Entrepreneurs | Why Raise Capital?
In addition to publishing several articles in the areas of corporate finance and Raising Entrepreneurial Capital, a text coauthored with John Vinturella, she has consulted with several start-ups, Fortune companies and non-profits. Raising Entrepreneurial Capital. John B. Vinturella , Suzanne M. Combines solid theory with a practitioner's experience and insights Case studies illustrate theory throughout the book Updated to reflect the realities of the global economic recession. EarlyStage Equity Capital.
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The Business Plan. Survey of Methods. Raising Entrepreneurial Capital John B. However, social ventures don't have the same flexibility in their identity structure on leveraging capital the same way as regular startup ventures do. First, equity or VC financing usually expects an exit strategy that does not automatically exist in social ventures that plan on generating impact for the long haul.
Second, the risk appetite for investors adjusts with the existence of proof of concept models.
However, social ventures exacerbate the challenge of assessing risk, given the unique nature of cultural and business resource issues and investor networks. Thirdly, and most importantly, investors usually depend upon comparable investment activity that helps validate and support an investment thesis around market opportunity and valuation levels. That backup and peer justification doesn't exist in many social venture markets, where activity is a lot patchier, and those markets have yet to demonstrate clear trends in delivering investor returns.
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All of this limits the availability of capital in social ventures. To access the aforementioned capital streams mentioned before, social ventures have to do several things, including intensive market research to prove the need and execution capabilities.
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But funding roadblocks might arise, and for that, social ventures look into the following three options: leveraging partnerships, philanthropy organizations and social cause competitions and funds. Firstly, regarding revenue sharing partnerships, it involves social entrepreneurs thinking innovatively and identifying partners who can bring economic value to both parties.
The beauty of this avenue is that it is a win-win situation for both parties involved. However, the definition of philanthropic money has shifted over the years from being simple donations, which are commonly seen today as an unsustainable way of giving. The new direction for this new wave of philanthropy is today called impact investing.
For entrepreneurs, this source of capital is advantageous in that it requires lower than market rate interest or return targets, and for the philanthropists, a principle attraction in that the returned capital can be recycled into other charitable activities. It must be noted that the concept of impact investing is still evolving, and as such, it needs more time to expand to accommodate for the growing number social enterprises.
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Since most of these initiatives exist so far on committed and passionate donors, the challenge would be to identify sustainable models. In practice, what model examples do we have of social venture startups who are securing financing? We also participated in different entrepreneurship competitions, as much as time and timing allowed us to- the exercise of preparing for a competition, being mentored and presenting the case to the jury is very beneficial to reassess the model whether one gets funded or not.
We still needed money, so we approached philanthropy capital while still pitching the project focusing on financial and operational metrics. Finally, we also engaged with VCs, and set together future milestones to pitch them at a time when they would be interested to come in- this is a very useful exercise to set standards and milestones achievements in foreseeing the growth of the venture.
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Our experience has taught us to knock on all doors and try all funding models, because each model has its own added value and can prove to be crucial for a new trend to be successful. The problem is that startups struggle with access to talent, markets, and capital. That being said, the gap between the capital need of these startups and available seed money and support by investors or institutions is still too big, all more so for social ventures even though they are needed to solve, innovate and disrupt societal issues and challenges.
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The change is happening anyway, and more and more people are realizing the value of supporting such startups while creating impact for the wider community. Maybe the MENA region is still not there yet in terms of global standards and networks for social ventures, but societal issues -and the will and commitment to solve them- are definitely there, and sometimes this is all it takes for a movement to be in motion and for the change to leapfrog.