I helped moderate the latest in the Spark Workshop series put on by the Social Enterprise Program at Columbia Business School. It’s a great concept that brings together people from the Columbia community and beyond with a shared interest in a given topic or venture in the social enterprise space. Rather than highlighting a single speaker, Spark workshops allow all participants to share their experience and learn from others.
Our theme was International Social Enterprise (details on moderators etc here). The first group I moderated, of the investors in the room, decided that the most compelling topic for them to discuss was “What can I do from the US to support social entrepreneurs working abroad?" We remixed the groups (originally divided into early and late stage social entrepreneurs, supporting actors, and investors) to ensure diverse perspectives on this question.
Here are our TAKE-AWAYS (keep reading below for the backstory if you’re interested):
1) Social entrepreneurs need to be clear with their investors: are they looking for donations or investment to grow the business? And remember that all seed stage investment is essentially a contribution! Most for-profit businesses don’t make it beyond that stage either to return investors’ money.
2) Social enterprise is all about marketing: customize the blend of your product’s benefits and its socially responsible aspects to match your customers’ interests.
3) The most powerful mentors or advisors share the entrepreneur’s big picture view about the business’s mission. They also have some understanding or experience of the context in which the business operates.
4) There are strings attached to all types of money (whether donations, family loans, equity investments, etc), but they are different. Know what you’re getting into and what will be expected of you in return!
We were lucky to have a social entrepreneur visiting from India (Pragati of Chockriti: fine chocolates from New Delhi) so we used her as a case to explore the issues. What we found was that there are two main ways in which people in the room could help entrepreneurs like Pragati: money and knowledge. These answers weren’t surprising to any of us, but we were able to learn a bit more about how we could contribute those resources more effectively.
KNOWLEDGE Pragati explained how important it was that mentors and advisors 1) have the same vision for the business, with a triple bottom line, pursuing financial profits but also accounting for its impact on the people and planet that it touches. And 2) an understanding of the unique challenges in the context where she’s working (a village near New Delhi). Without this alignment and understanding, it’s hard for Pragati to integrate advisors’ well-meaning advice.
MONEY Of course, this is where the conversation really got interesting. Pragati was very honest about her struggle to decide the best financing model for her business. She is breaking even and sees opportunities to expand that would improve profitability. But the family money she has been using so far to build Chockriti aren’t enough to get to that next level. However, she hesitates to promise returns or give away part of her business to take investments. She is getting revenue from customers, which is always a great sign, and using that to build the business, but it’s not enough to really grow.
Pragati mentioned several times the option of getting donations, whether cash or in-kind gifts of equipment or supplies she needs. She also talked about bank loans, and offering chocolate as a ‘return’ for individual investors who provided capital.
For the potential investors, ‘traditional’ entrepreneurs, and other supporters of social enterprise in the group, this blend of forms of capital and return was uncomfortable. There was a general preference for clarity around a business’s identity (for- or not-for-profit) and therefore they type of funding they request (donations or investment). This sentiment may explain why it is difficult for hybrid organizations to really gain traction, or maybe it’s just a matter of time?
The important take-away for Pragati was that while it’s of course scary to accept investment money or debt capital, and it’s not right for everyone, an infusion of cash can offer huge potential for the business to grow. She could simply buy adequate lighting for her chocolate studio, and personal protection so her female employees to get to and from work safely, without waiting for someone to donate these items. That is the power of social finance: it affords social enterprise leaders the autonomy to get the resources they know they need to optimize their business operations. Let the social capital flow!