Early Stage Social Enterprises: Read This Before Raising Grant or Equity Capital

When I look at my podcast download stats, one episode stands out: bootstrapping a social enterprise. It makes sense: finding grant money or equity investors takes a lot of time and effort, and it’s not guaranteed.

In my experience, there are pros and cons to spending all that time applying for grants or raising equity capital. At times, taking the bootstrapping route can be the better option, especially if your goal is scale. Here’s my breakdown of the pros and cons of finding and taking “free” grant money or raising capital early on.

Pros:

  • If you raise early capital, you don’t have to eat Ramen noodles while you’re building your social enterprise. You can pay yourself a reasonable salary, maintain a certain standard of living and maybe even enjoy a few luxuries.
  • Another advantage is that when you take capital from a big-name funder, like the Bill & Melinda Gates Foundation, you get a kind of credibility. It tells others that they’ve checked you out and you’re OK. This can add some clout to help you find future partners, like investors, universities and employees.
  • Early capital gives you the ability to hire a team, so you don’t have to do everything yourself from day one.

Of course, grants or equity capital can be your only option if you’re developing hardware, or something with a lot of upfront R&D cost. They also have a role to play in funding entrepreneurs from poorer backgrounds with a great idea. But if you do have an option, weigh the cons against the pros before you decide.

Potential cons:

When you take grant money, you’re beholden to your donor.

Your donor(s) will hold you accountable to certain deliverables and milestones; most of the time, you are agreeing to do certain things in exchange for the money. You’re doing those things because you have a theory of change — if you do certain things, people’s lives will be improved, which is what donors want. You’re agreeing to give up some flexibility in exchange for a grant. It has its obvious benefits, but it can be limiting. In reality, things can change. The best way to tackle the problem is not necessarily the one you started out with; your thesis might even change. If you’ve accepted donor money, it might be harder to adapt.

You’ll be pressured to focus on impact early on, rather than building a company.

In a successful social enterprise, the product or service comes before the impact. You need to build the car before you go the distance. If you’re too concerned with the impact early on, you might not be focused on what’s important — like whether the product is a good fit for the market. While demonstrating impact early on makes donors happy, it might not be the best thing for building a scalable business.

Elon Musk once said “The strategy of Tesla is to enter at the high end of the market, where customers are prepared to pay a premium, and then drive down market as fast as possible to higher unit volume and lower prices with each successive model.”

So focusing on impact too early would rule out this option of building a really good product or service, gaining a foothold in the market with higher-income customers, and then making your product or service much cheaper at scale.

When you take early capital, your costs will exceed your revenues.

I see this all the time: people raise capital, grow their team, but when the capital runs out, they can’t continue paying people. So they hop from one grant or investment round to the next without balancing their costs and revenue.

As a bootstrapped startup, it forces you to be disciplined about spending money. Hiring someone is a big decision because it increases the rate at which money goes out the door. Consider instead having received early capital. You have a healthy bank balance and hiring people is an easy decision to make. When the grant runs out, hopefully your revenues would have grown to meet your increased costs. If not, then it’s back on the cycle of raising funds, taking your focus away from building a product that people will pay for.

Raising grants and reporting to donors is a time sink for the whole team.

The process of raising grants is lengthy, and time consuming. First, there’s the task of researching donors. You need to painstakingly go through their website to find out whether they’re a good fit for your social enterprise. There are thousands of potential donors, so the common shortcut is to ask your peers and advisors for recommendations. Even this can be a slow process. Once you have the shortlisted donors in your sights, the next step is a long and drawn-out courting process. There’s hours of research to find out what they fund, how they fund, when they fund, and how to apply for funding. It may be that there’s an ‘open call’ for applications, so you need to spend hours preparing your application and then waiting for the results. You might fly out to conferences to meet them or try to find an introduction from your network. Finally, once you get the funding, there’s the due diligence process, the monitoring and evaluation forms to fill in, the narrative report to submit, the countless ‘check in’ calls and the visitors to host when the donor’s in town.

Ultimately, grants and investors can distract you from your business and customers.

Greg McKeown said in his book ‘Essentialism’ – “If you don’t prioritise your life someone else will.” As mentioned above, when you take grant money, you’re choosing to spend a considerable amount of time on the donor, rather than on your business. Early on, you should be learning all the jobs that are necessary to grow your business. You’re doing your finances so one day you can write the job description for a finance manager. You’re doing customer service, so one day you can write the job description for a customer service manager. You’re doing sales, product design, running an office, driving the delivery truck, onboarding new customers – the founding team needs to do everything in the early days. That’s a lot on its own, and it takes focus. Worrying about donors and investors only makes it more complicated.

Audrey Cheng’s Story of Bootstrapping Moringa School

Audrey Cheng is a successful founder who swears by the bootstrapping approach and is living proof that it can work.

Audrey spoke to me about her journey. It began while working for a Kenya-based investment firm. There she saw many founders seek funding too early. They ended up getting a really poor deal and having to give up huge chunks of their company because they weren’t showing enough growth. She’d also seen what grants had done to founders. She learned that grants could be quite distracting, taking away the discipline of selling and iterating a product with real customers.

When she started Moringa School, a tech skills accelerator in Nairobi, Kenya, she decided to do it differently. She worked a summer fellowship before starting, so she would gain more skills and enough money to start her company. She invested some of her savings into the company and kept some aside to cover her living expenses.

As with any new company, it was hard to get traction early on. She interviewed over 120 applicants for their first class of students. She finally convinced 4 high-quality students to pay the full tuition fees for her first cohort, and her startup was born.

She managed her accounts ruthlessly, taking courses in advanced excel and pushed herself to learn new skills quickly. Every dollar spent had to be justified. Moringa was focused on providing clear value to students from day one.

The experience taught her discipline. She ensured that every hire was a great addition to the team and that they would make a clear contribution to the bottom line. She wasn’t distracted by delivering milestones to donors or reporting back on ‘lessons learned’. Her team was lean and fully occupied.

When she went out to raise her first investment, it was from a position of strength. Moringa had reached a reasonable scale, her team was strong and they felt confident they could meet the expectations of donors and investors. The discipline she learnt from bootstrapping has made its way into the company culture and stands her in good stead for continued growth.

Final thoughts

This article aims to give early stage social entrepreneurs food for thought when considering raising external capital. But with writing and getting feedback, I’ve realised there’s so much nuance to explore. Such as the idea of giving grants to entrepreneurs from poorer backgrounds, as a more equitable approach to entrepreneurship and development. Or the effects on worker health and the environment when operating at lower costs. What is your perspective on this? Tweet it out or share it on LinkedIn to encourage debate amongst your peers. Or leave your comments below. Thanks to Satya Suri, Rachel Sklar and Audrey Cheng for reviewing this article.

The FIPx workshop space

Supporting social entrepreneurship in Kenya – a step towards FIPxKenya

What challenges are facing social entrepreneurs in Kenya?

That’s what we tried to find out in Nairobi a few weeks back. Whilst many social entrepreneurs were at the Sankalp Africa Summit 2019, Finding Impact was joined by Bethnal Green Ventures, with support from the British High Commission in Kenya, to deliver a workshop aimed at understanding the challenges facing social entrepreneurs in Kenya.

The event was specifically timed to speak to those local entrepreneurs who are not already tapped into the right networks and relationships that Sankalp offers. Not being tapped into the right networks and relationships is holding local founders back from accessing foreign impact capital, according to a recent interview with Andreas Zeller of Open Capital Advisors and a study from Global Accelerator Learning Initiative (GALI).

Despite a number of hubs and accelerators providing vital support and research for startups in the social entrepreneurship ecosystem, the space still seems largely fragmented. We wanted to bring a workshop to 30 Kenyan social entrepreneurs – all driven to build businesses that change their communities for the better – to connect with each other and provide the scope to explore some of the common challenges they are faced with.

We gathered a fantastic group of entrepreneurs and challenged them to challenge each other using a range of liberating structures and open space methods. Ahead of the event we gathered input from the participants as to what the three key challenges they experienced in getting their businesses off the ground.

Below is a rough overview of the key insights into the challenges:

Funding
  • Lack of funding for:
    • implementing changes from pilots
    • seed grants
    • scale up
    • equipment
    • building the team
  • Finding early stage capital in an already highly competitive market
Talent and skills
  • Finding and retaining talent, particularly developers
  • Financial management
  • High costs of hiring talent
  • Finding the right team – people bought into the mission
Business support & community
  • Lack of mentors and peer group
  • Lack of strategic networks
Procurement
  • Lack of government support in accessing funding, and sorting the relevant legal documentation
  • High taxes
Reaching your market
  • Marketing using the platforms that their target customer uses
  • Finding and onboarding strategic partners
  • Standing out in a crowded market
  • Large scale behavioural change
Technology
  • Tech not widely adopted
  • Infrastructure
Business model
  • Imbalance in funding various industries
  • Measuring impact of work
  • Revenue model to make it a profitable business for both the company and its users

The list is not exhaustive and only provides a rough snapshot of the challenges.

Following a brief overview, we continued with a scoping exercise, a simple canvas to draw on the experiences in the room and collectively brainstorm ideas to overcome some of the challenges. Whilst there are no hard-and-fast answers, the group came up with some interesting approaches and a wealth of resources that will help them take action when they get back to their businesses.

Feedback from attendees was overwhelmingly positive, with the interactive sessions giving the most value by far. The majority called for a longer, more frequent events, as opposed to a one off for just a few hours, maybe with guest speakers and investors to network with afterwards.

Considering online content from Finding Impact to help them on their social entrepreneurship journey, content was preferred via the following channels:

Where participants thought content should be shared

Note: the first 5 channels were given as suggestions, which skewed results.

One central takeaway for us is that creating a physical space for entrepreneurs to come together and collaborate is in huge demand and quite frankly incredible fun! But it has moved us closer to our goal of facilitating more connectivity between social entrepreneurs in Kenya. It might be only the first step in building a thriving ecosystem for social entrepreneurs but we’re excited to see what follows. Thanks to the British High Commission in Kenya for helping make this event happen, and Bethnal Green Ventures to lending their expertise in facilitating local social entrepreneur meetups.

For more information, reach out to Andy Narracott using the contact form

(photo: Workers doing maintenance, by World Bank, (CC BY-NC-ND 2.0)

Companies Have to Become Human Development Organisations

It’s safe to say that investing in your people is like investing in government securities – it leads to high returns. The workforce is any company’s most valuable asset—no matter what the size, location or even the industry.

In the Finding Impact podcast episode #04 we interviewed Michael Kuntz who talked to us about a unique way to keep a low-skilled workforce engaged and motivated. Michael had worked on this challenge which he saw working in Nigeria, where there was high absenteeism and frequent switching from one job to another. In his investigation into the problem, he found that low-skilled workforce development is a knowledge gap in the sector that needs to be filled. A business which has high margins or has a professional workforce can get away without giving too much attention to this, but early stage businesses which employ low-skilled workers can’t ignore it.

He talks about Generation Enterprise, an organisation he worked with that develops “street youth” into skilled workforce. There is a lot of youth flowing into the urban settings in the city but there are not enough opportunities for them if they don’t have the right skills. To solve this, they developed a model that unlocked the potential of youth to become agents of economic development and social change in their communities.

A few key insights from the interview emerged:

  • If you make training available to the workforce, they can acquire the skills needed to develop their capacities and grow not just professionally, but also as individuals.
  • Creating a stable working environment is important. Helping them see a career progression pathway helps them stick in their role.
  • Creating a feedback loop is essential, which allows employees to understand what they have done well or not, contributing to the personal development process.

There is a lot of great work being done by various social enterprises working to find ways to retain a low-skilled workforce. A few of them include – Samasource, Wave Academy, Kalibrr, DDD Africa.

At the end of the day our aim is to value our employees – they want to feel important, they want to feel like they’re a significant part of the organization. Attending to these needs and values results in not only positive feelings for the employees but also leads to lower staff turnover and increased job satisfaction, ultimately leading to higher productivity.

Never miss an episode! Subscribe to the Finding Impact podcast on iTunes or your favourite podcast player. A new episode comes out every Wednesday. Thanks for tuning in!

(Written by: Akanksha Khurana, Photo credit: Workers doing maintenance, by World Bank, CC BY-NC-ND 2.0)

Holding Hands, Yoel Ben-Avraham, (CC BY-ND 2.0)

Match Made in Heaven

We often find ourselves looking for “The One”. Let me guess what’s the first thing that comes to your mind – a loving relationship with your significant other? Well, this soul searching doesn’t end here; especially if you’re embarking on your social entrepreneurship journey. It also applies to finding the perfect co-founder, the perfect “founding other”.

In the Finding Impact Podcast Episode #27 we had David Auerbach on the show. David is co-founder of Sanergy – a social enterprise making hygienic sanitation affordable and accessible in Africa’s informal settlements. In the candid conversation, we talk about how to find the right co-founder and how to maintain a good relationship, how fortuitous it can be when you meet like-minded individuals, the importance of investing in good manpower and the effectiveness and efficiency in a team. In this blogpost, you’ll find the answers to many of your founder-related questions in a nutshell.

For new and existing founders alike, David gave the following suggestions:

  • Keeping a solid union with the co-workers is necessary along with meeting and communicating regularly with one another. It is said that the relationship between you and your investors is like a marriage, but this is even more true for a co-founding team.
  • Get comfortable with how decisions are made as a team. Ask yourself – are you happy with the process when you make tough decisions? The decisions you make today, define your tomorrow – so this is definitely a very significant aspect because a lot of times there is resentment around how decisions are made.
  • As the work gets more sophisticated, it becomes relevant to raise money and hire the right people who specialise in particular roles.
  • A lot of times, co-founders get caught up in equity decisions really early on. It’s important to keep it fair and transparent – and remember there is no ideal way of doing it.
  • He also suggested a few tactics to maintain a healthy relationship, such as, keeping an open mind and listening to different views and opinions. Understanding how outsiders think of the business is a good way to grasp a third person’s perspective. And lastly of course, it is so very important to have fun together besides work, this could be going for outdoor activities, enjoying meals outside, family get togethers, and more.
  • Early on in the founder’s journey, you’ll no doubt do a bit of everything. But as the needs of the business expands and grows, it becomes more and more important for founders to move into specialised roles, and hire people with specialist skills.
  • Having a co-founding team is like having a relationship. There will be ups and downs, there would be misunderstandings and miscommunications, but if you’re willing to focus on the bigger picture and if you really want to solve the issues, then congratulations you have found “the one”!

And like any marriage, it’s important to have a healthy relationship with everyone else in the house i.e. the rest of the team!

Never miss an episode! Subscribe to the Finding Impact podcast on iTunes or your favourite podcast player. A new episode comes out every Wednesday. Thanks for tuning in!

(Written by: Akanksha Khurana, Photo credit: Holding Hands, Yoel Ben-Avraham, CC BY-ND 2.0)

The Launch of the Finding Impact Podcast

Today is a very special day.

I first got the idea for launching something around my passion – social entrepreneurship – in June 2016. I didn’t quite know what it would be, but I was curious of where people’s attention was going. It used to be the TV and traditional print media like magazines and newspapers. Heck, before that it was even radio. Now something different is happening: the creation and distribution of media is diverging. Attention is going from the laptop to mobile, and with it, to Snapchat, Instagram, Facebook, YouTube, Twitter, Periscope, iTunes and many others. What this means is that anyone can be a content creator. Not just TV execs and Murdoch.

So why not have a go I thought?

I would do YouTube videos and document life in Nairobi. I’d visit social entrepreneurs in their environment and talk to them about their businesses. In the end, after shooting a few videos, including one around the Trump election, I quickly moved onto the idea of a podcast. I could interact with so many more social entrepreneurs, recording calls over Skype, and creating videos as a side feature.

And so The Finding Impact Podcast was born.

Podcasting is becoming bigger and bigger, and way more available than ever before. And the beauty is, you can listen while in the gym, commuting to work, or washing up the dishes.

And so in December, I set about learning how to build a website and launched a design contest for my logo. I put the two together, and hey presto! The website is looking pretty sexy don’t you think?

So I’ve launched the podcast today on iTunes, and it’s also available on Stitcher and Soundcloud.

I’d love for you to subscribe to the show on iTunes. There are already three episodes available to listen to – with another due out next Wednesday (and every Wednesday going forward!).

PLUS: I’ve got a competition running all this week to help celebrate!

Ratings and reviews help out the show… A LOT. Plus, it totally excites me to read your reviews! To celebrate launch week, I’ll be giving away a free, Limited Edition Finding Impact T-Shirt every day through Wednesday 1st March.

How to Enter The Launch Competition

  1. Leave a Rating and Review for the Finding Impact Podcast on iTunes.
    Take a screenshot, or pic of your review as you’re posting it.
  2. Post the image on TWITTER along with the hashtag #FindingImpact
  3. That’s it! This make’s it easy for you to submit and for me to find them. I’ll randomly select a new winner at the end of each day from now through March 1st for the T-Shirts.

Note: Winners will be contacted through Twitter.

To say I’m excited about the Finding Impact Podcast would be an understatement.

It’s my goal, my mission… to make the Finding Impact podcast and online resource something that changes the lives of thousands and thousands (hell, why not say millions!) of social entrepreneurs and the people they serve around the world in the coming years.

Thanks, as always for being here.

finding impact podcast

Announcing the Launch of The Finding Impact Podcast on 22nd February 2017

I can’t help it – I’m excited!!

The Finding Impact Podcast is going live on 22nd February.

On this podcast, I’ll be interviewing those that have out-sized experience in dealing with a particular challenge that social entrepreneurs face. Plus specific “How-to” strategies for identifying, building and scaling social enterprises, and much more.

Future podcast topics include:

  • Raising money for your social enterprise
  • Customer service systems
  • Assessing credit worthiness
  • Revenue collections
  • Talent recruitment
  • Reaching the next level of scale
  • Maintaining quality whilst scaling
  • In-country manufacturing assistance
  • Prioritizing fundraising vs. competing demands
  • Investing in staff and employee retention
  • Strategy development

Mark 22nd February in your calendar!

More soon…

The curtains open, let the show begin

Hey everyone. Hello to those who I’ve reached out to directly, or have found me through Facebook, or who just know me.
I can’t thank you enough. The support I’ve received in launching this website and The Finding Impact podcast has been overwhelming. I don’t always expect this ride to be plain sailing though. I’m putting myself out there so I’ll undoubtedly piss a few people off. But let me say that I don’t pretend to be an expert. I’m a helper. And if there’s one thing I’ve learned it’s that helping others first is always the right thing. It pays back in so many ways. I aim to serve all the social entrepreneurs out there who are also in the arena, daring greatly, and believing they can make a dent for the better in this world. So this website is my personal support to all the entrepreneurs working in social enterprise – which I believe, by the way, is the most effective way to make the world a better place.
This website has come about because I see a gap. I see so many one-to-one conversations happening between social entrepreneurs. People make a connection – often through chance – and they have a call, take some notes, and hope to use that information to overcome a challenge they’re having right now. Sometimes people won’t talk too much because they’re protecting their hard work of getting to where they are. I know it, I’ve been there.
So I’m going for a different tack: a one-to-many model. In other words, I’ll be interviewing people on my podcast who’ve had some success in a particular social enterprise challenge, and I’ll be sharing that conversation with the world.
So FindingImpact.com and The Finding Impact Podcast are for you. I’m going to be interviewing some great guests who have out-sized experience in one particular area of creating massive impact through social enterprise. There’s a diamond in their brain and my questions are the pick axe. I’ll be bringing out a new episode every week, along with show notes and links to helpful resources that came up in the interview. Whilst the podcast will aim to be the pillar, I’ll also be trying my hand at video. YouTube will be my playground so I hope you’ll indulge me. Also you can hop on over to my Facebook page so we can stay connected, if that’s your medium. Or if Twitter’s your thing, tweet me here (I know, the options are crazy.) Above all else, I recommend leaving your email in the box below, which is a very easy way of staying connected. And I will guard your email address with my life. Trust me 🙂
So my band of brothers and sisters, continue to do great work. I’m here for you. Tell me what you’re struggling with right now so I can get the right person on the show. Or if you know of someone or an organization who’ve really nailed something and you want to hear from them, tell me.
You’re all brilliant. Let’s get this party started.