Four lessons on funding social enterprises

On April 18, I was fortunate to attend a plenary session of the Asian Forum on Enterprise for Society.
The topic was “Money for dreamers and idealists: A master class in pitching for start-ups and social enterprises.” This session featured internationally renowned impact investors (Ms. Diane Dugan-Eustaquio, executive director of IdeaSpace Foundation; Mr. Terry Farris, chief operating officer of the Scientific Research Foundation Asian Institute of Management; Mr. Pranay Samson, associate director of the Impact Investment Exchange and social entrepreneurs; Mr. Korawit Booranakit, Business Development and Strategic Partnership manager at Socialgiver; Ms. Reese Fernandez-Ruiz, president and founding partner of Rags2Riches; Ms. Kathy Gong, cofounder and CEO of WafaGames). The dialog was moderated by Dr. Chito Salazar, president and CEO of PHINMA Education Holdings.
The session was very insightful since both the investment and entrepreneurial perspectives were examined. Funding social enterprises is still an evolving field given the limited knowledge of the investor community as well as the unique needs of social enterprises compared with those of commercial start-ups. I would like to share four key lessons based on the dialogue.
Investors and entrepreneurs should be clear on how they intend to balance social impact with financial returns. Potential funders should be clear about the portfolios they are trying to build. Some investors prefer maximum financial returns while some prefer optimized financial returns with opportunities to fund social ventures. Similarly, social entrepreneurs must be very deliberate about the trade-offs they are willing to make. External funding opens the door for investors to take significant control in organizations; thus, social entrepreneurs must be clear about their missions and nonnegotiables for their partnerships to work out.
The business model and value propositions of enterprises must be very clear. Detailing the key areas that make the business model work allows both the entrepreneurs and the investors to clarify the types of investments that must be pursued — be it cash, assets, or even intangibles such as networks and other key partnerships. Obviously, investors prefer clear commercial value propositions and revenue models, but it is also important for entrepreneurs to detail how they intend to pursue and scale social impact.
Cultivate the core team very carefully and deliberately. Aside from the concept and business model of a social enterprise, investors consider the level of commitment that the core team is willing to give to the initiative. Ventures, specifically social entrepreneurial activities, take time to grow. A committed team willing to support each other through rough patches is a sign of long-term devotion to fulfill a truly relevant mission or to translate audacious visions into reality.
Treat the partnership between an investor and an entrepreneur as a marriage. More than just throwing ideas around and making sales pitches, an investor and an entrepreneur must treat their partnership as a marriage. Just like when choosing life partners, both parties must align their values and cultivate trust. Both parties should strive for the success of the venture not only at the beginning but also at the latter stages of growth. Essentially, an investor-entrepreneur partnership is a marriage.
Funding social enterprises is tricky and can be more challenging than funding traditional commercial ventures. Whereas traditional funding and start-ups may prioritize technical competencies and profit maximization, investing in social enterprises demands respect for human-centered skills and the pursuit of social objectives. Hopefully, these four lessons from the forum can help both investors and social entrepreneurs crystallize their purposes and become more deliberate in seeking funding opportunities.
 
Patrick Adriel H. Aure is an Assistant Professor at the Management and Organization Department, Ramon V. Del Rosario College of Business, and head of the Social Enterprise Research Network of the Center for Business Research and Development at De La Salle University.
patrick.aure@dlsu.edu.ph