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Social enterprise start-ups: The funding gap

Startups' new columnist Sarah Dunwell offers advice on how to fund a social enterprise – and highlights the funding gap facing early-stage firms

In her first column for Startups, Sarah Dunwell, founder of award-winning social enterprise the Create Foundation, offers advice on social enterprise funding - and how to bridge the funding gap facing social entrepreneurs.

So you’ve got a great idea and you just know it’s going to change the world. You are bursting with passion and enthusiasm; it’s all you can think about and you’ve already bored everyone you know to tears with the details of your grand plan. But how on earth are you going to fund the start-up of your social enterprise? How will you develop your idea and support yourself at the same time? When do you give up the day job to focus on this full time?

When I started the Create Foundation I sold my family-run business in order to raise the funds to get us through the first year. I borrowed from family, max’d out every credit card I could lay my hands on and re-mortgaged my house. I understand that not everyone is in the position to be able to do that, but my first challenge to you would be, would you be prepared to do it, if the opportunity arose? What makes you think that others should fund your start-up if you don’t believe in it enough to take those risks yourself?

That said, even when you’ve raised and spent every penny you can lay your hands on yourself that still may not be enough, especially if you’re having to draw a wage from the business from day one. So think that through when you’re drawing up your business plan. Do you really need to work full time in your business or can your personal income come from somewhere else in those early days? It might mean working long hours for the first year, but hey, you believe in this, remember!

The next thing to think long and hard about is where you want to be in three years’ time. So many businesses (social or not) under-estimate what they can achieve in that timeframe and so fail to future-proof themselves in terms of the financial systems they put in place in the beginning. If you have ambitions to grow and scale and replicate your social enterprise then don’t start out life stuffing receipts in a carrier bag from day one – you’ll only have to go back and implement a better system later and any potential funders will see a sole-trader mentality that won’t give them confidence in your investment potential.

Bridging the gap

So you’ve got your business up and running, funded the first few months through friends and family borrowing/investing and you’re still working part time to bring in some personal income.  Business is going well and you’re still convinced that this is the idea that’s going to change the world. Where do you now go for funds, having already used up the routes most easily available to you?

Most banks and social lenders are risk averse and want to see a proven model, preferably profitable, that has the potential to offer them a good return on their investment. And that’s probably not you. Not yet. So make that your focus – getting to that stage at all costs – ensuring that the significant amounts of social finance out there right now can be yours once you’ve proven your model and are ready to scale and grow.

And in the meantime? Try UnLtd who offer awards of £15,000 for people whose idea needs developing to become investable and which also comes with support and advice packages to suit your needs. Or contact the Social Enterprise Support Centre, which should be able to tell you what funding is available in your area. If you’re quick, you can seek advice from Business Link (due to close its doors in November after funding cuts of its own!) and don’t under-estimate the power of crowd-sourcing the information you need; social media like twitter is a very powerful way of finding who’s out there and what they can offer you.

To sum up then, most people can make do with very limited funding in the early days, and when you’ve proven your business works and makes money you’ll have to hold back the tide of people wanting to invest in you, but there is a massive gap in the middle of those two scenarios. The Big Venture Challenge is one of the more innovative funding schemes seeking to address this need, so I’ll be watching that with interest in the future.

Sarah Dunwell is the founder of the award-winning social enterprise the Create Foundation, an organisation which provides training and employment opportunities to marginalised or vulnerable people. For more information, visit: www.createfoundation.co.uk

 

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