Social Entre 101: getting started on funding…
As we roll forward in social entrepreneurship 101, it’s time we started chatting about how you’ll fund your social venture. This is the question I’m most frequently asked about. Next week, I’ll start getting you some resources to find funding, but first, I want you to start by asking some questions of yourself:
One of the largest challenges I see cause based entrepreneurs face is how to raise the cash needed to launch their businesses. In the early days, you’ll be refining your story, developing your process, and linking up with your customers. So, it’s highly likely that you will need some ‘seed’ funding to keep you rolling until orders start coming in. Luckily, there’s an entire crop of crowdfunding resources, venture capital firms, incubators, and loan programs that exist specifically to fund social ventures. I’m not saying it’s going to be easy. You’ll have a lot to master, from honing your investor pitch to learning the ways of crowdfunding, but in this chapter, I’m going to tell you everything I’ve learned about funding from the world’s leading social entrepreneurs. I’m also going to put tools in your hand that you can start using right away to get the money you need to launch your movement.
Questions to Start With
Before we dig into those tools, I want to make sure you’ve asked yourself a few questions about going after early stage funding. Asking yourself these questions will help you avoid some of the mistakes I’ve seen other change agents make:
1.) Do you really want to give up a percentage of your company to outside investors?
If you seek any kind of venture capital, the cats with the cash will want a percentage of your company. The level of control they’ll want varies wildly and depends on a lot of things, but you need to ask yourself if this is even a road you want to go down. It may end up being something you have to do, but just be sure you’ve thought this through ahead of time.
2.) Will extra cash cause me to avoid taking revenue generating action?
There are some colossal examples of this, probably the most well known is pets.com. Story goes like this: pets got around a half a billion dollars in cash from investors in 1998. Everyone thought pets.com was the next big thing, they ran a commercial during the Super Bowl, and then the company collapsed in 2000. Why? Lots of reasons: the dot-com bubble was largely to blame, but a deeper investigation shows that pets spent a ton of the invested cash without really focusing on key business metrics like profit, controlling spending, and building up loyal customers.
This is an extreme example of a trend that happens far too often at new startups. Getting flooded with cash can cause you to focus on flashy things like marketing, branding and idea creation, while losing sight of your core business of sustaining social change. Remember, where there is no profit there is no purpose. No margin, no mission. Be sure that you don’t let startup cash take your attention away from the things that actually keep your business and your cause healthy.
3.) Do we really need the money?
I know this question sounds simple, but you’d be amazed at how ‘free’ money can stop you from thinking about all the ways you
may be able to boot strap your cause minded startup. For example, many companies offer a ‘pre-order’ option for their first product or service. Basically, this means you’d offer a product before you have it completely developed. Of course, you need to be honest about this, but I’ve seen many companies use this as a great way to build early buzz, a fan base, and ensure they have the funds before creating their first run of products.
Chew on those questions this week, and next week, we’ll start chatting about funding resources for social entrepreneurs. In the meantime, keep it real <>