Reinventing social innovation sustained funding
It never really was my personal mission to focus exclusively on social innovation funding mechanisms but, after working for over 10 years on impactful civic tech startups in Latin America, it feels like it’s time to share my experience to try and shed some light on why some projects work and some others just fall apart.
At first glance, social impact investors’ decision-making might seem to be strictly oriented to market rules rather than towards actual social impact, which could explain why they invest in B-Corps and not in NGOs. However, I tend to think this business-based orientation is related to the fact that social impact is only scalable if it is sustainable over time, i.e. the business-based orientation is an implicit demand for sustainability, hence, for autonomy.
With this in mind, we can easily divide traditional third sector income sources into the ones that are not sustainable over time and the ones that are. The first group includes international cooperation, grant makers, corporate social responsibility and government grants, among others. All of these are great as the initial boost any social project needs but generate a high dependence over time. Sadly, if these income sources disappear, so do the social projects that depend on them.
In contrast, the second group includes individual donor strategies and sustainability models. Two different solutions with different audience validation models that provide financial predictability and autonomy instead. How so?
- By developing recurring donations: seeking recurrence is vital in any of the individual donor acquisition channels used, whether it’s digital marketing, face-to-face, call centers or fundraisers. With only 500 donors donating $10 a month, NGOs can foresee an income of $5000 a month. This income is not only stable, it can keep growing by recruiting new recurring donors. Unattainable? I don’t think so. In fact, over 1100 Latin American NGOs using Donar Online as their fundraising platform have raised USD 35MM in the past 4 years. Impressive, huh?
- By designing products or services that really bring value to the community: this model not only enables growth, but it also lets NGOs stay close to the issues they’re trying to address. Fortunately, the market sends crystal clear signals. I’m not saying products and services just sell themselves. A little marketing can’t hurt, but once the wheel starts turning, happy customers will confirm the sustainability model is on the right track. If these products or services really add value to someone, validation will be immediate.
Sales are a pretty accurate thermometer. If they are low, we should ask ourselves whether we are adding enough value or not. If they are high, we should be evaluating how to scale processes further up, so that our impact is amplified.
Of course, we’ll probably need seed capital to kick social projects off but, once the kick-off phase is over, shouldn’t we have long-term funding solutions? In fact, my experience has taught me that winning an international cooperation fund or a grant comes naturally for any NGO capable of developing at least one of these sustainable income models.
So, we have the seed capital and the long-term funding solutions. The challenge now is to transform social project funding, given that most NGOs are actually still working under non autonomous income models. And the answer is as simple as it is enlightening: with circular funding. The economic return sustainable NGOs produce can be invested in other NGOs with potentially sustainable income sources, generating, eventually, an economic return to be reintroduced to this continuous investment cycle, strengthening the entire ecosystem. It’s high time we start this cycle, stay tuned.