Chapter 10

Managing the Financial Side of Social

Ventures

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 Managing the Financial Side of Social Ventures

• Learning Objectives
• 1) Describe the importance of raising capital for social ventures
• 2) Identify sources for raising capital for social ventures
• 3) Learn how to manage social venture finances
• 4) Develop skills to assess the financial viability of a social venture

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 Managing the Financial Side of Social Ventures

• Raising Capital for Social Ventures

• Social ventures need capital to start their activities.
• Financial needs depend of types of social ventures (purely philanthropic, hybrid or
commercial).
• Financial management deals with two types of activities:
• Raising money
• Managing a firm’s finances in a way that yields the highest positive return on
investment.

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 Managing the Financial Side of Social Ventures

• Raising Capital for Social Ventures

• The financial objectives of a firm are fourfold:
• 1) Profitability.
• 2) Liquidity.
• 3) Efficiency.
• 4) Stability.

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 Managing the Financial Side of Social Ventures

• Raising Capital for Social Ventures (cont’d)

Table 1. Comparing the Financial Objectives of Commercial and Social Ventures

Financial Objectives Commercial Ventures Social Ventures

Profitability Ability to earn a profit. Ability to generate a surplus.
Ability to grow and prosper. Ability to be sustainable.
Ability to remain viable and provide positive ROI.
Liquidity Ability to meet short-term obligations. Ability to meet short-term obligations.
Carefully track inventories and accounts payable. Ability to generate earned income, revenue through
grants and/or donations.
Efficiency Effective utilization of assets relative to revenue Effective utilization of assets related to earned
and profits. income, revenues from grants and/or donations, and
surplus.
Stability Strength of financial situation Strength of financial sustainability
. Make profit . Have resources available to meet social mission
. Remain liquid . Spend cash wisely
. Keep debt in check
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 Managing the Financial Side of Social Ventures

• Raising Capital for Social Ventures (cont’d)

Table 2. Potential Sources of Funding for Social Ventures

Personal Relationships Grants Fellowships Crowdfundin Angels/Venture Loan

Resources g Capitalists Providers
Saving accounts Family members Social Acumen Fund, Kiva, CauseVox, Blue Ridge Calvert
Credit cards Friends innovation Fund, Ashoka, Change.org, Foundation, Calvert Foundation,
Personal lines of Contacts and Kaufman Echoing Green, Chase Community Group, Good ShoreBank,
credit referrals Foundation, Skoll Foundation, Giving, Capital, Gray Ghost Triodos Bank,
Home equity line of Do Something Unreasonable Pepsi Refresh Ventures, Investors’ Partners for the
credit org, Google Institute Project, Circle, Common Good,
Grants Kickstarter Mission Markets Wainwright Bank
 

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 Managing the Financial Side of Social Ventures
• Raising Capital for Social Ventures (cont’d)
Table 3. Selected List of Social Entrepreneurship Fellowships
Fellowship Programs for Social Entrepreneurs
Acumen Fund Global Fellows Program
Ashoka Fellowship Program
Aspen Institute First Movers Fellowship Program
Draper Richards Kaplan Foundation
Echoing Green Fellowship
IDEO Fellowship Program
Kiva Fellowship
Web address
http://acumen.org/leadership/global-fellows/
http://usa.ashoka.org/nominate-ashoka-fellow
http://www.aspeninstitute.org/policy-work/business-society/corp
orate-programs/first-movers-fellowship-program
http://www.drkfoundation.org
http://www.echoinggreen.org
https://www.ideo.org/fellows
http://www.kiva.org/fellows
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 Managing the Financial Side of Social Ventures
• Raising Capital for Social Ventures (cont’d)
Table 3 (cont’d). Selected List of Social Entrepreneurship Fellowships
Fellowship Programs for Social Entrepreneurs
Schwab Foundation for Social Entrepreneurship
Skoll Foundation
Social Venture Partners
Stanford University Social Innovation Fellowship
Unreasonable Institute Fellowship
Wharton Social Venture Fellows
Web address
http://www.schwabfound.org
http://skoll.org/
http://www.socialventurepartners.org/get-involved/encore-fellows
http://www.gsb.stanford.edu/stanford-gsb-
experience/academic/social-innovation/fellowships/sif
http://unreasonableinstitute.org
http://whartonsocialventurefellows.org
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 Managing the Financial Side of Social Ventures

• Raising Capital for Social Ventures (cont’d)

Table 4. Examples of social venture funds

Funds Website
Aavishkaar http://www.aavishkaar.in
Acumen Fund http://www.acumen.org
Grassroots Business Fund http://www.gbfund.org
Gray Ghost Ventures http://www.grayghostventures.com
Omidyar Network http://www.omydiar.com
Renewal 2 http://www.renewafunds.com
RSF Social Finance http://www.rsfsocialfinance.org
Root Capital htpp://www. rootcapital.org
Shell Foundation http://www.shellfoundation.org
Triodos Bank http://www.triodos.com
Venturesome Fund http://www.cafonline.org/venturesome

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 Managing the Financial Side of Social Ventures

• Raising Capital for Social Ventures (cont’d)

Table 5. Examples of Crowdfunding Platforms Platforms Web address Focus
Bandstocks www.bandstocks.com Musicians
BKR www.bkr.nl Profit and non-profit
Cameesa www.cameesa.com Fashion design
Catwalkgenius www.catwalkgenius.com Fashion design
Createfund www.createfund.com Non-profit
Crowdaboutnow Crowdaboutnow.nl Profit and non-profit
IndieGoGo www.indiegogo.com Entrepreneurs and artists
Fundable www.fundable.com Non-profit
Grow VC http://www.growvc.com Financial services
Kapipal www.kapipal.com Non-profit
Kiva.org www.kiva.org.com Entrepreneurs and artists
Kickstarter www.kickstarter.com Entrepreneurs and artists
Sellaband www.sellaband.com Musicians
Slicethepie www.slicethepie.com Musicians
Tenpages www.tenpages.com Artists and writers

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 Managing the Financial Side of Social Ventures

• Raising Capital for Social Ventures (cont’d)

• Bootstrapping in Social Ventures
• Bootstrapping refers to finding ways to avoid the need for external funding.
• It is usually done through creativity, ingenuity, thriftiness, cost-cutting, or any
means necessary.
• Bootstrapping is a form of bricolage.
• Resource constraints push social entrepreneurs to find new ways for funding
their social ventures.

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 Managing the Financial Side of Social Ventures

• Raising Capital for Social Ventures (cont’d)

• Microfinance and Social Ventures
• Microfinance refers to the provision of financial services to populations
typically excluded by mainstream banks and represents a social innovation to
alleviate poverty.
• Microfinance was conceived as an alternative to mainstream financing.
• It is now a major industry with thousands of organizations serving about 155
million clients worldwide.

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 Managing the Financial Side of Social Ventures

• Raising Capital for Social Ventures (cont’d)

• Social Finance and the Funding of Social Ventures
• Social finance refers to the supply of capital to charities, social ventures, and
businesses with a social mission.
• An approach to managing capital that yields social dividends as well as economic
return.
• Includes five major components:
• 1) Microfinance
• 2) Social impact bonds
• 3) Sustainable businesses
• 4) Social enterprises lending
• 5) Grants

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 Managing the Financial Side of Social Ventures

• Managing the Financial Side of Social Ventures

Table 6. The Process of Financial Management
Historical Financial Forecast Proformat Financial On-going Analysis of
Statements Statements Financial Results
Income statement Income Pro forma income statement Ratio analysis
Balance sheet Expenses Pro forma balance sheet Measuring results against
Statement of cash flow Capital expenditures Pro forma statement of cash plans
  Note: should be preceded by flow Measuring results against
an assumptions sheet   industry norms

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 Managing the Financial Side of Social Ventures

• Managing the Financial Side of Social Ventures

• Income Statement
• Reflects the results of the operations of a firm over a specified period of time
and generally prepared on a monthly, quarterly, or annual basis.
• Describes revenues generated, costs associated with those revenues, and
resulting net profit or loss, the difference between the firm’s revenues and its
expenses during a specific time period.
• Key numbers to track on an income statement include net sales, cost of goods sold,
and operating expenses.

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 Managing the Financial Side of Social Ventures

• Managing the Financial Side of Social Ventures

• Balance Sheet
• Describes what the business owns and owes at a specific period in time. In a
typical balance sheet, assets are listed in order of their liquidity.
• An important aspect is that a balance sheet must always balance, that is: Assets
= liabilities + owners’ equity.
• Helps to answer two fundamental questions:
• 1) Does the firm have sufficient short-term assets to cover its short-term debt?
• 2) Is the firm financially sound overall?

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 Managing the Financial Side of Social Ventures)

• Managing the Financial Side of Social Ventures (cont’d)

• Balance Sheet (cont’d)

Table 7. Explanation of the Key Elements of a Balance Sheet

Assets Liabilities + Owner’s Equity
Current assets Current liabilities
Cash + items that are readily convertible to cash Obligations payable in a year, accounts payable,
Fixed assets accrued expenses, current portion of long-term debt
Long term assets, such as buildings, equipment, real Long-term liabilities
estate, furniture Notes or loan payable beyond one year
Other assets Owners’ equity
Example: accumulated goodwill Equity invested by owners + retained earnings
 

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 Managing the Financial Side of Social Ventures

• Managing the Financial Side of Social Ventures (cont’d)

• Statement of Cash Flow
• Summarizes changes in a firm’s cash and expenses for a specific period.
• Three activities to consider:
• 1) Operating activities (net income, depreciation, and changes in current
assets and liabilities),
• 2) Investing activities (purchase, sale, or investment in fixed assets),
• 3) Financing activities (cash raised by borrowing money or selling stocks or
cash used in paying dividends).

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 Managing the Financial Side of Social
Ventures
• Assessing the Financial Viability of a Social Venture
• Applying Financial Ratio Analysis
• Examples of Financial Ratios:
• Gross surplus = Revenue – expenses
• Gross surplus margin = Gross surplus/Revenue
• Net surplus margin = Net surplus/Revenue
• Working capital = current assets – current liabilities
• Current ratio = Current assets/current liabilities
• Total debt-to-assets ratio = Total debt/Total assets
•

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 Managing the Financial Side of Social
Ventures
• Assessing the Financial Viability of a Social Venture (cont’d)
• Determining the Financial Risk of Social Ventures
• Can help to mitigate the financial risks that a social venture may face.
• A nonprofit is financially vulnerable if it is in the lowest quintile of at least two of
the following four ratios:
• 1) Net assets
• 2) Administrative costs
• 3) Revenue sources
• 4) Operating margin
•

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 Managing the Financial Side of Social
Ventures
• Assessing the Financial Viability of a Social Venture
(cont’d)
• Determining the Financial Risk of Social Ventures (cont’d)
• Financial Viability Index (FVI)
• Include the following components:
• 1) A significant reduction of net assets
• 2) The removal of programs
• 3) A significant reduction of revenues
• 4) Insolvency (total liabilities exceeding total assets

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