Editor’s Note: Sara Leonard is engaged with Margin & Mission Ignition (MMI) and helps MMI organizations raise investment capital.
In 2016, I worked with five nonprofits engaged in The Patterson Foundation’s Margin Mission Ignition program. After completing a strenuous business planning process, it was time for these organizations to implement their plans. A key part of any social enterprise plan — and ultimately successful implementation — is raising investment capital.
It’s not uncommon for nonprofit organizations to pursue social enterprise activities to diversify their revenue. However, even organizations that have previously had great fundraising success, sometimes find challenges when trying to raise the investment capital needed to implement their social enterprise endeavor.
Fundraising for social enterprise investment capital is different than regular fundraising — but, not completely different. All types of fundraising share some basic principles.
You’ve likely been part of fundraising before, so let’s start with the similarities.
Fundraising is about building relationships on behalf of your organization and cultivation is the biggest part of this. Sometimes when we are so excited about an idea (like our new social enterprise), our enthusiasm leads us to skip the cultivation step — a big mistake! To cultivate a potential investment capital prospect, a nonprofit must reach out and seek to build a relationship.
The most critical skill in fundraising, both traditional and investment capital, is listening. When cultivating investors, our natural inclination is to “pitch” our idea by doing all of the talking. STOP TALKING and listen to your prospect (they are often filled with great ideas). The more we listen and learn from them, the more they will engage with our project.
After all of that sharing and listening, surely the prospective investor knows we need their support, right? NO! Every successful investment invitation needs to include an ask. If you’re not specific in what you need, the prospect could either give you something you don’t need or nothing at all.
Shared Values (Mission)
Investment capital donations have the very same core as all other donations: shared values. A social enterprise may have the strongest business plan, leadership, etc. but if the mission of the organization does not inspire the prospective investor of their shared values, no investment will ever take place.
See, you’re more prepared that you realize. Now, let’s talk about how raising investment capital and fundraising are different.
Non-Financial Support and Engagement
Social enterprise investment donors don’t want to write a check and walk away. They want to participate and provide support beyond cash contributions. This participation varies by investor, so you have to pay attention (see Listening above) and respond to each donor accordingly. As you cultivate the relationship, think of how their expertise could bring value to your new venture — marketing, leadership, mentorship, coaching. Be careful not to see their desire for engagement as a threat to your plan. Instead, use it as an additional research opportunity and battle-tested resource.
Business Plan Required
Donors who invest in social enterprise want to see that careful planning has gone into the project. Your organization must be ready to demonstrate how you conducted research that leads to thoughtful planning. As a general rule, a nonprofit should never embark on a social enterprise without careful planning. Knowing your investors will want to see that plan just reinforces the importance. Don’t take their questions (sometimes challenging) as lack of interest, they are looking to make a good investment.
Typically, donors who invest in social enterprise are attracted to innovation. While creating your business plan, take the time to highlight new ideas (and understand them thoroughly) so you can share them with potential investors. Some social enterprise ideas aren’t brand new but are new to your nonprofit. Make sure that you focus on that innovation.
Investment donors tolerate more risk than typical nonprofit donors — with innovation comes risk. Investors know that a venture may not succeed. They are often more comfortable with the risk than the nonprofit leadership. But when a project fails, the investor wants to see that you learned from it and take the time to make improvements going forward.
Investment capital donors are interested in how things are going throughout the implementation of your social enterprise. Be sure to have a plan for communicating with donors once your enterprise is operational. Measure performance and communicate with investors. Don’t worry if all of your measurements aren’t exceeding expectations. But, be sure to include what adaptations are being made so they can see that their investment provided an opportunity for your organization to learn and improve.
While there are some new things to consider while raising capital for a social enterprise, you and your organization have completed some of the hardest parts through the research and plan development process. At the funding stage, everyone is excited about getting this new project started and you can use that excitement to make an impression on potential investors
I hope with the realization that you can build on what you already practice in fundraising in your organization, that you approach this with confidence.