It’s no question that among the litany of things that can make running a social enterprise a challenge, financing is chief among them.
Especially as entrepreneurs navigate their way towards growth and sustainability they often need to explore different funding models or strategies to help them avoid turbulent financial times. Sometimes that means slow and steady growth, it may mean a need to tackle more robust partnerships to build trust or looking for funding outside of traditional grants.
Devex spoke with a few social entrepreneurs to get their insights on how to make enterprises, and their finances, more sustainable. Here’s what they had to say.
Start with a small budget
Social entrepreneurs often often hold back on an idea as they wait for a large chunk of startup capital. But the key to getting started is to start small, said Seun Onigbinde, founder of BudgIT.com, a social enterprise that uses different tech tools to simplify government budget and matters of public spending in Nigeria. Onigbinde started small — with his personal savings — before approaching the Indigo Trust for 5,000 pound ($6,311) grant to test-run his idea. Starting small and experimenting allowed him to grow at the right pace and eventually opened up doors to bigger donors.
Sometimes accelerators, which provide mentorship and funding throughout the pilot phase and give entrepreneurs an opportunity to pitch themselves to donors and investors, can also be a good way to find risk-tolerant capital, he said.
Not all money is good money
Social entrepreneurs need to say no to some funding opportunities in order to stay true to their organization’s mission.
“Sometimes we meet donors who are interested but we step back if our focus do not align,” Onigbide said. “We are always very careful about who we are raising [funds] from.” This has enabled them to continue to innovate without falling prey of some restrictions often associated with certain types of funding, he added.
Jacob Lief, the founder of Ubuntu Education Fund, was one of the few social good leaders to make Fortune Magazine's 2016 "40 Under 40." Lief, who hasn't always made the traditional choices, shed light on his journey, on setting his own rules, and on developing what has become an internationally recognized model for community development in a recent interview with Devex.
Jacob Lief, founder of Ubuntu Education Fund, which provides household stability, health, and educational services to 2,000 orphaned and vulnerable children in Port Elizabeth’s townships in South Africa, shares Onigbinde’s perspective.
“NGOs need to stop collecting all the money that comes their way as a way of putting a check on funders,” Lief said.
And he speaks from experience — he once turned down $10 million in funding to expand the Ubuntu model to a new city, which wasn’t in line with the priorities of the organization. Focusing on high net worth individuals willing to give unrestricted capital has been more sustainable than other methods of fundraising for him, Lief said.
To gain access to high-level philanthropists and institutional investors, social entrepreneurs need to build strong partnerships with other organizations and peers in the field, which can help validate and build trust in their work.
“People don't just invest in ideas, [they also] invest in people,” Onigbinde said. This means that before a funder can invest in your ideas, they have to see that you have the passion and clear head to push your ideas through and it is the partnerships and synergy that you build over time that can attest in your favor, he said.
Of course, this does not rule out the importance of having strong leadership skills, integrity and business acumen.
Communicate honestly with investors and donors
Social entrepreneurs need to be open and honest with investors and donors and develop robust, rather than subservient relationships. Donors and investors may have a strong investment of funding allocation know-how but social entrepreneurs need to challenge them as equal partners. This is where it becomes imperative for social entrepreneurs to communicate clearly about what they do to investors.
“We talk about our failures and our mistakes. We need people to understand honestly what is happening on the ground,” Lief said. As more NGOs have these honest conversations with donors, the latter get a better understanding of the dynamics involved in implementing social change projects. This in turn would enable them entrust more NGOs with the funds needed for social good instead of trying to control the outcomes.
Diversify or create a for-profit venture
For some nonprofit social enterprises the answer to developing sustainable funding streams may be breaking away from a dependence on donors and exploring funding outside of grants.
The quest not to restrict their source of funding to grants is what compelled Onigbide and his team to create BudgIT.co, a company specialized in producing infographics and data analysis for other organizations. This service currently makes up 12 percent of their NGO’s annual revenue and generates up to $100,000 per year.
Other revenue generation models — be it crowdfunding, loans or internally-generated income through service fees — are also options.