The backing of a large corporate can really build your enterprise’s brand name and also connect you with the right kind of networks. But because social enterprises are such newer phenomenon, corporate takers to fund them are low. In 2016-17, of only one percent of the total CSR spend was towards social enterprises and TBIs, amounting to Rs 20 crore.
The key to getting corporate funding is finding the right corporate match – one that aligns with your company’s mission and sector. While pitching to corporates, social enterprise funding can be touted as a strategic CSR investment to get scalable impact. To eventually get this CSR funding, you will have to be persistent and patient. Today, more and more corporates, precisely 48 percent as per a 2015 study by Responsible Future, are already investing or are interested in investing in social enterprises. For example, Mphasis, in 2017, funded SkillTrain, an education social enterprise and a Villgro incubatee. Similarly, Take Solutions funded Bodhi Health Education Systems, a CIIE incubatee, back in 2015. Funding from Bajaj Electrics enabled CIIE’s incubatee ONEnergy, an energy enterprise to scale up. A similar case is Mahindra Finance’s funding to FlyBird Innovations, an agri-tech enterprise, which was routed through Villgro.
3. Impact Investors
As per the 2017 McKinsey Report on Impact Investing, from now till 2025, impact investors can be deploying anywhere between$6 and 8 billion. This funding source is ideal for enterprises in later stages of businesses, with a high growth trajectory and high impact achieved. The risks of equity investments are well known, but they are more pronounced for social enterprises. Given that investors generally focus more on profits rather than impact, it is critical that you and your investor are mission-aligned and have the same expectations for the direction of the venture. With equity investments, it is more critical to pick an investor you are comfortable with as they directly control a part of your business and are most likely to hold a board position. They literally have the power to steer your business in a certain direction.
Receiving funding from any investor is no less than being on Shark Tank. Build a strong business model to ensure the viability of the investment and the scalability of your business. Here, a good pitch deck and compelling presentation skills are also crucial. There are many purpose-driven impact investors in the field today. Menterra Venture Advisors is one that focuses on education, health and agriculture. Some other examples are Lok Capital (financial inclusion, healthcare, agriculture) Aavishkaar Capital (multiple sectors), Leapfrog Investments (healthcare, financial inclusion) and Omnivore Partners (agriculture).
There is a meteoric rise in the business plan competitions organised in India and outside. These are organised by academic institutions like ISB, incubators, and investors. Winning these competitions is a good way to get some no-strings-attached money. Additionally, such events also provide a fantastic platform to network and find potential investors and mentors as it brings together diverse stakeholders of the ecosystem. Think of winning a competition as a way of building the resume of your enterprise.
There is no one way to find these challenges to apply to – you must be on the lookout to ensure that you find the right ones at the right time. Like a college application, ensure that your enterprise meets all the requirements listed. In India, Villgro’s iPitch is a scouting competition for agriculture, health and education enterprises that promise up to Rs 1.5 crore in guaranteed funding and Rs 20 Cr in follow-on funding. Internationally, the DBS-NUS Social Venture Challenge is a renowned one applicable to enterprises working in Asia. Past winners from India include eminent social enterprises like Kamal Kisan and Haqdarshak Empowerment Solutions.
A newer, non-traditional way is crowdfunding. It’s an interesting method that could go either way – either you win big or crash. Nevertheless, the possibilities are endless. Crowdfunding is ideal for early-stage companies that need a smaller pool of funding. It’s also good for your enterprise to test the messaging, product offerings and brand. But it’s important to remember that if you win big, you must be prepared to follow through on early success. For example, if thousands of people buy your product right away, but then you are unable to fulfil promised orders, the damage to your venture’s reputation significantly outweighs the benefits of a good start.
It’s tough to build a strong crowdfunding pitch as often you don’t know your audience. Do you concentrate on showcasing the impact or the business model? It’s a tough call. But, eventually, you have to decide how you want to build your brand’s image in the long run and portray it accordingly. There are various crowdfunding methods: equity, debt and donation. Choose one that you are comfortable committing to. The crowdfunding platforms available today are numerous, like KickStarter, Indiegogo, Ketto, Milaap, but each has a few nuanced differences, so read the fine print carefully.
So, if you’ve finally got your hands on the pot of gold, congratulations. But, alas, the journey doesn’t end here. It is important to keep the funder involved in the project. Keep them informed of the impact and outcomes of the projects that they fund – in the form of regular reports, newsletters, impact videos, interviews etc. And when any method fails, remember to ask for feedback from the potential funder, use it constructively and keep them clued in on the developments of your enterprise on a regular basis. It’s impossible to predict what can convert when.
Fundraising is a tiring job, with all its ups and downs. Through it, surround yourself with friends, families and well-wishers. It may be a bumpy ride, but if you’ve made it this far, keep soldiering on.
Disclaimer: The views expressed by the author are his own and do not necessarily reflect that of YourStory.