By: Doris Baxley*
In an increasingly global community, more entrepreneurs are considering how their work can impact other parts of the world and help other individuals outside of their borders. While many social entrepreneurs are taking on noble causes and assisting individuals across the world, they often encounter difficulties acquiring funding due to the nature of their work. However, there are several foundations and government agencies that offer funding and assistance to social entrepreneurs. If you are considering starting a business that falls within the definition of social entrepreneurship, you should consider taking advantage of these opportunities.
What is Social Entrepreneurship?
Social entrepreneurship is the creation of business enterprises and companies designed to develop or assist cultural and societal issues. Social entrepreneurs may be in ‘standard’ or ‘typical’ businesses or they may be in the non-profit arena. Many social entrepreneurs are young individuals who are addressing complex global issues. The advent of popular social network sites, such as Facebook and Instagram, has contributed to the rise of social entrepreneurs.
Forbes Magazine and Business Insider are two respected business magazines that now create lists of top social entrepreneurs to watch in the upcoming years. Stanford University publishes a journal, the Stanford Social Innovation Review, which addresses developments in the social entrepreneurship field. Established Fortune 500 companies, such as Google, are investing money into social entrepreneurship ventures. This indicates that social entrepreneurship is a quickly developing area of business.
Funding for Social Entrepreneurs
The first hurdle for most start-ups is raising capital. For start-ups that are trying to affect social or cultural change, this can be a significant barrier to entering the marketplace.
Some venture capitalists are less likely to fund social entrepreneurs ideas due to concerns about immediate profits and runways. Typical businesses are viewed as a ‘safer’ bet for people looking to invest, because social entrepreneurs are not market-based price-driven companies. Harvard researchers have found that hybrid businesses run by individuals, such as social entrepreneurs, sometimes confuse venture capitalists because they don’t fall into ‘standard’ categories of funding. Because of the risk-adverse character that most venture capitalists and investors generally have, it can be more difficult for social entrepreneurs to get standard funding.
However, several foundations and government agencies provide funding opportunities for individuals who are using their businesses to affect global change. Many social entrepreneurs can fall into categories for federal government grants. In the private sector, several foundations provide opportunities for social entrepreneurs to qualify for fellowships that provide mentoring and funding opportunities.
Different Funding Strategies
Social entrepreneurs should consider employing different funding strategies to maximize their ability to raise capital.
Many social enterprises view investors as ‘donors.’ This can be attractive to investors because they are able to publicize their investments as donations. In some situations investors may be able to write off these investments as donations on their income taxes. Some social enterprises allow investors to serve as equity holders, with levels of donations (ex: Gold Level Supporters).
Some social enterprises employ quasi-equity debt structures. This is particularly attractive to non-profit social enterprises because they are limited in their ability to obtain equity capital under the law. Social entrepreneurs should consult with attorneys before establishing quasi-equity debt structures.
Employing different funding strategies can be beneficial for social entrepreneurs because they allow for capital to be raised in a way that is attractive to both investors and entrepreneurs.
Government Funding Opportunities
Several government agencies provide grants to social entrepreneurs. These grants often come with conditions, but are beneficial because they are interest-free and backed by the US Treasury Department. If possible, entrepreneurs should take advantage of government grants.
For example, the Environmental Protection Agency (“EPA”) provides environmental justice grants to social entrepreneurs who are trying to affect positive environmental change. In 2017, the EPA awarded multiple environmental justice grants and guaranteed at least one grant to each state. These grants were guaranteed by the US Treasury Department and were interest-free.
Government grants come with several strings attached, however. Social entrepreneurs should make sure that they qualify for government grants and that they are able to comply with grant conditions prior to applying to agencies for funding.
Private Funding Opportunities
Several private non-profits and foundations provide funding to social enterprises and social entrepreneurs.
The Bill & Melinda Gates Foundation offers loan guarantees to social entrepreneurs to help them meet their goals and qualify for more ‘traditional’ sources of funding, such as bank loans. These loan guarantees are not direct funds. However, they allow entrepreneurs to leverage donations and loans.
Another example of a private organization supporting social entrepreneurs is Echoing Green. Echoing Green is a foundation and venture capitalist organization that provides fellowships to young social entrepreneurs. The Echoing Green Fellowship Program provides leadership and IT support to social entrepreneurs. It also gives them the opportunity to meet with other individuals with similar goals and ideas. Seventy percent of social entrepreneurs funded by Echoing Green are still in operation today.
Private funding can be attractive to social entrepreneurs, as it may allow entrepreneurs access to greater amounts of funding immediately.
Overall, entrepreneurs should consider employing different funding schemes and applying for private and government fellowships and grants. These different opportunities allow social entrepreneurs to raise the most capital possible to achieve their goals.
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*This post was checked for currency on August 14, 2018 and reproduced with permission by author Doris Z. Baxley. Original post can be found here.
Doris Baxley, at the time of this post, is a third year law student at Penn State’s Dickinson Law. A Clemson grad, she is from Columbia, South Carolina. Doris is interested in corporate law and helping entrepreneurs achieve their goals. A more complete bio can be found here.
Sources:
- https://ssir.org/articles/entry/social_entrepreneurship_the_case_for_definition
- https://www.forbes.com/sites/hbsworkingknowledge/2013/08/12/entrepreneurs-and-the-hybrid-organization/#6a5c3d9c62ae
- https://www.forbes.com/sites/helencoster/2011/11/30/forbes-list-of-the-top-30-social-entrepreneurs/#4d99023e6636
- https://www.echoinggreen.org/
- https://hbr.org/2012/01/a-new-approach-to-funding-social-enterprises
- https://www.epa.gov/environmentaljustice/environmental-justice-grants
