FINANCING OF SOCIAL ENTERPRISE/SOCIAL ENTREPRENEURIAL

VENTURES

The nature of organizations that address social problems differs. Essentially, the "social
entrepreneurship spectrum" encompasses for-profit businesses with social or environmental
goals and charitable organizations that engage in commercial activity. These ventures are
self-sustaining and economically viable, also reflected in their mission statement.

Funding considerations differ depending on the type of social entrepreneurial venture. The
appropriate kinds of finance may vary based on opportunities, limitations, and the stage of the
company's development.

This article focuses on the funding agencies.

The Evolution Curve of Social Entrepreneurial Venture/ Social Business.

1. Pre-seed stage ( from ideation to validated problem/solution fit)

 The Social entrepreneur has now determined a business opportunity and a social issue
that has to be addressed. Furthermore, they may have already conceived of an early
sketch of a business plan and a preliminary, rough value proposition for the target
market. During this phase, the objective is to "leave the building" and gain firsthand
knowledge from the field while verifying and testing the most tentative and risky
assumptions.

For social entrepreneurs in their early stages, grants, bootstrapping, and financial
assistance from friends and family are the most likely sources of finance.

2. Seed/Startup Stage ( from MVP to validate product/market fit)

The most precarious assumptions in the value proposition and business strategy have already
been proven true when social firms reach this growth stage. Building replicable sales
roadmaps and starting to drive market demand are the next steps. More fuel is therefore
required. Crowdfunding, angel investing, and seed money are appropriate funding
alternatives for this stage. The impact investors seek both social impact and financial
returns. During the seed stage, social businesses typically approach early-stage impact
investors and seed venture capital firms/funds. Venture capitalists specializing in seed
funding typically collaborate with incubators and accelerators. Incubators and accelerators
provide professional services, including mentoring and teaching, to a limited group of
entrepreneurs. They give access to impact investor networks as well. Crowdfunding
traditionally comes in 3 forms: reward-based, with campaigns to keep validating the market
and pre-sell a product/service; debt-based, also known as peer-to-peer lending; and equity-
based, where backers pledge to receive a share of the company.

3. Growth & Scale Stage ( from validated business model to full scale-up)

A social business that has reached the third stage will have a strong business plan and a valid
business model. It is so prepared to grow both its impact and its actions. In this Stage, Social
Entrepreneurs go for debt and venture capital, and many other financing options are
available.
 Social Enterprises/Social Entrepreneurial Venture

American School of Thought European School of Thought

The Social The Social Enterprise The EMES The UK
Innovation School School Network Approach
Approach
Unit of Social Enterprise Enterprise Enterprise
observation Entrepreneurs/Indi
vidual
Mission Mission is at the Social goals have the Explicit aim Social
core priority to benefit the Obejective are
society given priority
Linked Direct Direct/Indirect Direct Direct/indirect
Mission Commercial
activities can be
undertaken to
achieve Social
Objective

Legal No Constraints can Non-Profit Focus on No

Structure form Profits, non- new specific Constraints
profit, or hybrid legal form
Innovation Pre- requisite Not emphasized Not Not
Emphasized Emphasized
Profit No constraints Constraints Limited Limited
Distribution Constraints Constraints
Governance Not Emphasized Not Emphasized Multiple Multiple
Stakeholders Stakeholder
engagement involvement
emphasized Recommended