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Navigating funding route for social impact startups
Wednesday November 08 2023
Small but targeted differences have the potential to create a huge impact. FILE PHOTO | POOL
Marian Wright Edelman said, “In trying to make a big difference, don’t ignore the small daily differences we can make.” Small but targeted differences have the potential to create a huge impact. According to Good Finance, social impact is the effect on people and communities that happens as a result of an action or inaction, an activity, project, programme or policy.
Social impact startups operate uniquely, aiming to drive positive change in society and the environment, prioritising more than just financial returns for investors. In the realm of social impact startups, key questions often revolve around achieving financial viability while maintaining sustainability.
These ventures are unique because they seek to make a difference in society and the environment at large through their products and services. Startups must strike a delicate balance between fulfilling their purpose and attracting compatible investors.
Fundraising requires a meticulous analysis of potential investors who align with the venture’s broader societal or environmental goals, rather than solely seeking financial returns.
Quantifying impact is another crucial facet for social impact startups. This involves measuring the number of beneficiaries, positive changes instigated, and the venture’s overall sustainability.
Typically, this necessitates scaling operations. In addition to a compelling idea, the founders’ skills and unwavering focus play pivotal roles in persuading investors to support these startups.
Given the diverse landscape, how should social impact startups position themselves to secure funding? The approach may hinge on the priorities of funding organisations dedicated to various impact initiatives, encompassing grants, equity, (convertible) debt, or a combination thereof.
Exploring grants constitutes a common starting point, especially for emerging startups. For social impact startups, a grant serves as a financial award to facilitate specific goals outlined in the grant’s terms.
Alignment with the ethos of the grantor organisation is paramount, necessitating thorough preparation to show eligibility and compatibility with the cause.
Crowdfunding is another dynamic fundraising method, pooling resources from a broad base of contributors, each making relatively modest contributions.
This can be achieved by having either individuals, institutions or a mix of both, coming together to fund a social impact startup(s). Recently, crowdfunding through the internet has gained significant traction.
Social impact startups must ensure their value proposition is foolproof and their founders are equipped with the necessary skills to effectively present their case for funding.
The author is a senior associate, tax – -legal business solutions at PwC Kenya.
