Assignment: Where can you look for Startup Capital?

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Del curso dictado por Copenhagen Business School

Social Business Model and Planning for Social Innovation

44 calificaciones

Copenhagen Business School

Social Business Model and Planning for Social Innovation

44 calificaciones

Curso 2 de 3 en SpecializationSocial Entrepreneurship

In this course we will take the social business opportunity that you have identified in the first course to a higher level. Specifically, you will develop a business model using the Business Model Canvas. Gradually you will also start writing your business plan. Moreover, you will be able to assess different organizational forms and select the one that is appropriate for your developed business model. By the end of the course you will be able to compare different social impact investment methods and choose the right funding strategy for your social venture. Note: It is highly recommended to have completed Course 1: 'Identifying Social Entrepreneurship Opportunities' before you start with this Course!

De la lección

Attracting Startup Funding

Welcome to the final Module of Course 2. By concluding this Module your social venture will have reached an important milestone in the development process. This session will introduce you to the broad landscape of options you will face when designing the funding strategy for your social business. You will be encouraged to think about the financial needs of your venture and asked to create a plan of how to address those. Guided by insights from a social impact investor and researcher you will develop an elevator video pitch. This will be an important tool to attract startup funding. The final section of this module includes a special on the Impact Investing World Forum held in London in 2017, where Kai spoke to some practitioners who have some insights and good advice!

Assignment: Where can you look for Startup Capital?7:12

Assignment - It is Time for your Video Pitch2:28

Conoce a los instructores

Kai Hockerts

Centre for Corporate Social Responsibility

Next week, we are going to talk about impact investing.

So in today's assignment,

I would like to ask you to think about the question of raising startup capital.

Put simply, you will need to find investors who will provide you with

capital that covers your costs until you reach a breakeven point, after which

you can run your social enterprise based on the income that you generate.

Later you may have to raise more capital to finance growth and replication.

Traditionally, these kind of investors will require you to

pay back their investments with a considerable markup, to account for

the risk they have taken when investing in your unproven business model.

But, social enterprises can also tap into grant money, or

charitable donations that might not require you to pay back the money.

The type of organizational form that you have selected for your social enterprise

will actually impact what options you have in terms of attracting startup capital.

Typically, we can think of the spectrum of investors as a continuum ranging from

charitable donors to traditional capital institutions such as banks or

pure for-profit private equity investors.

Between these two poles, lies an area that is referred to as impact investing.

On the charitable end,

we find venture philanthropists, who are primarily interested in the social return

and who provide seed capital for innovative and risky social enterprises.

They do not expect their investment capital to be repaid.

However, they do require a documented social return on investments, SRI.

We'll talk more about this two weeks from now.

In other words, they expect social enterprises to provide a multiple

impact per dollar invested by the venture philanthropist.

As a simple example we could think of a social enterprise that creates

employment for marginalized people.

The economic value generated through

this program in terms of income, taxes, health benefits, needs to

be a multiple of the money invested by the venture philanthropist.

Otherwise, the investor would be better off to pay out the capital directly to

the final beneficiaries.

Venture philanthropists tend to differ from traditional charities in one more

way: they only invest if they see a clear path towards financial self-sufficiency.

The next source of capital comes from those impact investors who do expect their

money back because this allows them to re-invest the funds into other deserving

startups. Such impact investors usually do not expect market returns and they often

are also more patient about repayments than standard investors would be.

However, as part of their investing model,

social enterprises need to repay the invested capital in the future.

These impact investors can do this in two ways.

Firstly, they can take an equity share in the social enterprise, they thus

effectively co-own your venture. This is a risky process for the impact investors.

On traditional capital markets, startup investors can reclaim their investment,

usually with a healthy profit, by selling the shares to other investors.

There are two types of so-called liquidity events where they can do this.

The first is the initial public offering,

an IPO, in which the startup sells shares on the stock market.

The second is a trade sale, in which case the startup is acquired by

a larger company that wants to integrate the startup in its processes.

eBay, for example, has acquired Skype and

Unilever has bought the ethical ice cream company Ben & Jerry's.

IPOs and acquisitions are tricky for most social enterprises since their

social mission might not allow them to generate sufficient profits for investors.

However, without a liquidity event,

impact investors are not receiving a return on their capital.

A way around this problem is for

impact investors to provide capital in the form of long-term debt.

These loans are usually less costly for

social enterprises than a standard bank loan would be.

They also are usually more patient about the repayment schedule.

An example for

such a patient impact investor is the Danish Social Capital Fund,

DSK, run by Lars Jannick Johansen.

The DSK provides loans to social enterprises that want to

scale up and grow.

A further type of impact investor concerns angel investors and

social venture capitalists.

Angel investors tend to be wealthy individuals who usually have

already started several companies and

who now want to make use of their capital and their knowledge.

Social venture capital funds collect the money of several angel investors into

a fund that makes it possible to invest in

a number of social enterprises over the lifetime of the fund.

Angel investors and social venture capitalists are as interested in

the financial returns as they are in the social outcome.

Thus, they will expect the social enterprise to be profitable, and

to pay market returns to its shareholders.

However, they will also be supportive of the social mission and

they are thus less likely to require social startups to

give up on their mission in order to maximize returns.

Finally, social enterprises can tap into the traditional startup finance.

These investors will require you to pay back their investments with

a considerable markup to account for

the risk they have taken, when they invested in your startup business.

However, even these investors can bring additional value to your startup,

beyond the capital they provide.

For example, they know the startup process and its problems.

They can provide you with valuable advice and

often also come with a useful network of contacts.

In return they will often ask for

a seat on your board, allowing them to be engaged in the startup process.

Now, let me turn to your assignment for next week.

Your assignment will be to outline in two to three paragraphs how your

team expects to raise startup capital.

However, before outlining how you want to raise the money, first, indicate how

much funds you expect will be needed and what you will use those funds for.

Then outline who you will ask for money and what they can expect in return.

Will you offer them market rate interest?

Or are you looking for investors for whom the social impact is sufficient?

Next, let me outline today the assignment for the coming week,

since next week's assignment will require you to do more work than usual.

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