Why is funding so important?
The answer is very simple; for social entrepreneurs, because their businesses needs to grow and scale impact.
Without funding or any capital, it’s near impossible to grow any company to considerable size.
Because this is an investor’s business, it’s a win-win solution for both, entrepreneurs and investors.
But what does “grow” mean? Let’s take a look at some consideration for business growth.
Rome wasn’t built in a day, but you don’t want to build your empire in 10 years either, right?
You might be able to grow your startup without funding, but you cannot rapidly grow.
When you start your business, it helps to have passion for making a difference to society and to set a big goal that you’d like to reach.
There is nothing more motivating and powerful than doing work you love. It will help you move faster and push to take the next step and do more than you originally intended.
Plus, who wants to wake each day doing something they hate?
You don’t want to see that graph data of your company’s growth shows you “up and down” like a roller coaster.
When you launch your rocket, you need to make sure that the rocket is always in the air, heading to outer space, instead of going down heading back to the ground.
You want to consistently grow, because that’s the only way to survive in the business world. Data says different things depending on the source.
The data might tell you different stories depending on which industries you are in, but in general, statistic says that a half of startups fails in the first 4 years and only 10-20% of startups survive in the first 10 years.
That’s the reality.
A good launch and being successful in the first year is still a great thing. You gave birth to your baby.
However, sustainable growth, the real challenge, is the only key to success and to survive in decades.
Power In Diversity
Even if you became a king of one product, the prosperity wouldn’t last so long because someone always catches up to you. In order to maintain your sustainability, you’d better add products.
Apple was a personal computer company. What about now?
As you know, they added pocket-size music players, pocket-size PCs that are called “smartphones” and so on to their product line-ups and they even sell music and movie themselves, online contents, and cloud service!
Facebook looks the same from the beginning, but they added several features; messenger, video chat, money transfer and classified community platform!
People lose their interests so easily because so many cool products are innovated and get more attention by them. The business world gets very competitive, so you need to evolve consistently.
You start from a small city, grow in a state, keep hustling and finally conquer one country. Is it done? No. Now it’s time to expand around the world!
Yes, it will be very challenging for you and you will face with a lot of difficulties, but expanding your business to another country sometimes leads you to a completely new path that you never expect and opens greater opportunities for you because cultural differences exist.
In addition, you can create new job opportunities in different countries. Yes, some would say, “you are eliminating opportunities for domestic businesses”, but that’s how business works in this world.
The next question is “How can you get funded?”
Let me show you types of investments. They apply for any entrepreneur, but I’d like to specifically talk about social entrepreneurs in this case.
Impact Venture Capital / Private Equity
Venture capital is a very popular way to raise money for entrepreneurs. They purchase equity of your startups as part of running their for-large-profit business and help you grow.
Impact VC firms have raised $13 billion to invest in business for social or environmental benefit since 2001 and $10 billion of that has been raised since 2010 alone.
“Impact” venture capitals are the same but they invest in causes or positive impact that you will give back society. I also included private equity but you might be more interested in VCs than PEs because PEs tend to invest more to mature companies than to young startups.
Of course it depends, but I’d say Impact VCs are “Pre-Action takers”, that invest in your bright future and your dream that you want to pursue.
Pay For Success Bond
If you say Impact VCs are “Pre-Action takers”, Pay For Success Bonds are “Post-Action takers.” They literally give you money after you succeeded. When you start your business, you basically set milestones, which are short-term goals, and show investors results, how the process went, what went well and wrong etc.
You indicate good consequences and positive social impact that you created for society and you get what you need. You can say it’s a “reward” for your achievement.
Another way to say is grant.
So Pay For Success is usually from public sectors like the governments and also private funders.
You get funded by what you achieved for so it’s pretty fair, but the problem is that it might take time until they invest because you need to show the solid result of your accomplishment first, which means that you need to spend money of yours to reach your achievement. If you can afford until then, then this option is a good one for you.
Some of you may have already started crowdfunding because this is the very easy way to start by yourself.
One good thing is that you control everything. You set the date to launch the campaign, set the goal to reach, decide what you collect funding for etc. It is very flexible so if you want to change where you head to, as long as you sincerely explain why.
It is literally a way to collect funding from a crowd. So, this could be a strong marketing and advertising tool for you.
You may start contacting your family, friends, ex-coworkers and so on, but the whole point is that you make fans and build a strong connected community around your business, not just get funded.
You need a lot of time to prepare for the campaign and hopefully a team to help. It’s a lot of work, everything from making a video, deciding what you give your contributors in return and contacting as many people as possible to support you. Around 30% of crowdfunding campaigns reach their goals statistically, but in the end, every effort you make will be paid off.
Community Development Financial Institutions (CDFI) Fund
If you’re operating your business in the United States, CDFI Fund might be one of the funding options for you.
Their mission is to take a very important role in economic growth and community development in America, so they are seeking businesses and companies that contribute to that sector.
It might sound broad but it’s basically businesses or companies that are related to infrastructure, finance, job opportunity acceleration, and trading.
Of course, those are not everything. CDFI provide programs and certifications so go to their website and prepare for applying for CDFI.
These are examples of the impact they’ve had;
$3.6 Billion…The amount of loans and investment originated by CDFI Program awardees reported in FY 2016
$460.6 Million…The increase in loans and investments in distressed communities made by FY 2015 Bank Enterprise Award Program awardees over the previous year’s activities
$333 Million…The amount lent to date by CDFIS participating in the CDFI Bond guarantee program
178.5 million…The cumulative square feet of commercial real estate financed by New Markets Tax Credit Program allocatees since 2003
$57 Million…Amount of business and micro enterprise loans provided by Native Initiatives Program awardees in FY 2015
10.9 Thousand…The number of affordable homes under development or completed by capital magnet fund awardees to date
Let’s apply for CDFI and help them develop a better community!
Now you know there are many ways to grow your startup. To begin with, it’s very important to understand who you truly are and to know what your business really is about.
If you understand both, you will find a perfect way for funding it. Funding blows limitation and expands your possibility. There are no easy way but you can’t avoid funding to grow your business.
Rome wasn’t built in a day, but it was actually built. Now it’s time to build your empire!