Funding Your Social Enterprise

By Calvin Chu, a Partner at Eden Strategy Institute, LLP. Eden operates a social venture capital fund that invests in social enterprises that are aligned to its financial, environmental, governance, and social impact criteria to help them grow.

Asia has no lack of social innovators with the drive, networks, and enterprising ideas that can be brought to market, yet many stop short of launching actual businesses due to lack of funding. Numerous avenues of funding do in fact exist and the first step is usually to write a robust business plan.

A business plan needs to address the market structure, industry trends, value proposition, operational set-up, revenue model, cost structure, financial plan, risk management and executive team. This marketing document may be presented as a 1-page executive summary to pique the interest of a bank manager, a 10-slide presentation to potential investors or even a 50-page report for detailed perusal before a foundation makes a grant.

A strong business plan usually features proof of a winning and scalable concept. This may include strong team credentials, a working prototype, a patent, the presence of a lead investor, or customer testimonials.

This paints a story that the investment opportunity is real, that risks are manageable, and that either investors will likely turn a profit or debtors will pay.

At Startup

Decisions are made based on how well the business plan addresses different evaluators’ needs and concerns. Entrepreneurs typically first fund their businesses with money from their savings, family, or friends. After personal funds have been committed, government agencies offer additional help. For instance in Singapore, SPRING Singapore, Info-communications Development Authority of Singapore, research institutions, and universities offer technology start-up, development, and commercialisation schemes, equity investments, as well as non-monetary support such as management guidance, training, or technical advice. International Enterprise Singapore provides funds to help local firms internationalise, while Singapore Economic Development Board offers incentives such as tax breaks, soft loans, or co-funding to encourage international companies to invest here.

Social enterprises may also seek funding from charitable foundations and individual philanthropists, by articulating how the companies may further the mission of these foundations, contribute to learning, and positively impact the philanthropists’ legacy.

Here demonstrating mission alignment is important. Organisations can also investigate possible social investments from online charity markets such as GlobalGiving.

Mature Businesses

Funding sources extend to traditional financial investors as the business matures and funding requirements increase, and customised investment messages are required for different audiences. Banks and microfinancing institutions are most concerned about credit worthiness, and might demand collateral, higher paid up capital, or a longer track record to allay risk. Business Angels, often found at networking events or business plan competitions, are often motivated by the thought of giving back, and not only of financial returns.

Venture Capital and Private Equity firms mainly look for return on equity, management control, portfolio fit, and how their expertise or networks might add unique value to the investee. In the public markets, firms need to consider the market’s liquidity, listing costs, branding, risk management, as well as governance and reporting standards, when deciding which boards to list on. For instance, the Singapore Exchange has both a Main Board as well as a secondary board, Catalist, for smaller firms to list. In addition, firms can further be traded on derivative instruments such as Socially Responsible funds, indices, or bonds.

With the abundant availability of financing options available, organisations now have the opportunity to free themselves from financial constraints, and focus on truly growing their business and fulfilling their missions.