6 Steps to Finance Your New Social Enterprise
You have a great business idea. All your friends say they would buy it. So now all you need is a little bit of capital to turn that idea to your first prototype. Raising money shouldn’t be that hard; it’s a great idea, right?
Four years ago, I thought I had a great idea that would fund itself. Coming out of the nonprofit world, I mistakenly believed that financing a for-profit business would be a lot easier than the donation-wringing of the nonprofit sector. After all, isn’t that the whole point of making a profit?
While fundraising for Kuli Kuli, I quickly found that while for-profit social enterprises should ultimately be self-sustaining, they rarely begin that way. Instead, different types of fundraising are needed at different stages as the business grows. Here’s what worked for me:
1. Put it to paper
Putting your idea to paper and submitting it to be torn apart by experienced judges is both a painful and useful process. There is a plethora of business plan competitions out there, and even the ones that don’t directly offer a financial prize can help connect you to investors in their network. The Mentor Capital Network falls in that category, providing an incredible amount of business plan feedback and access to a wide array of mentors and investors.
The Wild Gift Foundation provides a $10,000 prize to young, environmentally-oriented entrepreneurs, plus an unbeatable three-week wilderness trek. Ashoka’s Changemaker platform offers a range of opportunities from cash prizes to boot camps. And there are even more opportunities for students, ranging from the Global Social Venture Competition for MBA students to the $1 million Hult Prize.
Chances are, you won’t win most of these competitions (we certainly didn’t), but the process and the feedback you receive will be valuable in the long-run for developing your venture and increasing your prospects of getting funded.
2. Get with a program
After going through a business plan competition, you should have a solid plan on paper and perhaps a bit of funding as well. Now you need to build out your network. If I’ve learned anything through my own grueling fundraising process with Kuli Kuli, it is the importance of networks. Simply stated, people give money to people they like.
Joining an accelerator program is a great way to quickly build your network while learning a thing or two along the way. Similar to business plan competitions, accelerator programs vary in whether they supply funding directly or simply connect you to a network of investors. The Unreasonable Institute and Echoing Green are perhaps the best-known social enterprise accelerator programs, but there hundreds of other accelerators, many of which are searchable on the Enable Impact database.
A lot of people launch crowdfunding campaigns too early with too little preparation and wonder why they fail. Before you launch your campaign, you should know exactly how much money you’ll need to launch your social enterprise and what the final product will look like. These are things that you should have researched through your business plan competition and refined through an accelerator program.
For Kuli Kuli, being ready to crowdfund meant researching bar manufacturers, printers and ingredient vendors to figure out exactly how much we’d need to crowdfund for our first manufacturing run. We then created a prototype so that all of our funders could get a sense of exactly what they would receive when they selected that perk for moringa bars. We also spent about three months planning our campaign.
As I’ve written before, you can crowdfund thousands of dollars in a short amount of time if you put in the proper amount of planning upfront. For best practices, check out Kickstarter and Indiegogo and, for some insider tips, see Mike del Ponte’s now classic “Hacking Kickstarter.”
Most likely your first funders will be your friends and family and, hopefully, your newfound supporters from your accelerator program. After those networks are tapped, if you plan your crowdfunding campaign right and offer some cool perks for donating, there is a good chance that the crowd will come through.
4. Get a loan
After you’ve launched your business with a crowdfunding campaign and delivered an awesome product to all your backers, you’re going to run out of money. Most likely, you’ll be too early-stage for investors and have tapped out friends and family contributions with your crowdfunding campaign. I’m going to go ahead and say it — I LOVE Kiva’s new Kiva Zip. Through Kiva Zip, social entrepreneurs can get a zero-interest loan of $5,000 to $20,000 in just a few weeks. Full disclosure: After being rejected by multiple banks, Kuli Kuli raised a $5,000 loan on Kiva (the maximum allowed for a first-time borrower). After paying that loan back, we just raised another $10,000.
Not only does Kiva offer zero-interest loans, but it also provides access to an engaged network of lenders with a high potential to become future customers. The downside, of course, is that $5,000 might not take you that far. For larger methods of financing, look into SBA and community bank loans or less traditional, newer methods like Accion and Lending Club.
5. Pitch and pray for an angel
Now that you’ve bootstrapped and hustled your way into a growing enterprise that credibly tested your idea on the market and gained positive feedback (known as a “proof of concept”), it’s time to find some investors. The first round of investment financing for a startup is generally known as an “angel investment round” or “seed round.” Investors at that stage are known as “angels” because, by all statistics, they’re pretty darn likely to lose their money.
Raising money at this stage requires a solid executive summary, a great pitch deck and a lot of hustle. I spent six months attending every pitch event I could find. Here’s a list of the top angel groups and another list breaking them down by what they invest in.
For an impact investor specific network, Investor’s Circle is great. If you’re a woman-founded social enterprise, I highly recommend the Pipeline Fellowship and Golden Seeds. In terms of finding individual angels, a great way to start is by combing AngelList to see who has invested in companies similar to yours.
One great way to get all of these angel investors in one place and to create buzz is to do an accredited-only crowdfunding campaign, for which there is a plethora of platforms available. We used AgFunder and found that, though most of the investors came in through our network, having a campaign created a real sense of urgency.
6. Don’t give up
I had a moment last year where I almost quit. I was spending all my time running from coffee meetings to pitch events to networking happy hours with nothing to show for it. Then, out of the blue, I received a call from one of my Nigerien friends, who I had worked with in the Peace Corps and who was a major inspiration behind my starting my social enterprise. That brief phone call grounded me in the purpose behind all of my fundraising tribulations.
The amazing thing about starting a social enterprise is that you aren’t doing it for yourself. You’re doing it because the world needs it. So, keep your chin up, work your butt off and never forget your purpose.
This article was posted on TriplePundit 4/22/15