So you’ve decided you’re going to build a social enterprise or nonprofit organization. You’ve developed your goals around the value and impact you want to make with your organization. You’re getting a team together, and you’re jazzed up. It’s time to launch and make that impact!
Wait a second. Have you thought about the capital you’re going to need to launch your organization? Where will the initial funds come from that will cover your operational expenses?
This question might puzzle you. If so, you need to read on – so that your project isn’t a disaster from the outset.
Know how you can raise funds
There are a large number of different ways that you can raise funds for a start-up organization, but be aware of the kinds of limitations you might invite upon yourself depending on the kind of organization you start. I’ll discuss some of the most common options you have below, but please note: I’m not a lawyer and this isn’t legal advice. If you want to talk to a professional, get in touch and we can provide referrals in many cases.
So, to start: social enterprises and values-based businesses can leverage many different kinds of funding options. However, if you’re building a nonprofit organization, you might be prevented from certain kinds of funding options:
- Equity. Since nonprofit organizations don’t have share capital, they can’t issue shares, and as such, can’t raise funds via equity. This means unless your angel investors are willing to issue loans or bonds, they can’t as easily invest in your organization.
- Profit sharing. Nonprofits aren’t supposed to make profits. While this doesn’t mean that they can’t earn an excess of revenues over expenses, it does mean they can’t pay it to their stakeholders. Be extraordinarily careful about this!
Some kinds of organizations (like community contribution companies or community interest corporations) might be restricted in the amount of profits they can share.
What can you do?
Aside from some of the various options being restricted for nonprofits or comparable organizations, your social enterprise can typically raise funds in a number of ways:
- Grants. While they’re increasingly hard to find – and don’t think that just because you’re starting a social enterprise people will grant you money – grants can sometimes provide an awesome jump-start in your startup. Look into government and foundations that might support social enterprises or entrepreneurial energy in specific communities. Just don’t build your business model on them!
- Loans. These are increasingly available – and often on good terms for social enterprises and startups. Just be sure you know what you’re signing up to – it’s not easy to walk away from a loan. Often in startups, you’ll also be required to personally guarantee loans – so you might not ever be completely off the hook.
- Equity. Startup social enterprise businesses can offer equity – shares in ownership – of their businesses if they are able to issue shares. Many angel and impact investors are happy to invest this way. This typically means they can receive a share of profits and also a share of control of the organization. Make sure you’re okay with what that might mean in your organization, thought.
- Bonds. Bonds are effectively securitized loans; they can have defined interest rates and payment schedules. Bonds are also something that nonprofits can sometimes issue. Do some more research and find out if this is right for you.
- Donations. While not every social enterprise is eligible to issue charitable tax receipts, anyone can accept gifts of cash – donations can help you succeed. Just make sure that your donors know what they’re getting in return for their donation. You can’t donate in return for equity or bonds; that’s a purchase.
How do you mobilize the money?
The question of how you get the funds into your organization is a fun one. Be sure you know about the securities regulations for the jurisdiction you’re operating in – this is crucial for legal compliance. Then you can think about:
- Rewards based crowdfunding, where you offer pre-sale services or products, credit, honours, discounts, or more to ‘backers’ who contribute cash to your startup.
- Equity crowdfunding if you operate in a jurisdiction where this is allowed and can comply with the regulations.
- Investment from family and friends and close business associates, who know you and your project and are willing to put some cash up.
- Angel or impact investors who are interested in the impact their money can make along with some (sometimes reduced) financial return
There are other options out there too, but make sure you’re thinking about the various ways you can mobilize capital to support your social enterprise startup.
If this all seems too confusing to you, get in touch. We’ll help you sort it out and find ways to fund your startup.