Funding social enterprise startups

‘ While sustainable finance is at the heart of the survival of any business, social enterprises have to trudge along with little or no reliable sources of funding

We often come across statements like, “finance is not the most important problem of small businesses”. It may well be so but there are alternative views, which contend that finance is the least of the problems of small business. Whatever the argument, without adequate finance, the small business may not even stand a chance to be small.

Finance is always a big issue in business enterprises, big or small, economic or social, especially at the early stages of their existence. No matter their focus – for profit or not, finance is critical for startups. Although the same challenges confront all small businesses, when it comes to capitalization and financial partnerships, they tend to be amplified for social enterprises. By their very nature, small businesses often start off with the private funds of the owner, or funds sourced from friends and family. As a result, and coupled with other disabilities associated with startups, most social enterprises are small and individualized. Some start with little or no capital and operate with resources that barely support meaningful existence. Nonetheless, the importance of adequate capital in the successful operation of a social enterprise, or any kind of business, cannot be overemphasized.

The idea of Social enterprise is now like a buzz word, and many people are getting involved, which is a good thing. In fact, there seems to be an explosion of enthusiasts, with genuine commitment to help in resolving the socioeconomic and environmental problems around them. However, many of them are coming with their own personal limitations that further handicap them in the achievement of their objectives. Such limitations include low technical capacity of the key men driving the vision of the enterprises; especially in terms of management training and experience, and fund-raising skills. This, and the fact that social enterprises are not profitable enough keeps them from accessing the financial markets for funds. The result is that social entrepreneurs are forced to looked to charity as their traditional funding source. The unsustainability of this funding model is at the heart of the limitations keeping social enterprises from achieving their objectives.

Many social enterprises are unable to sell their vision to the relevant publics. They have good objectives, which are poorly presented and unattractive to potential partners. Clarity of vision and mission is essential for attracting the right financial partners. Not only is there some kind of fatigue among donors, there is also a continuing global economic crisis that makes such financial sources less available. The whole world is currently immersed in the battle to restart the global economy following untold devastation levied on it by the pandemic. Under the circumstances, charity is not at its highest ebb. Therefore, while sustainable finance is at the heart of the survival of any business, social enterprises have to trudge along with little or no reliable sources of funding.

Some of the factors that are critical to effective fund raising are knowledge, skill and understanding of time. Indeed, there are some skills that every startup promoter needs to effectively raise capital. The promoter must understand the place of time in fund raising. It is not only time-consuming but if approached at the wrong time, failure is assured. For a going concern, fund raising must be executed in such a way as not to impair or even ground the business operations, while it lasts. Effective capital sourcing begins with the production of a list or register of potential investors - people and entities considered likely to be interested in the line of business for which funds are being sought. This may be a list of business partners, friends and acquaintances, or just contacts volunteered by friends of the promoter. This list is vetted on the basis of certain criteria to be developed by the promoter,