Are you ready for the quantum jump?
Raising impact investment for the first time can be quite life-changing for a social entrepreneur. Better be well prepared. Here are five major tips plus many resources how to become investment-ready.
You are not alone out there. Many social entrepreneurs who financed their first steps into the wild are – or have been – in the same situation. You initially start by hunting for donations, participating in awards, getting grants, activating the crowd or tapping the famous 3F – „friends, family and fools“. Maybe you also convinced an angel investor or venture philanthropist to support you early-on. But then you reach a point where you really want to scale your impact. To get there, you probably need to invest in your team, improve your products and services, buy infrastructure, add offices or acquire new equipment. But how to raise the necessary resources?
This is where impact investors come into play. They invest in organizations such as yours to achieve social and environmental impact alongside a financial return. They contribute new support qualities, network resources and growth capital to your social enterprise. But they also have a very different mindset than your donors, friends or grant givers. In essence – since they provide you with repayable forms of capital – they have to find out if you and your business will be able to create enough surplus in the future to meet their needs and expectations.
So before you start approaching this specific breed of financiers, it makes a lot of sense to submit your social enterprise to a systematic x-ray – a so-called “investment readiness” check. It basically tells you if you are “investible” from an investor point of view. But it also gives you important messages about yourself, your team and your organization. Consider it a form of self-evaluation that you can use for your own benefit: when you investigate your current strengths and weaknesses, you get a chance to improve them. Here’s a first definition of investment readiness that focuses on the investor perspective:
„Investment readiness signifies that a social venture has the capacity and capability to seek and utilize investment“
Investment and Contract Readiness Fund, UK
And here’s another one that focuses more on your self-evaluation:
„To be investment ready, the entrepreneur must understand where he or she stands in the funding cycle, the demands of each stage and most crucially, when to graduate to the next stage“
ID2 Invest for Impact, Israel
5 major tips and questions to start with:
- Have a clear vision about how to achieve scalable, measurable impact
You can ask yourself questions such as: How can I add more depth or breadth to the impact that I already achieved with my initial projects? How can I reach even more beneficiaries, regions or countries? How can I measure the impact in a consistent and reliable way? Did I really define a clear and comprehensible „theory of change“? Am I capable of presenting my impact value chain to potential investors and other stakeholders in a clear and compelling way
- Develop a convincing idea for a scalable, self-sustaining business model
Typical questions are: How can I create revenues? How much turnover do I already create and with which target groups or services can I expand it? How exactly do my costs develop when I scale? How can my organization reach breakeven and create a surplus?
- Be ready to engage with other sources of financing than donations or grants
Topics to investigate are for example: What are the features and consequences of different financing sources and instruments to my organization? Which financing models are available for my type of organization and what are their pros and cons? Will they rather compromise my mission or support it effectively? What do different sources of capital and types of investors expect from me in return?
- Build a dedicated, interdisciplinary team
Ask yourself, if you have the right people aboard to master the scaling of your organization. Which additional competences and professionals do you need? How can you ensure that your team will be fully committed to the mission long-term?
- Be conscious about what you achieved so far
Typical questions are: Did my pilot project really work? Did my products or services successfully reach the target groups and beneficiaries and effectively improved their
situations? Where are shortcomings in my offering or misconceptions in my theory of change? How can I improve them?
In essence, to be investment-ready means to have all entrepreneurial and impact resources ready for the quantum jump. Take your time and be prepared. Below is a list of useful links and resources that will help you to bridge the abyss and successfully prepare your organization for take-off and landing.
Links and resources
- Articles on Investment Readiness:
- Investment Readiness Check:
http://beta.social-finance-academy.org/entrepreneur (registration required)
- Sources on the theory of change and impact value chains, Phineo: “Social Impact Navigator” https://www.phineo.org/downloads/PHINEO_Social_Impact_Navigator.pdf
- A framework for scaling, Tayabali: „Patri Framework for Scaling Social Impact” http://www.ashokaglobalizer.org/PATRI
- A manual about different financing sources and instruments, TU Munich/Schwab Foundation: „Social Investment Manual – An Introduction for Social Entrepreneurs“: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1884338
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 will provide on our website within the next weeks and months.
We will cover the following topics:
- Why using a self-sustaining business model?
- Testing your idea in the market
- Getting the business plan ready
- Approaching investors
You can find the first blogpost of this series >> here.
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