The top 3 finance issues of social entrepreneurs

There are many aspects how to finance a social enterprise, but some issues always stand out. Which funding questions are you eager to solve as an impact entrepreneur? For a first inspiration, here are the top 3 challenges of your peers and some ideas for actionable solutions /

There is probably no better reality check than having a wild discussion with social entrepreneurs about their true concerns and challenges around finance. Surprises included. But whether it is a panel discussion on social enterprise finance in education, or a webinar with a community of post-crowdfunding impact creators, some issues always come up as sure as eggs is eggs. Why so? Hasn’t the ecosystem evolved enough to provide enthusiastic ‘impactnatics’ with practice-driven knowledge and value-add support? Or on the contrary, are there way too many offers so that passionate learners don’t see the wood for the trees?

(1) Which financing options do I have depending on the legal form of my social enterprise?

This question is a true ‘classic’. While there are many legal forms in multiple countries around the world, most impact enterprises still torture their heads around issues such as:

  • Better to BE A NON-PROFIT OR A FOR-PROFIT when it comes to financing options?
  • What if I have a non-profit with VERY LIMITED potential to create a SURPLUS – will impact investors still like my enterprise?
  • Should I go for a mix, a ‘STRUCTURAL HYBRID’, to have better chances at being funded? 
  • How will philanthropic funders perceive my impact story if I choose a for-profit structure?
  • And the questions go on and on….

Of course, there is no “one size fits all”-solution. When establishing a social enterprise, many aspects other than finance enter the game: for example, the specific business model, the need for flexibility to make changes to the enterprise’s purpose along the way, or the influence and risk that you want to have as a founder.  Another important aspect is how much capital you truly need to get your mission started and fulfilled.

So there’s unfortunately no way around some legal advice from a local expert. But don’t panic: We have a basic overview on the issue in our lecture video Legal Forms and Options for Financing (it’s free, if you’re not yet registered anyways). For our German-speaking community, there is also a Social Finance Webinar that we recently recorded with our partners and crowdfunding experts at Startnext. But beware: plenty of Q+A with passionate peers ahead!

(2) Which types of impact investors are out there and what are their expectations?

This is the second most frequently asked question around social finance: Who exactly is this species called impact investors and how do I hunt them down? Planet impact offers a wide biodiversity, from business angels, private investors and family offices to (ethical) banks, foundations, professional impact funds and – not to forget – the crowd. Depending on the specific type of investor, some are publicly known and others notoriously shy. Some love to have impact far away and others directly in front of their doorsteps. Some prefer specific themes such as education or inclusion, while others are more sector-agnostic and opportunity-driven.

Naturally, institutional impact investors will publish profiles of social enterprises they like and already invested in. It is wise to check if your venture really fits the requirements before initiating first contact. For private sources of funding, this can be a bit more complicated. However, there are networks of (social) business angels, investor communities and – last but not least – pitching events and sector conferences. You can get a sense about what is driving investors and will find information and resources to understand their expectations.

A very basic orientation however, is to grasp the investor species according to their appetite for “the magic triangle”: risk, impact and return. Once you know if they are “impact only”, “impact first” or “financial first”, you have won a ton of wisdom. This graph may help you:

Eager for additional ideas?

  • Check out investor communities such as TONIIC for a first orientation about their mindsets and preferences.
  • Read the Annual Impact Investor Survey by the Global Impact Investing Network to understand the key drivers of more than 200 leading investors.
  • Check out this webinar by Financing Agency for Social Entrepreneurship (FASE) and the Empowering People Network about Approaching Investors (plus the video recording)
  • Study Module 4 Unit 7 of our MOOC “Access to Impact Investment for Social Enterprises”

(3) How do I find out if a (finance) support program has a good value proposition?

It has been a while since the social (finance) ecosystem was in its infancy. Today, many organizations offer practical advice, trainings, workshops, courses and programs, in all areas relevant for a social entrepreneur to evolve and thrive. Some come with challenging applications, others are freely accessible. Some beckon with awards, others offer no monetary support. Some span over weeks, others keep it short and simple. But how to know which one to choose? Where do you find a good value for your time, effort and money?

In the absence of objective rankings, evaluations and certificates in this ecosystem, there is always common sense. So here come a few criteria that may help you to pick out the best support program for you:

One final tip: Plug into existing social media groups with your social entrepreneur peers. This is a wonderful source of first-hand experiences, learning, and especially dos and don’ts – not only in matters of social finance.