Social Entrepreneurs Need to Make Money, Too
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If you think starting a successful social venture is simply a matter of finding a way to aid a social cause, think again. Increasingly, social entrepreneurs are required to show how they intend to sustainably carry out that mission. In other words, they need money.
The hallmark of successful social ventures has always been resource magnetism, says David Hodgson, co-founder of Echoing Green, a New York-based nonprofit charged with finding and supporting social entrepreneurs. But increasingly, one of those resources -- being able to earn revenue -- has become even more vital.
"It speaks to the ability of these organizations to ultimately attract capital, which is usually critical to scaling up and having the maximum social impact," says Hodgson. Impact investors often back companies and organizations that don't rely solely on philanthropic support but can also attract financial capital the same way for-profit businesses can, he adds.
Even as social-purpose businesses and B Corps have continued to attract adherents for this reason, the emphasis on revenues has even driven some nonprofits into business, says Lara Galinksy, senior vice president of Echoing Green. "Even a nonprofit bakery will have an earned-income stream of selling bread," she says. "But it's set up as a 501(c)3" -- that is, a U.S. tax-exempt organization. So what does this mean for all of the social-venture hopefuls? If you haven't already begun exploring revenue models, you'd better get cracking. Here are three additional tips for making a social venture more appealing to investors:
- Have a sustainability plan."The quality of your plan is fundamental," says Hodgson. "Doing a solid job of thinking through all of the aspects and resources required for success and having a sensible strategy for accomplishing the plan is what any investor is going to look for in the impact-investing field or the for-profit field." He suggests stress testing the plan with trusted advisors who will ask probing questions.
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- Measure your social impact. Just as important as revenue is to impact investors, your social mission is also top of mind. As such, they'll be checking to see how you'll measure the impact that your organization will have in delivering on its social goals. "That measurement of impact is generally a weak point of many organizations," says Hodgson. Though it can be tough to measure softer goals like improving blighted communities or preventing deforestation, it's nonetheless important, he adds.
- Tap into the impact-investing community. Galinsky recommends joining networking groups and membership organizations like Social Capital Markets (SOCAP) and the Global Impact Investing Network (GIIN) and attending their conferences. There's a group called TONIIC, Opportunity Collaboration and the Unreasonable Institute, which is an accelerator for high-impact entrepreneurs. Through these various groups, you'll also find out when there's a new fund from impact-investing outfits like City Light Capital in New York and Gray Ghost Venturesin Atlanta, adds Galinsky.
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