Hoping to make a positive social or environmental impact? Want to make it on a meaningful scale? If you’re a social entrepreneur and you answered ‘yes’ to either of these questions, securing capital should be a top priority.
While there’s no single “best” approach to navigating social enterprise funding, it’s helpful to know some of the different types of investors you might end up receiving funding from.
High Net Worth Individuals & Angels
These are individuals who believe in your project—and have a significant amount of capital to invest in it. Because their involvement is based on something more than just profits, their support will likely come with some stakes invested in your organisation. They might want to have a say when it comes to certain decisions, or an influential role to help get the enterprise off the ground.
Often, angels will become involved with the social enterprise during the start-up and early stages. When it comes to winning over an angel investor, it’s good to have a good idea of where your organisation stands, as well as what opportunities and obstacles you might run into in the early stages of operation.
Friends & Family
When it comes to starting a social enterprise, family and friends provide one of the most common forms of capital. Because they’re people who know you and likely believe in your organisation’s mission, people you know can be an excellent source of capital. Their demands will likely be few, and they’re generally more forgiving when it comes to the ups and downs your organisation will experience.
That being said, however, nothing ruins a holiday party or family reunion like strained relationships—especially when money is involved. While you might secure capital from an old housemate, try to make it as formal as possible and be upfront about any potential risks
Small & Large Family Offices
A family office is a wealth management advisory firm that typically works with ultra-high-net-worth (UHNW) investors. Unlike traditional wealth management firms, they provide the management and financial support for an affluent family, or group of families.
In doing so, they’ll provide services regarding charitable giving—which is where you and your organisation might come in. If you align with their investment criteria and philosophy, you might find yourself a new funding source. Check out FundComb, a comprehensive search tool to find family offices in Australia.
Community & Family Foundations
A community foundation is a public charity designed to support a specific community or geographical area by pooling funds to support nonprofits or local projects. Similarly, a family foundation might have the same aims but derives its funds from a single family.
Given their philanthropic goals, capital from community and family foundations is often readily provided to social enterprises. For more information, check out Australia’s only nationally-focused community foundation, the Australian Communities Foundation.
Community Development Finance Institutions (CDFIs) & Development Finance Institutions (DFIs)
Especially recently, during the COVID-19 pandemic, CDFIs and DFIs have been extremely helpful for social entrepreneurs. As one of the more flexible lending opportunities, a CDFI or DFI can provide affordable capital (credit and loans) to where it’s needed, when it’s needed.
Private foundations will typically have specific areas of focus, and often provide grants to organisations working within these areas. Some private foundations also have a particular interest in social entrepreneurs and are a good option for those who are just starting an organisation or scaling up operations.
Government Investment Funds
A government investment fund, or sovereign wealth fund, is money that’s generated and controlled by the government. Often coming from national surpluses, these funds are dedicated to supporting a country’s economy and citizens, and distributed funds will specifically have a targeted purpose tied into that goal.
The government’s Social Enterprise Development and Investment Funds (SEDIF) offer finance to eligible Australian social enterprises.
Many NGOs are turning to impact capital in order to fulfil long-term goals. We’re now seeing many faith-based social ministries, aid organizations, and other international non-governmental organisations begin to make use of impact investing. Organizations like Oxfam and Heifer International are starting to experiment with supporting and funding social enterprises within their communities and areas of impact.
Whether to fulfil their Corporate Social Responsibility (CSR) or connect with their local community, many corporations have desires to get involved with projects and organisations that they align with. Corporates often have designated capital funds, which might help you out as you secure funding for your social enterprise.
When several investors pool their capital, it becomes an investment fund, like a mutual fund, money market fund, or hedge fund. While these investment funds aren’t always oriented with positive social and environmental aims, they can be.
Institutional Investors & Banks
In recent years, more and more institutional investors have dipped their toes into the world of impact investing. Coming from a demand from asset owners to support socially and environmentally oriented options, it’s likely that we will continue to see institutional investors play a role in supporting social entrepreneurship.