Social entrepreneurship + Financing

Assignment

• Financing opportunities in USA, Asia, Europe• The untold story behind crowdfunding

http://www.appsblogger.com/behind-kickstarter-crowdfunding-stats/

FUNDING

Determine how much you really need

http://www.devisscher.com/articles/FIBMatching_sources.pdf

http://ecorner.stanford.edu/authorMaterialInfo.html?mid=1182

Funding

Most people are reluctant to open their own business the main reason is the absence of fund.

Surely funding is not barrier to make business, the problem is: “are you dare to open a business and can you calculate your business finance?”

Idea• Opportunity• Innovation

Research Market

• Marketing Plan

• Marketing Strategy

Financial • Financial

Projections • BEP

Courage • Action • Risk Taking

External: conventional finance EQUITY (selling part of your business, can be sold through financial structures, donations or joint ventures with private firms)

FAMILY/FRIENDS BANKS OR CREDIT UNIONSformal institutions will not provide volumes of affordable capital right away. These relationships are built on trust and track record. May be expensive at the beginning

CREDIT CARDSMICROFINANCE INSTITUTIONS (serving under-banked people)

COMMUNITY BANKS (focus on community, know the people they lend to)

SUSTAINABLE BANKS (ethical/civic banks, loaning to businesses that share their vision, ex: New Resource Bank, Permaculture credit union)

Bank loans

• Banks are like the supermarket of debt financing. They provide short-, mid- or long-term financing, and they finance all asset needs, including working capital, equipment and real estate. This assumes, of course, that you can generate enough cash flow to cover the interest payments (which are tax deductible) and return the principal.

• Banks want assurance of repayment by requiring personal guarantees and even a secured interest (such as a mortgage) on personal assets. Unlike other financing relationships, banks offer some flexibility: You can pay off your loan early and terminate the agreement. VCs and other institutional investors may not be so amenable.

Local and state economic development organizations

• Economic-development organizations can charge tantalizingly low interest rates when lending alongside a bank.

• Say you need to raise $200,000 for a building. A bank may offer $150,000 on a first mortgage at a variable interest rate of prime, now 3.25%, plus 200 basis points, for a total of 5.25%. The local development entity might lend you another $30,000 on a second mortgage at a fixed-interest rate of 4%, without seeking equity shares or warrants. (Without the development corporation's contributions, you would have to scare up $50,000 in equity--expensive.) If you don't have the cash flow to cover the interest, the development organization may offer extended terms. Some loans are interest-only for the first year or two, and even the interest payments can be accrued for a certain time period.

• Development groups may not agree to finance an entire operation, but they make snagging the remainder from other private sources a lot easier. Talk to your local chamber of commerce to find these programs. (Also checkwww.infinancing.com for a list of the types of development finance organizations).

External: non-conventional

• Social investors• Angel investors• Customers• Small Business Innovation Research (SBIR) grants• Philanthropic grants• Government and Donor Capital• Crowdfunding• Bootstrapping• Lean startup

social investors

SOCIALLY RESPONSIBLE INVESTING, “PATIENT CAPITAL”, “IMPACT INVESTING” OR “SLOW MONEY”CONSIDER FINANCIAL RETURN WITH OTHER VALUE CREATION.

TRY TO AVOID CERTAIN “BADS” (WEAPONS, ALCOHOL, TOBACCO, GAMBLING, OR NUCLEAR ENERGY) – AND ENCOURAGES INVESTMENT FOR POSITIVE CHANGE, ENVIRONMENTAL STEWARDSHIP, CONSUMER PROTECTION, HUMAN RIGHTS, AND/OR FAIR TRADE

Grassroots Business Fund, Root Capital, Bamboo Finance, Oikocredit, and Calvert Foundation. Lists are available at Aspen Network of Development Entrepreneurs (ANDE) and Cause Capitalism. There are 100s of U.S. investors, listings at SocialFunds.com and Forum for Sustainable & Responsible Investing.

Angel Investors• wealthy individuals

Angel investors are often retired entrepreneurs or executives, who may be interested in angel investing for reasons that go beyond pure monetary return. These include wanting to keep abreast of current developments in a particular business arena, mentoring another generation of entrepreneurs, and making use of their experience and networks on a less than full-time basis.

Finding angel investor: not easy, cluster, personal network, referrals (attorneys, accountants, bankers), local associations

Where you can find them? Venture capital clubs, regional-based groups of investors, matching networks

Angels typically invest their own funds, unlike venture capitalists who manage the pooled money of others in a professionally-managed fund.

Customers

Advance payments from customers--assuming the terms aren't too onerous--can give you the cash you need, at a relatively low cost, to keep your business growing. Advances also demonstrate a level of commitment by that customer to your operation.

Small Business Innovation Research (SBIR) grants

Getting past the paper-intensive application process and SBIR grants can be a great way to turn your intellectual property into mailbox money. For more on these grants, check out How To Get Uncle Sam To Fund Your Start-Up.

philanthropic grants

• Grants are typically approached as a gift from a foundation or wealthy individual.

• In the U.S. and the U.K., there are tax benefits to providing money to legally registered NGOs

• Examples: Gates, Rockefeller, Skoll, and Omidyar

• Small and very competitive source, should not be a focus of entrepreneur

Government and Donor Capital

• Public sector• Government contracts• Requires extensive documentation to win

contracts and long periods of time too• This option is often financially cheap but far

from free, as there are obligations like information tracking which takes staff time

Crowdfunding

Crowd funding describes collective cooperation, attention and trust by people who network and pool money and other resources, usually via the Internet, to support efforts initiated by other people or organizations.

Kickstrater.comProsper.com - largest peer-to-peer lending market

33needs for social entrepreneurs

Peer-to-peer lendingwww.prosper.com

Some success storiesFORM1: Researchers from the MIT Media Lab have taken on the FORM1 project to create an affordable, professional 3D printer for the masses, and the masses responded with resounding interest. With more than 2,000 backers and nearly 3 million pledged (breaking through the project’s $100,000 goal), it’s clear that there’s major support for FORM1 and consumer-level 3D printing.

Some success storiesThe Oatmeal’s Nikola Tesla museum: Crowdfunding has been good to the arts and sciences, too, as Web comic The Oatmeal has raised over a million dollars on Indiegogo for a project to build a Nikola Tesla museum. Originally created to save the site of Telsa’s incomplete Wardenclyffe Tower, the project moved on to a museum after the tower was demolished, turning its former site into a science center honoring the inventor. The project raised more than $1 million in just 9 days, and ultimately received $1.3 million from Indiegogo. But the project benefited from outside success as well, maxing out their matching grant of $850,000 from New York state for over two million in funds going to create a “Goddamn Tesla Museum.”

Bootstrapping

• A situation in which an entrepreneur starts a company with little capital. An individual is said to be boot strapping when he or she attempts to found and build a company from personal finances or from the operating revenues of the new company.

• Many billion-dollar entrepreneurs find a way to grow without external financing so that financiers don't control their destinies or grab a disproportionate slice of the wealth pie.

Core elements of bootstrapping

• Importance of cashflow vs revenues• You have to pay bills• Short payment cycles, short sales cycles (It means passing

up the big sale that take twelve months to close, deliver, and collect)

• Focusing on function and not the look and form of the product

• The optimal number of mouths (or hands) between a bootstrapper and her/his customer is zero.

• Understaff

http://blog.guykawasaki.com/2006/01/the_art_of_boot.html

Schutterstock created by Jon Oringer with $800 camera.

http://www.inc.com/christine-lagorio/bootstrappers-bible-shutterstock-founder-success-story.html

http://www.inc.com/richard-branson/200-funded-virgin.html

The capital lifecycle for entrepreneurs

SOCIAL ENTREPRENEURSHIP

some examples

some examples

some examples

• Entrepreneurship is usually discussed in a business context. Creative pursuit of private profit and gain underpins entrepreneurship. Since 1990s it was recognized that business can operate for non private gain.

• Mobilisation of enrepreneurial principles - not just philanthropy or basic altruism

• Targeted at long-term sustainable change

Key social entrepreneurship drivers

• Social issues inadequately addressed by government

• Need to raise funds for charities• Changing public sector (budget cuts require

new revenue streams)• Growing demand for corporate social

responsibility and ethical entrepreneurship