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Guide: Startup Funding for Social Entrepreneurs

Guide: Startup Funding for Social Entrepreneurs

Ami Shah
Types of  Startup Funding for Social Entrepreneurs

Hi, I am Grant, founder of Causeartist. Over the past seven years, I’ve had the tremendous opportunity to interview nearly 700 social entrepreneurs from around the world.

Through those interviews I discovered that seeking funding for social entrepreneurs, has been, by far, the toughest obstacle for founders.

This guide to startup funding for social entrepreneurs is intended to help answer some of the questions you may have along your fundraising journey.

If you would like to search and find specific impact investors and impact accelerators please check out our new Impact Investor platform.

We also host a podcast dedicated to conversations and interviews with impact investors. Check out the Investing in Impact podcast!

The guide below was created by Ami Shah for Causeartist! Thanks Ami 😀

Different Types of Investors

Type of Investor

Angel

Definition

  • High net worth Individual among friends/family
  • One time investment usually in exchange of ownership
  • Primary source of funding for most of the start ups

Series they usually invest in

Pre-Seed and Seed

Type of Investor

Accelerator

Examples: Katapult Accelerator and Urban-X

Definition

  • Provides training, mentorship and business support
  • Quite selective
  • Cohort based
  • Once MVP has been developed, investment usually in exchange of ownership

Series they usually invest in

Seed Funding

Type of Investor

Incubator

Definition

  • Helps entrepreneurs refine business ideas and build their company from the ground up
  • They usually don’t require equity and don’t offer capital.

Series they usually invest in

None

Type of Investor

Equity Crowdfunding

Examples: WeFunder and Republic

Definition

  • A practice of raising funds from individuals to support your cause
  • Nominal amount from lots of individual in exchange of ownership
  • Not yet legal in majority of country apart from social cause

Series they usually invest in

Series A

Type of Investor

Philanthropic Capital

Examples: The Global Good Fund and New Profit

Definition

  • Nonprofit organizations
  • Investments only in startups which promote social good
  • These investments are predominantly done in the form of shareholding and loans

Series they usually invest in

Series A and Series B

Type of Investor

Venture Capital

Examples: Social Impact Capital, Better Ventures, and Responsibly Ventures

Definition

  • Venture capital generally comes from well-off investors and investment banks
  • They typically finance startups, early-stage, and emerging companies that seem to have high growth potential or those who have demonstrated high growth in exchange of ownership
  • They also provide mentorship/expert knowledge to their portfolio companies

Series they usually invest in

Seed, Series A, Series B, and Series C

Type of Investor

Private Equity

Examples: TZP Group and FullCycle

Definition

  • Private Equity generally comes from well-off investors and investment banks
  • They prefer financing stable companies in exchange for ownership

Series they usually invest in

Series C+

Different Types of Startup Funding for Social Entrepreneurs

  • Debt funding for social entrepreneurs takes place when a VC/Angels/Philanthropic Capital firm lends money to the company for a fixed period against a rate of interest. As funds need to be repaid with interest which is usually higher as investing in startups is riskier than other investment vehicles; social entrepreneurs will face a lot of pressure to increase revenue and make the venture profitable which can be a tricky affair for early stage companies. When a startup is unable to repay the amount, then assets, which are usually kept as security, gets seized. However, in this type of funding no influence/interference with how you are running your business takes place.
  • Equity finance funding for social entrepreneurs takes place when a VC/Angels/Philanthropic Capital firm invests funds in a startup in exchange on ownership as they see growth potential and with a motive of increasing 10-25x return when company gets acquired/goes public. Here, there is no obligation of repayment of that investment. Hence, a company can focus more on future revenue/profit than present. However, the founder’s dilution takes place (owning less % of your own company) as well as investors by acquiring your company shares, becoming the board of directors and having influence/interference on how you run your business.

Series

Pre-Seed

Stage of the company and rationale

  • Pre-Product stage
  • Developing prototype of product
  • Hiring key team members

Whom to approach

  • Friends and Family
  • Angels
  • Incubators

Series

Seed

Stage of the company and rationale

  • Product-Market fit stage
  • Product development

Whom to approach

  • Angels
  • Early Stage VCs
  • Accelerators

Series

Series A

Stage of the company and rationale

  • Revenue Growth stage
  • Sales/Marketing and Market Research

Whom to approach

  • VCs
  • Super Angels

Series

Series B

Stage of the company and rationale

  • Early signs of scaling operation stage
  • Hiring Talent
  • Different market segments and revenue channels experiments

Whom to approach

  • VCs
  • Late Stage VCs

Series

Series C+

Stage of the company and rationale

  • Large scale operation stage
  • New geography’s

Whom to approach

  • Late Stage VCs
  • Private Equity Funds
  • Hedge Funds
Guide: Startup Funding for Social Entrepreneurs - How to Pitch

How to Pitch – Funding for Social Entrepreneurs

The Customer’s Tale

Stories are the most efficient way to create emotional connect with investors and showcase the value proposition you will be bringing in people’s lives. As an Impact start up best way to pitch your solution is by introducing your end user (Beneficiary) as a cartoon character and then display how the problem (which your product/company is solving) affects its everyday life and how other options are inferior in nature compared to yours.

For Example:

Teenage Girls (as cartoon characters) in Emerging Economies have low access to hygiene products. They use old clothes, animal skin, cow dung to manage their period every month as they can’t afford hygiene products every month or their region doesn’t have enough supply of it. (Other inferior solution) Your company has developed a low cost eco-friendly reusable cup – this solution is superior to already existing ones as risk of infection becomes negligible, can be used a lot of times – increases affordability and you have partnered with an organization which will help with logistics in those regions.

Metrics

Metrics help in showcasing the potential your product can achieve. Measuring the total impact that has taken place or will take place gives investors a good signal to invest in your startup.

a. Intervention has taken place: This can be done by selecting outcome variables which align with your intervention. Difference in the outcome variables – endline (after intervention) vs baseline (before intervention) helps investors understand the total impact your product has created and by giving funding you can replicate positive impact in other regions.

b. Intervention will take place: Calculating total market size your product is targeting and by using insights from previous experimental research (total change in outcome variable) display total positive impact your company will be creating.


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