Think of startup capital before starting a nonprofit earned-income venturePosted on May 13, 2015 by Mike Oxman, Managing Partner and Principal, No Margin, No Mission™
ngoStartup business ventures – whether for-profit or nonprofit -- come in all shapes and sizes, and almost always require some sort of capital to help launch the enterprise and get it off the ground.
Whether starting a thrift shop, bookstore, coffee house, consulting practice, online store, curriculum business, or any number of other enterprises, there will inevitably be the need to secure funds to birth the business.
And while the exact dollar amount for startup may not be known until a business plan has actually been developed, we believe it is never too early to begin thinking about where needed seed capital could come from. We repeat. It is never too early to begin thinking about where needed seed capital could come from.
Nowhere have we stressed this more than to a group of nearly 75 entrepreneurial nonprofit leaders, board members, and staffers from Sarasota, Manatee, DeSoto, and Charlotte counties that recently participated in the second of three educational labs as part of The Patterson Foundation’s Margin & Mission Ignition initiative, which is designed to help local nonprofits build their entrepreneurial capacity, boost revenue, and heighten mission impact.
As nonprofits leaders, board members, and other agency stakeholders begin their discussions about where to look for startup capital, it is important to realize there are several options available to them beyond the obvious ones, such as grants and donations.
While there may be a desire to pursue those funding sources that are most familiar and comfortable, we urge every nonprofit to step outside of their comfort zone and consider each of the following methods (and others not listed here) as possible sources for acquiring the needed resources to launch their earned income venture:
- ANGEL INVESTOR: One way to raise needed startup capital is to connect with successful entrepreneurs and business leaders, also known as angel investors, who want to invest their funds back into startup ventures. In addition to providing financial benefit, angel investors are frequently able to provide sound business advice and further connections. For those interested in this approach, there are a number of angel investing networks that connect entrepreneurs and investors.
- BANK LOAN: As another option, nonprofits can apply for a loan or line of credit from banks and other financial institutions to raise startup capital for their venture. However, it is important to note that organizations applying for loans will first need some form of collateral, or someone to guarantee their loan, and some evidence of a viable business, like receivables and inventory.
- BUSINESS PLAN COMPETITION: For aspiring social entrepreneurs and organizations with a strong idea for a margin and mission-generating venture, there are number of competitions that award prize money, technical assistance, and/or consulting to help transform great business ideas into positive real-world impact. Organizations that sponsor social enterprise and business plan competitions are wide and varied, many of which can be viewed on the Business Plan Competitions’ website.
- CROWD FUNDING: This method of raising startup capital for your venture taps into the general public -- typically accessed via an online platform -- who voluntarily invest their own personal funds. Initially, you propose the idea that your organization wants to see funded, and people can then choose how much or little they want to give you. Some of the best crowd funding websites include StartSomeGood, Kickstarter, Indiegogo, and Fundable.
- DONOR: It makes good sense to communicate with loyal donors early in the process about the needed startup capital for your social venture. Entrepreneurial spirit, combined with a strong passion for your cause, will likely appeal to some of your dedicated supporters and encourage them to give. You may also want to try hosting a “friendraiser," an intimate gathering designed to share your venture with friends and colleagues without directly soliciting funds.
- GRANT: There are a number of foundations and philanthropic organizations that fund capacity-building efforts and offer seed-stage grants that can get a social venture started. These funders come in all shapes and sizes and can be found locally, regionally, nationally, and internationally. Some of the bigger, more well-known organizations include Ashoka and Skoll Foundation, but there are many others that can be identified through online research and other sources.
- PROGRAM RELATED INVESTMENT (PRI): Another way for nonprofits to raise startup capital for their venture is to apply for a PRI from a foundation that offers them to fund requests outside of their grant-making guidelines. PRI’s are hybrid grants/loans that provide capital for charitable purposes at below market rates, which take a number of forms such as equity investments, below-market loans, or loan guarantees. You can learn more about PRI’s and the funders that offer them by visiting Grant Space.
- SELF-FUND: Often, nonprofits are willing to invest in themselves to help fund some or all of their startup venture simply because they believe so strongly in its potential. By doing so, self-funding frequently sends a positive message to others in the community about the entrepreneurial nature of the organization and its leadership, which can then help to attract outside investors and funders for additional startup and/or future capital.
If your organization is thinking about launching an earned-income venture and would like to initiate the discussion about startup capital sooner rather than later, it’s a good idea for your agency’s leadership, board, and other key stakeholders to start by considering a series of questions:
- Who could provide the startup capital?
- How would startup capital be acquired?
- When would the conversations begin?
- Who on the staff or board would assume responsibility to raise the startup capital?
- What “strings,”if any, might be attached to the startup capital?
By asking these questions early in the process, you’ll likely be better equipped to secure the resources required to get your venture off the ground without having to scramble for funding at the last minute and jeopardize the timely implementation of your business plan.
For a more complete list of startup capital resources, check out 130 Ways to Fund Your Social Venture.
Want to learn more about earned income and related topics?
- Read all of our Guest Blogs for The Patterson Foundation.
Learn about these and other concepts used in TPF's approach to philanthropy.
SHARE THIS POST: