28 October 2022
For social enterprises at the beginning of their startup journey, often referred to as “early-stage social enterprises,” accessing the money needed to fund development is by no means easy. Challenges range from the relatively limited supply of impact investment available to social enterprise in Australia (Castellas et al. 2018) through to making sure that the key organisational elements needed to access appropriate social finance, for different purposes during the early-stage social enterprise journey are firmly in place before approaching funders (Ward-Christie et al. 2021). Our research also shows that the expectations of funding organisations – government, philanthropic and impact investors – vary according to where the early-stage social enterprise sits in their development journey. To add an additional layer of complexity, expectations also vary according to the type of organisation providing funding or social finance.
Let us start by unpacking what we mean by “early-stage social enterprise.” Put simply, early-stage social enterprise represents the journey from an identified opportunity or idea to address a social problem right through to the point of having a clear plan to build (and fund) a social enterprise that is impactful and sustainable. Both the research (Clarysse & Moray 2004) and our own experience suggest that this first stage of the social enterprise journey comprises three phases, the ideas phase, the pre-startup phase, and the startup phase.
The ideas phase is exploratory by nature. Social enterprises within this phase typically focus on understanding the social problem, exploring possible market opportunities, and putting together an initial pre-feasibility assessment.
Following on from the ideas phase, the pre-startup phase provides the emerging social enterprise with an opportunity to test and further develop those early ideas, possibly through piloting. Within this phase we are also likely to see the social enterprise establish a preliminary board or advisory committee and a focus on producing the detailed modelling needed to commence operations.
Building on this, the start-up phase typically sees the emerging social enterprise establish the physical infrastructure and core staff needed to trade and generate impact. Social enterprises within the startup phase learn by doing, with development constantly informed by operating experience.
Next let’s take a look at the possible sources of social finance and funding available to early-stage social enterprises seeking to fund their activities in each of these three early-social enterprise phases. Our research suggests that there is little funding available to individuals or organisations looking to fund the exploratory ideas phase. Typically, funders require more than a well-articulated social problem, however compelling the proposed solution. Crowd funding through platforms like Start Some Good provides one funding option in this initial phase provided there is a well-articulated social media and crowdfunding campaign and an established community of potential supporters. While finance may be hard to come by social entrepreneurs looking to support the ideas phase of the journey are well-placed to build their social capital through membership of social enterprise networks and communities. Typically, these networks are state or territory-based, so it is worth investigating what is available. Accessing free resources like the Studio’s Social Enterprise Fundamentals can also help build knowledge and confidence. You can also use our Building Blocks for Impact Capital Tool to identify your current strengths and future areas of work.
For early-stage social enterprises looking to fund pre-startup or startup activities, depending on legal structure and charitable status, philanthropic funding may be available in the form of donations or grants. Early-stage social enterprises looking to fund start-up activities may also be able to access impact investment capital, however this is relatively rare at such early stages of development.
Our research has identified the organisational building blocks that funders like to see in place before funding pre-startup and start-up activities. You can use our Building Blocks for Impact Capital Tool to assess your own organisational readiness to access funding for pre-startup and startup activities. Crowd funding through platforms like Start Some Good also provides another funding option for pre-startup and startup activities, however the same rules regarding the need for a well-articulated social media and crowdfunding campaign and an established community of potential supporters apply.
Bear in mind that if you do plan to go down the donation or grant capital route, that having charitable and Deductible Gift Recipient (DGR) status is a pre-requisite for most philanthropic funders. Alternatively, if you plan to seek impact investment capital to fund startup activities our experience suggests that your financial forecasts will often need to demonstrate a healthy profit margin (more than 10%) in the near future. In both cases the legal structure of your social enterprise matters so be sure to consider all your options and get good legal advice before making these decisions.
Going forward, the Studio’s Aviate Program can provide bespoke support to early-stage social enterprises looking to address their building blocks gaps. Contact us at socialstartupstudio@swin.edu.au if you would like to build you readiness to access social finance or funding.
References
Clarysse, B., and Moray, N. (2004). A process study of entrepreneurial team formation: the case of a research-based spinoff. Journal of Business Venturing 19(1): 55–79.
Castellas, E. I. P., Ormiston, J. and Findlay, S. (2018). Financing social entrepreneurship: The role of impact investment in shaping social enterprise in Australia. Social Enterprise Journal.
Ward-Christie, L., Earles, A. & Moran, M. (2021) Australia’s social venture ecosystem – understanding the support and development landscape: A report for the Paul Ramsay Foundation investigating early-stage social venture support programs and Apex organisations. Paul Ramsay Foundation, Sydney, Australia.
