A great idea, passion, commitment and a vision to make the world a better place is the first step towards starting up a social enterprise. But for any venture to take-off what an entrepreneur needs the most is funding. To attract an investor it is important for a social entrepreneur to have a practical plan in place. It’s not only important to have an inspiring vision but equally important to be clear about how that vision is going to be fulfilled. Having established the vision for enterprise and also a practical plan to make sure the vision is fulfilled, the time becomes ripe for the entrepreneur to approach investors for funding –
- Social Incubator– It might be very tempting to accept any start up investment money from anyone and everyone but what an entrepreneur needs to know is that this seed capital comes with strings attached. An investor in this case might have expectations of returns or ownership that may not be favorable with the vision of the enterprise. An incubator program, on the other hand, gives an entrepreneur a small allowance and facilities within a specified time period, enough for the entrepreneur to formulate a more detailed plan, find the right investor and getting the right training from the industry experts. UnLtd India is one of the leading incubators which has funded and supported organisations like Sustainable Agro Inc , Paaduks and Ruas.
- Angel Investor – Rajasthan Angel Investor Network (RAIN) is a group of Angel investors in Jaipur interested in investing in early stage businesses, which have a potential to create scale. Srjna is one such enterprise that has benefitted from RAIN. An entrepreneur needs to be on a look out for wealthy benefactors interested in investing in social ventures with great ideas, in exchange for an equity ownership interest.
- Crowdfunding – Raising capital through crowdfunding is an effective method for social enterprises to generate some cash for building their first prototype without diluting their equity. A good story about the founder’s vision and mission helps the individual investors get connected with the cause and encourage them to invest in the company, however small the investment might be. A well thought out campaign on crowdfunding sites like Kickstarter, Indiegogo etc. helps raise the right startup capital. Amrutdhara Water Services Pvt Ltd was able to generate a major chunk of its startup capital on the crowdfunding site Indiegogo.
- Social Venture Capitalists – There are firms or impact investors who usually provide late stage-funding , usually in a for-profit social enterprise, in return to achieve a reasonable gain in financial return while delivering social impact to the world. Acumen Fund, a social venture capitalist, focuses on solving problems of global poverty through loans and equity in India, Pakistan and East and South Africa. It has invested in companies like Avani Bio energy , Lifespring Maternity Hospitals , Hippocampus Learning Centers etc.
- Corporate Social Responsibility Initiative– Section 135 of the Companies Act, 2013, requires every company having net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more, during any financial year, are required to maintain a mandated spend on Corporate Social Responsibility activities. Thus a social entrepreneur can also reach out to corporates to receive early stage capital through CSR initiatives. This is of strategic interest even for corporates as they can build business models through this undiluted funding in the bottom of the pyramid market. Google is one such organisation that has invested in companies like Samasource and Digital Green under their CSR policy.
- Specialist Funders – An entrepreneur can also look out for funders who specialize in one or a few areas where they have a passionate commitment and deep knowledge. They’ll have a better understanding of the market opportunity, and will not expect the enterprise to compromise its mission in order to grow. For example, Rubal Jain, director-corporate strategy, at logistics services firm Safexpress is one of the seed funder for Karma Recycling.
- Grants and Donations – Tax-deductible grants and donations are a common source of fund raising for not-for-profits, but donations to social ventures organized as a for-profit business offer no tax benefit. Philanthropic organizations including The MasterCard Foundation, The Rockefeller Foundation, and Ford Foundation are major donors for the social venture, Samasource.
S.No Investment Source Company's Stage of Operation Model Type Investment Type 1 Social Incubator Initial Stage For-profit/Not-for-profit
Institution 2 Angel Investor Initial Stage For-profit
3 Crowdfunding Initial Stage For-profit/Not-for-profit
4 Social Venture Capitalist Late Stage For-profit Institution 5 CSR Initiative All Stages For-profit/Not-for-profit
Institution 6 Specialist Funders Late Stage For-profit
Institution 7 Grants and Donations Initial Stage For-profit/Not-for-profit
Both for-profit model and not-for-profit model can help an entrepreneur in achieving its social goal of a better world. So to select the most effective and efficient method of seeking startup capital and support, a social entrepreneur first needs to formulate and then evaluate its business plan based on any of the two models or a hybrid of the two models.