How we learned to speak “social finance”
How does a social enterprise embark on the trip to raise growth capital? How do you effectively communicate with potential impact investors? What are the main challenges on your track to success? Felix Benjamin Schäfer of Bürgerwerke eG – a German cooperative for independent, regional providers of renewable energy – has mastered this thrilling journey. In our interview, he shares his experiences with positive surprises, unforeseen knowledge gaps, and learning the language of impact investors.
Felix, you successfully raised growth capital for Bürgerwerke eG. Did you find the kind of investors that you were hoping for?
Absolutely. Since Bürgerwerke is set up as a cooperative (German „Genossenschaft“), it was vital for us to get investors aboard who identify with our legal structure and understand what it involves. In addition, we wanted to have investors who share our ideals and goals and are not primarily focused on maximizing financial returns. This has worked out perfectly for us.
Did you discuss your expectation vis-a-vis future investors beforehand?
Sure, the idea to inject additional expertise and networks played an important role when we thought about the ideal investors for us. But our expectations only really materialized when we started working with them. It certainly makes sense to wish for one or the other investor value add before you start the process, but the most important question is whether this is realistic or not.
Speaking of realistic: Were you confronted with major surprises during the transaction process, or did everything happen as expected?
Let me put it like this: If you haven‘t gone through such a transaction process several times, discussions with investors are always good for a surprise. I can‘t remember anything that threw me off balance, but an important insight is that you have to translate your idea into a language that investors are able to understand. In my view, this is a typical syndrome of social enterprises: you firmly believe that your vision is immediately clear to everyone. In reality, it is healthy to step back for a moment and consider the ideal way to communicate your mission to external stakeholders.
Did you have the impression that the gap between the language of social entrepreneurs and impact investors is very wide?
Since we worked with FASE as a financial intermediary, we were very well prepared to communicate „the investor way“. The same applied to the investors: they already knew from FASE what impact investing really involves. This is why I appreciate this translation service so much: without it, the language barrier would have been much bigger.
Can you share a concrete example?
I never thought about how to present the social impact of Bürgerwerke in an appropriate framework. But the FASE exercise had a very positive effect on the investors, and provided them with much needed transparency.
In retrospect, how “investment-ready” was Bürgerwerke when you entered the transaction process?
I would say that we were surprisingly well prepared. We discussed many issues in advance, spoke to several contacts and investors, received valuable feedback and fine-tuned our presentation. From the point of view of content and methodology, we were on the right track, but certainly not at 100 percent. Yet if you want to master an important journey such as raising financing, you should attack the last 10 to 20 percent, too. We were lucky to have a training partner who knows the mindsets of investors and social enterprises alike. This helped us verify our assumptions, sharpen the communication of our business model and close gaps that we were not even aware existed.
So are you multilingual now and able to ‘speak social finance’?
You could say so. At Bürgerwerke we have many different stakeholders, from our member cooperatives to our financing providers to our end customers, and all share similar goals but live in different realities with different experiences. As a social entrepreneur, you should respond to this by choosing the right language.
What did you take away from your many discussions for the road ahead?
We have certainly gained great insight into the right positioning. For example, we learned which growth strategy could be the best for us and why. But the most thrilling things only happen once the transaction is closed. Investors often bring a vast array of experiences with them and it is a great opportunity to use these for our common vision.
Which three most important pieces of advice would you give to social entrepreneurs raising growth capital for the very first time in their lives?
First of all, you have to secure the necessary expertise about growth financing, whether it comes from a business angel or from a financial intermediary. This enormously improves your chances to be successful. To go through such a process all by yourself, without any previous experience, is very challenging, although not impossible.
Why exactly? Does such a solo attempt cost too much time and resources or does it fail to come to the desired result?
It is all of this, to some extent. For example, presenting your social enterprise to stakeholders without external advice will be less convincing. The same applies to your chances of successfully raising growth capital: in my view, they are lower. Also, when negotiating with investors on the contract, you lack the knowledge of what is accepted and standard in the market. Are my expectations as a social entrepreneur realistic? What are the benchmarks in the market for capital supply? If I have to rely fully on what an investor tells me, I am not in a good position to negotiate.
And your other two pieces of advice?
You should absolutely plan enough time – with respect to the necessary resources but also to the time required until the final closing of the deal. At Bürgerwerke, we invested 300 hours over a period of 8 months. For the main part, this is time that the founders and managing directors have to put aside. These resources are then missing elsewhere in your operations and you have to come up with a plan beforehand to bridge this gap. It is an illusion to believe that you could master such a transaction process in just two to three months.
And my third piece of advice: think about the ideal role of your investors before you embark on this journey. This helps you to sharpen your mindset and determine whether you seek a more passive or active collaboration, which scope of rights you want to give to your investors, and if your ideas are compatible with those of your potential partners. This is especially important for social enterprises that want to preserve their social mission on the long run. If you leave this issue aside and just try to work with an investor despite clearly sensing that your goals are diverging, this can be a major threat to your organization. Rather be brave and search for alternative tracks. Also, maybe the time is not yet right for scaling. Either way, never forget: keep as many doors open for as much time as possible.
About the author:
Christina Möhrle started her own shop as a freelance writer and journalist in 2012 to specifically promote social entrepreneurship and impact investing. Since 2014 she additionally takes care of FASE’s communications, papers and blogs. After 15 years as a manager in investor relations, structured finance and venture capital, helping to build the social finance ecosystem has become Christina’s passion and profession.
This blogpost is presented by FASE in collaboration with Siemens Stiftung and it’s part of a series of Blogposts, Webinars and Website content that we provided on our website during the past weeks and months. Have a closer look at our other projects and blogposts and read about:
- Why using a self-sustaining business model?
- Testing your idea in the market
- Getting the business plan ready
- Approaching investors
The Financing Agency for Social Entrepreneurship GmbH (FASE) is an Ashoka initiative and supports selected social enterprises in raising growth capital. FASE identifies investors and financiers of the entire spectrum ranging from private investors, family offices, foundations, social investors and banks. FASE puts an emphasis on building hybrid deals combining several investors with different financing components. www.fa-se.eu