Investing in Change A new wave of entrepreneurs is emerging, focused not just on profitability but on creating social impact.

While these businesses face unique challenges in securing investment, founders are boldly and creatively striving to balance financial success with societal change.

Jem Stein, founder of Daring Capital, a London-based investment firm championing social impact businesses, is leading the charge in helping these ventures navigate the delicate balance between profit and purpose. As an investor, advocate, and passionate entrepreneur himself, Stein has seen firsthand the hurdles that social entrepreneurs face and the resilience they demonstrate to overcome them. We sat down with him to discuss what makes these businesses unique, the misconceptions investors hold, and how entrepreneurs can better position themselves to secure the capital they need to grow their social ventures.

The unique challenges social impact businesses face
When asked about the specific challenges social impact businesses face, Stein explained, "Social impact businesses face unique challenges that conventional businesses don't because they're working to deliver on two fronts: financial returns and meaningful social impact." Striking the right balance between these two missions is no small feat. Social impact founders are constantly juggling their need for funding with their desire to do good. Investors, on the other hand, often prioritize one over the other - either looking for high returns or prioritising a genuine mission. The difficulty lies in the fact that while there are many investors who focus on social impact, not all of them are willing to take the risks that come with backing businesses that may not fit the traditional financial models. As Stein points out, "It's hard to find investors who will back these types of businesses (even though there are a lot out there) so getting initial financing can be challenging."

Assessing social impact businesses without traditional scalability
Social impact businesses often don't follow the same growth trajectory as traditional startups. They might not have the same scalability potential or be able to attract the kind of rapid growth that venture capitalists often look for. So how does Stein assess the potential of these businesses when scalability is not the primary driver? "There are huge opportunities for social impact businesses tackling critical challenges that may not offer venture-scale potential," he shares. While these businesses may not meet the traditional venture capital model, they still hold immense potential to dominate niche markets, addressing underappreciated problems with innovative solutions that require lower capital investments.

Stein emphasises that success in this space isn't always about having defensible technology or rapid growth, but about the leadership behind the business. "Ultimately, success in this space is less about having defensible technology and more about the founders: their deep expertise, genuine passion for the problem, and ability to execute against the odds. It's this leadership and commitment that turns a focused mission into a sustainable, impactful business."

Misconceptions about social impact businesses
One of the most common misconceptions that investors have about businesses focused on social impact is that they are somehow less capable or more risky than traditional ventures. "The biggest misconception is that purpose-driven founders are somehow less capable, more amateurish, or higher risk than conventional founders. In my experience, that couldn't be further from the truth," Stein explains. According to him, purpose-driven founders often bring an extra layer of resilience and commitment to the table. "If anything, these founders are often more committed and resilient because their connection to the mission isn't just strategic - it's deeply personal." For these entrepreneurs, their work goes beyond generating financial returns; it's about having a positive, lasting impact on the world. This deeper motivation often makes them more likely to weather challenges and continue pushing forward to realise their vision.

The right way to pitch a social impact business
Pitching a business focused on social impact to investors accustomed to high-growth, profit-driven models can be a daunting task. Social impact founders may struggle to compete with startups that offer enormous financial returns and high scalability. But Stein believes that social entrepreneurs should not try to fit into a model that doesn't suit their business.

"The key for social impact founders is to find investors who genuinely align with their values and mission," Stein says. "Trying to compete directly with high-growth, profit-driven startups on purely financial returns is a tough game to win." Instead, social impact founders should be upfront about their dual focus on returns and societal impact. By aligning themselves with investors who truly understand and value their mission, they can form stronger, more meaningful partnerships. "Investors who appreciate that will be the right partners," Stein adds.

Alternative funding models
For social impact businesses that don't fit neatly into the traditional venture capital model, Stein has found that alternative funding sources tend to be more flexible and better aligned with their needs. "For social impact businesses that don't fit the traditional VC mould, angels, syndicates, foundations, and family offices tend to be the best funding sources," Stein explains. These funding sources offer more flexibility in terms of expectations and timelines, allowing for a more collaborative relationship between investors and entrepreneurs. "They offer more flexibility in their approach and, crucially, allow founders to build real relationships with investors who believe in their vision," Stein says. Building a relationship with investors who understand the long-term nature of social impact work is often more productive than working with funds that prioritise short-term financial returns.

Schemes like S/EIS (Seed Enterprise Investment Scheme) can also be a valuable tool in de-risking investments for social impact businesses. "Traditional funds can be more challenging because they're managing other people's money and often have stricter return expectations, making it harder for non-traditional models to fit their thesis," Stein adds.

Advice for entrepreneurs struggling to raise capital
For social impact entrepreneurs who are struggling to raise capital and feel excluded from traditional funding routes, Stein has some grounded advice: "The first thing I'd say is: get as far as you can without raising." Too often, early-stage founders expect to secure large sums of money before they even have a product or customers. However, in today's world, there is much that can be accomplished with minimal resources.

Stein encourages founders to focus on building traction first. "Instead of following the VC playbook, which often doesn't fit social impact businesses, focus on proving traction first. Get as far as you can, raise a small amount (£50k), make progress, then raise again if needed. Rinse and repeat." He also advises that founders shouldn't quit their day jobs too soon. "If you can build a business with paying users and solid revenue on a small budget, you will find the funding to grow. Investors will always back businesses that demonstrate real market demand."

Stein's insights into social impact investing highlight the challenges these businesses face and how they can overcome them. When founders and investors align on shared values, social impact ventures can thrive, even in a profit-driven market. The key is choosing the right partners and staying true to the mission - because the world needs businesses that create lasting, positive change.