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How to Fund Your Social Enterprise, with and Without Money (Posted by Jonathan May)

Tue, 18 March 2014

This question is everything. How you are financed from day one will set the course for your entire business.
There are classic examples where you may not need money. I've learned these, because I've made these mistakes (more than once)!
 
  1. You have an idea for a B2B product, and you need to build it before going to customers to try to sell them it.
  2. You are building a new product, and you need to spend money on advertising/marketing.
  3. You need to pay someone else to develop your website/product because you don't have the technical skills.
Let's examine these briefly.
  1. Talk to your customers. They may fund your development – show them mockups, process diagrams, samples, etc. They may also tell you why it won't work, or how to make it better.
  2. ‘Growth hacking’ and scaling can be done without spending huge amounts of money. Gabriel Weinberg's wonderful blog is gold dust, and for the more nefarious amongst us, try the book ‘Trust me, I'm lying’ by Ryan Holiday. If you still think you need money for advertising, the problem might not be the money, it might be the concept. Go back to step one.
  3. Ideas are cheap. If you don't have the skills to build even the basics of your idea, then you are just a component of your founding team. Talk to people, build your tribe, and get people to work with you – not for you. 
     
So, you really do need money?
OK. There are many sources of money for social enterprises – UnLtd, the Startup Loan scheme, the SEIS and EIS schemes. There are grants available from UKTI, NESTA, etc. There are tax reliefs available, and HMRC schemes to help you finance R&D spend and NIC contributions. There are accelerators popping up all over the place, which provide early stage finance, office space, and mentoring. 
 
In short, it's never been easier to raise money for a UK social enterprise. Interestingly though, whoever you ask, you have to demonstrate the same three things:
  1. Credibility. Are you, and your other team members, the best people to do this? If not, can you build the perfect team? Is there a clear route to financial and/or social return?
  2. Planning. Have you identified what your team, product, and market look like for at least the next year? What is your strategy? What are your milestones?
  3. Progress. What progress have you made? Do you have orders, customers, sign-ups, written letters of interest? Does it ‘work’?
The acid test is simple, and if you're ruthless with yourself, it's hugely effective.
 
Write down every single assertion, projection and assumption in your pitch. Then justify or remove each one in turn.  
 
The job of most investors is two-fold: to safeguard money, and make a return. Most start-ups focus on the latter – financial or social return. Most of your work should be on the former – demonstrating you have sorted out your credibility, planning and progress. 
 
Start-up Versus Scaling
Scaling up follows the same model, but with larger UnLtd programs, bigger NESTA funds, social investment funds, social banks, or even conventional ‘VC’ funding. But here, you must ask yourself a different set of questions before you pick your backers!
What does ‘scale’ mean to you? Does it matter if you are copied? Is scale about control and revenue, or is scale about delivering greater impact?
 
If your primary purpose is to grow the impact or revenues of your organisation, then you may need to raise more capital (offices, people, and equipment are expensive). If your primary purpose is to scale your impact, think deeper than money. Look at franchising models, open-source models, training models, and network/partnership models. If you're really ambitious, consider incubating other ideas, people and start-ups, before spinning them out to new regions or markets to deepen your impact and create more sustainable, resilient structures.
 
It all comes back to your personal and team identity. The critical question in start-up land is ‘Do you really need money?’, and in scale-up, ‘What does scale mean to you?’. You need to explore those questions before you even get started on your journey, because they define how you'll live and breathe for the next 5+ years of your life. 
 
Good luck!
 

About Jonathan May (Co-founder of hubbub.net, Crowdfunding for Education)

Jonathan May is a Shell LiveWIRE Grand Ideas Award winner and 2012 finalist for the Shell LiveWIRE Young Entrepreneur of the Year Award. He is a co-founder of Hubbub. Hubbub.net is a crowdfunding platform. Crowdfunding is sponsorship by a crowd of many donors, each making an individual, small donation in return for a small reward, like a t-shirt or a project poster. Hubbub provides a platform, which can be branded by the institutions, to showcase projects to a potentially huge audience, and gives sponsors an easy way to donate.
 
Hubbub have successfully raised £260k, which has enabled them to move away from Wayra and into their own office,  they have also been identified by PWC and altfinancenews as one of Daring Dozen organisations that ‘Stand a good chance of changing the financial World’ (Feb 2014) and they have launched York University’s own branded crowdfunding platform (Feb 2014).
 
 

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