Social entrepreneurs are motivated by a desire to improve lives and systems.
However, building a sustainable funding model is essential to realizing social impact on a meaningful scale.
If you're a social innovator serious about leading change, securing capital needs to be top of mind - whether it comes through increased sales and healthy margins, crowdfunding from your biggest fans, or a traditional bank or investor.
In one sense, social entrepreneurs are quite lucky. Capital options are much broader, since triple bottom line organizations can often explore financing vehicles from both traditional non-profit and for profit sectors. The Center for Advancement of Social Entrepreneurship (CASE) at Duke University refers to this continuum as the ‘impact capital spectrum’. Each type of capital comes with advantages and disadvantages depending on the goals and stage of growth of your social enterprise.
There is no black and white approach to navigating the social enterprise funding landscape because every business has its own set of constraints, opportunities, and vision for growth.
Funding considerations are compounded by the fact that social enterprises can form under several legal structures, which vary across jurisdictions. Many types of capital are only available to certain legal forms, and funders often have a preference to support either nonprofit or for-profit entities.
When weighing the options, founders should also consider how aligned potential funders are with their vision for change or what strategic support funders could offer them beyonds capital. For example, impact investors and granting organizations typically have a specific focus, or work in a particular geography or area of impact.
Additionally, each type of capital comes with its own set of commitments and timelines. Pursuing a crowdfunding campaign to pre-sell your next product is a much shorter timeline than entering into a partnership with an impact investor who plans to stay invested for the next 10 years. If your crowdfunding campaign attracts a few high-maintenance customers, it won’t derail your entire business, but partnering with an investor with misaligned values could send you down a path of no return.
The compounding effect of these factors leaves social entrepreneurs swimming in options.
It’s no wonder many feel under-informed and nervous about charting their funding strategy.
In this four-part series, we’ll review the major types of capital along the impact capital spectrum. We’ll also share insights and perspectives from funders and entrepreneurs about their experience seeking and receiving different types of capital.