Social Entre 101: venture capital
Last week in social entre 101 we talked about crowdfunding. (if you missed it, click here to check out the audio version) If crowdfunding platforms are an amateur sport, venture capital is where the professionals go to play. That’s not to say you shouldn’t explore this option as a new startup, but it is a game that is played by a vastly different set of rules than the crowdfunding game. If you’ve never heard of venture capital before, it’s essentially where someone (or some business) has a lot of free cash to invest. They then give you that cash so you can build a product, pay salaries, market, or anything else you need to do to get your business off the ground. In exchange for this cash infusion, the investors will want to take a percentage of your company. That percentage will vary depending on the amount of money invested and how generous the investors are.
Make no mistake, venture capitalists are primarily in this game to generate big financial returns for themselves. This means they’ll only invest in you if you convince them that you have a good chance of building a profitable company. Fortunately for us, a new generation of socially minded investor is entering the market. These cats will still be giving you money to get a big financial return for themselves, but they are also genuinely interested in the social impact you will make.
One of the biggest benefits of venture capital will come in the form of mentorship. Because these investors have an interest in seeing your company succeed, they will usually come on board to mentor you as you grow your cause-based business. When you are negotiating with them, you’ll have the ability to propose the terms on how much mentorship will be involved. In my opinion, the mentorship and networks created by a strong investor relationship can be even more valuable than the money itself. If you go after venture capital, be sure you build mentorship in as part of the agreement.
Important note: My mission in this section is to talk about the unique needs you’ll have as a social entrepreneur seeking venture capital. But I’m not a venture capital expert; you need to get your hands on more exhaustive resources if you go down this road. I recommend The Entrepreneurial Bible to Venture Capital by Andrew Romans. It’s a proven resource that’ll get you all the tools you need to understand the world of venture capital. Another great book on the subject is: What Every Angel Investor Wants you to Know by Brian Cohen.
Once you have that understanding, you’ll be happy to know that there are venture capital funds out there specifically geared toward finding and funding cause based businesses like ours. Let’s have a look at the top five:
Note: this list is constantly growing, so I keep all my resource lists up to date athttp://www.socialchangenation.com/resources/)
1.) Acumen Fund – This is one of the best known cause driven investment funds out there. It’s also one of the more competitive, but if you’re working to create social good in Latin America, Africa, India, or Pakistan, you can’t beat having these cats in your corner. Even if you’re not going to be working in these regions, I’d highly recommend reading up on Acumen because they have some great resources and insight on social enterprise investing.
2.) Investors Circle – This is the largest and most active investor in early stage social entrepreneurs. I also really like that they serve as a ‘matchmaker’ of sorts to pair social entrepreneurs with investors that best fit them. With $200 Million invested in over 300 social ventures, these cats are definitely worth looking into.
3.) Good Capital – Investments primarily focus on ventures that seek to create innovative, market based solutions to poverty and income inequality. They are especially notable for their network of mentors and investors who can help you not only with cash, but with guidance.
4.) City Light Capital – I really like this crew. Many of them were traditional financial advisers who were deeply impacted by the events of 9/11. Those events caused them to shift gears and start investing in resolving society’s most pressing problems. The result is a caring team of investors who have a nose for sniffing out entrepreneurs ready to make a dollar AND a difference.
5.) Skoll Foundation – This foundation isn’t a traditional venture capitalist, rather, they tend to issue grants (which don’t take a portion of your company), below market rate loans, or some combination of both. Better yet, Skoll is one of the best known names in Social Entrepreneurship. Their network is phenomenally robust, but be ready for increased competition.
Let me know as you have questions on this, and keep it real.
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