The Ultimate Guide to Funding Your Social Venture

Published in

Goodbets Press

14 min readDec 31, 2020

Social entrepreneurs have their work cut out for them.

Today’s many challenges present an opportunity to become a powerful catalyst for change and have a transformative effect on society. The most effective social entrepreneurs combine the desire to improve people’s lives with the realization that their social ventures can responsibly generate financial returns.

No, the two goals are not in conflict.

With a little financial engineering, the availability of capital for investment can generate rich opportunities to fund projects that fuel economic growth while sparking real change.

Choosing the right path for your social venture is undoubtedly a difficult decision.

With so many concerns and questions, the task of securing funding can halt your progress. It may even stop you before you begin.

There’s so much to consider — like the effect of a global pandemic on nonprofit funding streams or how much equity you are willing to give up — you must be vigilant in your research.

The flip side is that social impact investing in the United States remains strong, though overall venture funding dipped down to $129 billion in the first half of 2020.

Let’s dive into the current landscape of social venture funding in the US.

FUNDING YOUR SOCIAL VENTURE BEGINS WITH AN EFFECTIVE STRATEGY

As social entrepreneurs, the survival of your social venture is at risk if you do not understand the fundraising and revenue-planning process.

Social ventures don’t have the same flexibility as traditional startups. For instance, VCs would typically want startups to target an exit strategy, while social entrepreneurs are free to pursue big social impacts in society.

Funders also want to see that you have a solution that is proven in the market, especially considering the challenge of assessing risk in this unique space at the intersection of social change, culture, and business.

Most importantly, investors depend on analyzing current investment activity as they decide whether or not to invest. With limited consistency in delivering returns and questions about scalability, social ventures are still approached with caution by many funders.

Thankfully, forward-thinking foundations and social impact investors are employing a variety of tools such as loan guarantees, quasi-equity debt, and pooling to help fund social ventures that are committed to improving the world around us.

In order to narrow down the most lucrative fundraising path to take, your mission must be clearly defined and mapped out. What does your community value? What does your community need?

As a social entrepreneur, your vision must paint a clear picture of a better community landscape while enlisting others in getting there.

Offer up a compelling vision

Bringing about social change takes determination, dedication, and yes — money.

You need to have a solid idea of how to win over potential funders and make an impression.

A compelling story, a solid plan to achieve social impact, a clear path to market-rate returns, and a pathway to sustainability and growth will allow investors to determine how they can help you.

Above all, your value must be clearly articulated.

Your audience wants to know what you offer, who you plan to serve, and how your product or service will transform lives. Your vision needs to be a shared vision and infused with a sense of urgency.

Articulate a clear mission

If your vision is how the world should be, your mission is how you’ll get there.

As a social entrepreneur, you’ll rally the troops when you lead ventures that people within your community care about most. When designing your mission, never forget the old adage that those closest to the problem are often closest to the solutions as well.

Enlist the community. Don’t dare to do work “to” a community. We’re done with white saviors.

The goal here is to sharpen your understanding of the pathway to your vision.

Assess and enlist community assets

Take a strengths-based approach to the work. Seek and find the reservoirs of strength in the communities you’re serving.

Get real about the centers of power and the drawbacks that exist in the context you’re looking to advance social change. It’s the only way to guarantee a strong start and frankly…results.

This approach allows you to foster the environment you need to influence and enables the community to drive the development process themselves.

You will reach a wider audience when you partner with those who have a critical perspective on the very issue you want to solve and you’ll motivate broader community action.

Build a social venture model that’s aligned with local realities

Be intentional about where you fall on the business model spectrum.

You may be feverishly adopting innovative approaches to address social challenges, but you may be equally focused on the return.

Defining your goals keeps you aligned with your mission but alerts potential contributors to help unlock social capital investments.

DIFFERENT TYPES OF SOCIAL VENTURE FUNDING

Once you have an understanding of what you need, you can explore a range of funding options.

Knowing what is right for your organization and what you need to in order to qualify isn’t simple.

During the investment period, these investors are looking at financial profitability, but they are also looking for scalability of your business and longevity of the social and environmental impact. Some of the most popular forms of social venture funding include:

SOCIAL IMPACT VENTURE ACCELERATORS

The best accelerators will provide seed funding to start-ups with the potential to scale.

These highly competitive programs support these early-stage, growth-driven companies by offering education, mentorship, and financing. Although the process is intense, the compressed training aimed at launching young innovative companies to reach key milestones culminates in a graduation day in months rather than years.

All of this support comes at a cost. On average, accelerators request 5–10% of a company’s equity when all is said and done.

One of the leaders in organizing successful accelerator programs is TechStars.

Known for more high-growth for-profit startups and spanning 15 countries, they focus on providing dedicated mentors, superior education, and with an exclusive, rigorous acceptance process where less than 1% of applicants qualify, results in “high-impact enterprises with assembly line proficiency.”

Other social venture accelerators abound such as Echoing Green, Halcyon Incubator, Camelback Ventures, and Fast Forward.

PillPack finds success with TechStars Accelerator Program

“Pharmacy simplified.”

That was the two-word introduction that Techstars gave PillPack in the Boston 2013 class.

Within 3 months of the accelerator program, PillPack raised $4 million, and as they grew from Series A to Series D, an additional $117 million. Eventually, founders TJ Parker and Elliot Cohen

sold their nationwide prescription company to Amazon for $1 billion.

SOCIAL VENTURE INCUBATORS

Here the focus is on providing start-ups and entrepreneurs with facilities and funding to build a business model with the help of a management team.

Similar to accelerators, these educational social entrepreneurship programs help to turn ideas into actionable solutions. Social entrepreneurs tend to learn a lot in these intensive programs, but there’s a huge commitment of time.

Most incubators require a one- or two-year commitment. Social entrepreneurs also have a rigorous schedule and attend many intensive trainings and workshops.

How Good Company Ventures helped launch BlocPower

“Dreamers into doers.”

This is the promise of Good Company Ventures, an incubator where innovators transform into entrepreneurs. Good Company Ventures provides their budding leaders of social change with the tools and resources needed to envision their solutions and design business models that support sustainability, all while mobilizing capital to accelerate impact.

One of Good Company Ventures graduates is BlocPower. BlocPower is a Brooklyn-based green energy technology startup committed to utilizing its proprietary software for analysis, leasing, project management, and monitoring of urban clean energy projects. To date, BlocPower has completed projects in nearly 1,000 buildings and prides itself on delivering results ahead of schedule and under budget consistently.

Proudly, its customers are saving 20–40% on their energy bills each year. The company is backed by the world’s top investors, including the likes of Kapor Capital, Andreessen Horowitz, and the former Chairman of Google.

SOCIAL VENTURE CAPITAL

Distributed through venture capital firms, this form of social venture funding seeks out organizations that use their social conscience to find solutions to specific social issues.

This type of funding is best suited for social entrepreneurs that have a proven business model, market fit, and are ready to scale all while giving access to additional resources and services invested in growth.

These aren’t small investments.

Typical deals are sizable with an expected equity exchange of up to 30% or more and investments ranging from $250,000 to $100 million. Social venture capital also looks for a 10–30x return (depending on the type of company and other factors) on their capital when the company goes public or gets sold. Keep in mind that in exchange for funding, social entrepreneurs will be giving up some decision-making control.

The funder and the funded

Social Impact Capital, is a venture firm that backs entrepreneurs in the early-stage of building businesses that can produce a return and have a scalable social impact. They focus on the “essentials of human need” — energy, water, food, health, environment, education, housing, access to capital, and social justice.

Social Impact Capital helps a variety of investors including family offices, high net worth individuals, endowments, and funds make direct investments in high growth companies. Using OpenInvest, technology that tracks performance, they stand by ethical investing.

In a food ecosystem driven by mass production and big box stores, MilkRun resolved to clear the path for small farms to compete. Through an online grocery marketplace, farmers are encouraged to sell goods online, which allows 70% of sales to go back into farms. MilkRun’s business model stands to return $450 billion to the local food system. With 90% of all small farms facing extinction, this company is fighting for them and their communities.

ANGEL INVESTORS

This funding vehicle involves individual investors putting resources into startups depending on their personal interests in a sector, trend, social cause, or experience for a certain percentage of the company.

Often these angel investors are seasoned entrepreneurs themselves wanting to mentor young leaders and share their experiences. Although the capital does not always need to be paid back, many receive dividends based on the company’s financial earnings or become active in management roles.

These investors, though generally altruistic, still expect and desire a financial return.

These investors can be a godsend to the right entrepreneur with the right network. Traditionally, however, women and people of color haven’t been afforded as many opportunities by angel investors due to implicit bias and outright discrimination.

On the ground floor for the wearable revolution

Jeff Clavier, founder of Uncork Capital, might epitomize angel investors.

He worked with his partners and employees to fund 150 ventures over 10 years. Making nearly 20 investments at up to $6 million per startup, his investments spanned e-commerce, mobile, and infrastructure monetization.

You might be wearing one of his most famous investments right now.

To Jeff Clavier, not only did he benefit from the FitBit fitness tracking device by losing 30 pounds, he also owns a stake in the company now worth $125 million. After receiving a check from Clavier for $125,000 in 2008, Fitbit has grown to a $4.1 billion company.

Back in the early days of the now-powerful brand, that initial angel investment made all the difference.

CROWDFUNDING

Raise big money while expanding the pool of investors. And not just investors, but new champions who are excited about the mission and inspired to contribute.

It sounds like a win-win but crowdfunding takes a lot of work.

Crowdfunding has allowed many micro-funders access to early-stage investments and developed networks for people who wouldn’t have had the opportunity otherwise.

It provides a simple way for anyone ready to pitch an idea. However, crowdfunding doesn’t always bring in the best investors and offers platforms with poor-quality deal flow making it that much more difficult to connect with worthy opportunities.

One popular crowdfunding platform, Kickstarter, which has funded more than 160,000 projects, with more than $4.2 billion pledged.

Another popular crowdfunding platform is Indiegogo. This organization funds projects that address concerns, big or small. Indiegogo appears more adaptable than other models because it gives backers control over whether they want fixed or flexible models, where Kickstarter distributes funds only after ventures have procured its funding goal.

Some other platforms that specialize in nonprofit crowdfunding are Givebutter, Kindest, Donorbox, and GoFundMe.

How Fidget Cube blew past its crowdfunding goal

An estimated $6.5 million in 30 days.

Fidget Cube, a stylish stress reliever, accrued 154,926 backers that pledged 43,000% more than the company’s original goal of $15,000 to fund the production and distribution of the product.

That’s how it is with crowdfunding: feast or famine. But when you hit, you hit big.

BOOTSTRAPPING

These are self-funded businesses that scale using “sweat equity.”

More than 80% of startups are funded by bootstrapping. Most likely, funds are coming from personal savings, other income, or revenue from the business itself.

This allows your endeavor to build traction and create credibility in the early stages while market demand still is being determined. Bootstrapping isn’t the easiest path to take. All risk falls on the entrepreneur as limited resources could result in compromising growth of the business.

Although there isn’t pressure from an investor to return a profit, the pressure of placing personal assets on the line is most likely a major reason 90% of all startups fail according to a Forbes survey.

Nonprofits have a particular challenge with bootstrapping. They have to ensure that core organizational functions like PR still gets the attention it needs in order for the company to garner media attention and grow. That was precisely the case for Doctors Without Borders in southern Africa.

The moral of the story is that bootstrapping is a high-risk, high-reward play for success in the social venture game.

The legendary story of Spanx

$5000 of her own money and a desire to help women feel great was all Sarah Blakely needed to start Spanx, a company that specializes in undergarments for women.

Conducting business from her apartment in Atlanta, Blakely even wrote and filed her own patent application.

At a personal fortune of about $1 billion, Blakely still owns 100% of Spanx placing her squarely on Forbes’ first list of the richest self-made women.

GRANTS

This form of institutional funding provides funds for sectors with high start-up costs and are generally riskier such as medicine, IT, and energy production.

Although entrepreneurs don’t have to give up equity with grants, tracking progress is crucial. Be warned, applying for grants can be time-consuming. Funders demand a lot of information as part of due diligence.

The grantmaker and the grantee looking to connect students

Since 2002, Draper Richards Kaplan Foundation has been finding, funding, and supporting innovators with highly impactful ideas that will help improve people’s lives.

They help organizations working to provide necessary access to healthcare, education, food security, social justice, water and sanitation, and shelter. Draper has already invested in 142 social enterprises with the support of 50 donor partners.

With the mission to connect or upgrade internet access in every public school classroom in America, EducationSuperHighway believes that digital learning is the key to equal access to educational opportunities. With the help of Draper Richards Kaplan Foundation and its donors, 46 million American students connected to high-speed broadband.

INVESTING IN SOCIAL TRANSFORMATION

Venture philanthropy investments weave in and out of social impact programs like a helix.

And it seems like interest in socially-minded venture philanthropy is only growing.

According to The Global Impact Investing Network and their report, Sizing the Impact Investing Market, the global impact investing market is estimated to be valued around $502 billion.

This doesn’t necessarily make the task of raising money for your project any less daunting, but narrowing down where to go to find the funds you need to pursue your social venture is still progress towards changing the world.

We should note that many of the funders listed below span different categories so we’ve worked too loosely group for the sake of comprehension. In other words, no one funder exists solely in a silo and we don’t mean to suggest that!

Multi-Sector

These award-winning cross-sector social investment leaders offer a coalition of services that attract and unite a variety of contributors ranging from impact newbies looking to contribute their first $100 to the veteran investor managing a portfolio of impact strategies.

Investing themes include environmental sustainability, racial justice and equality, gender equality, and advancements in renewable energy.

Environment and Agriculture

The network of social investors collaborating here fund innovation to address poverty, inequality and environmental degradation. Impact themes include sustainability, environment technology, and sustainable consumer products.

Technology

Just ask Kai Bond, Head of Investing at Catalyst Fund during his interview on CHOP’N IT UP, about the importance of social venture capital in the technology space. These funds are seeding change by fueling minority owned startups solving real-world technology problems.

Education

Venture philanthropy in education is a real hodgepodge of funder priorities.

From edtech investments to deep programmatic investments in specific forms of pedagogy, education philanthropy runs the gamut among varying funder priorities.

For over 50 years these funds have driven positive change themes to include civil rights, education equality, arts and culture, and human rights.

Health

The COVID-19 pandemic has mobilized philanthropy more broadly than any event in recent years. These venture firms are serious about advancing the science of healthcare delivery, awareness, and prevention.

Recent impact themes range from producing masks and stop the bleeding kits to exploring neuroscience and supporting programs for brain awareness.

Economic Development

Goal: Power economic growth.

Enabling social venture pioneers like you — that’s the mission behind these investors’ pocketbooks tooling decentralized development. Impact themes cover social inclusion, poverty eradication, and reenvisioning corporate ownership.

DIVERSIFYING YOUR SOCIAL VENTURE FUNDING STRATEGY

The challenge to influence, lead, or create change while generating profits is no easy feat.

Now, more than ever before, the world needs innovators and resilient thinking to build and empower a community of changemakers.

It all starts with leaning into your purpose and then determining the best social impact models and funding structures to execute that vision. With the right scan of the social venture funding universe, we hope we’ve made that a bit easier.