If you’ve been following the blog, you know the startup community’s fascination with VC funding drives me up a wall. With VC funds taking up most of the focus, outlets continue to ignore the harsh statistics. Less than 3% of VC funding goes to Black or Female Founders and less than 1% to Latino founders.
In keeping with the ego-machismo vibe many startup endeavours insist on portraying, the focus becomes how do I create the next unicorn? When many new founders just want the ability to add guacamole back to meals and some assurance they can keep their home. What everyone has gotten away from is reinforcing that VC funding is but one way to raise funds. It is not the way, it is a way. Depending on the numbers, your goals, intentions, and industry it might not make sense for you. So it’s important to think about the number of options that are still out there. That’s the focus for this post.
You Too Nonprofits
I’ve said it once, and I’ll likely say it until I’m called home. Grants are NOT a business model unto themselves. Are there charities that depend solely on grants? Yup. Are some pretty large? Sure. But by focusing solely on grants not only will you burn yourself out, but you will also become completely beholden to things outside of your control. The economy, political climate, people’s whims, and foundation agendas.
These are the organizations with Founders who aren’t doing the work they love to do but have to spend all day kissing babies instead. These are the organizations that have had to move away from the tension and controversy that advocacy, innovation, and experimentation create out of fear of losing a big grant. These are the organizations that have to shutter when the government is shut down, or run on E when major funders don’t see alignment any longer. You don’t want to be one of these organizations.
So fundraising in the charity context can’t just mean grants and donations. I send every client forming a charity a “business model” worksheet to think about revenue generating. Whether it’s investments or patient loans there has to be diversity on top of an earned revenue strategy.
All that to say, this post applies to charities and socially conscious businesses alike.
Reasons To Start Fundraising
There are a number of reasons for fundraising, from putting together a supply chain to buying equipment and facilities. You could be expanding your team or undertaking a major research initiative. Whatever the impetus, be crystal clear on the reasons for fundraising before you start fundraising because the reasons will determine the types of funding you look for.
What to Think About Before Raising Funds
Keep in mind, this isn’t to say VC funding its bad. It’s to say VC funding ain’t for everyone and was never meant to be. Fundraising in any capacity takes strategy, which means understanding what you’re raising funds for, why, and to what degree. It also means understanding the outcomes you want to see. For example, if I’m making a hyper-local community push crowdfunding might be the better way to go. If I’m stepping into super new territory where there’s little to no infrastructure patient loans might make more sense.
The primary goal for many VC funds I encounter is to make as much money for investors as quickly as possible. If you’re venturing into a space that requires major culture shifts, in places with little infrastructure, or you don’t want to sell soon the tension between your desires and the VC could become too much. Better to give yourself space but understanding what all you’re looking to accomplish and looking at the options.
Other Questions to Ask Before Fundraising
- How much control over decision-making are you comfortable with others having?
- What does success look like for you? Fundraising for the sake of fundraising is a quick way to land in trouble.
Ideas for Raising Funds
Below are a few ways to go about raising funds for the work you do. Keep in mind, there is no “right” or “wrong” way. It’s all just a matter of understanding who you are, what you stand for, and what you’re trying to accomplish. If equity and inclusion are big concerns, then crowd-funding could be perfect for you. But crowd-funding may not make sense if you’re looking to purchase some niche equipment on a quick turnaround. If you haven’t taken a moment to get clarity DO NOT PASS GO. March back a few sentences and answer the clarity questions above.
Patient Capital Loans: CDFI’s, impact funds, and certain community banks will loan debt that is at significantly lower interest rates (some as low as 1% or under) and give you 10 years on repayment. That’s where the term “patient” comes in. These are generally to catalyze the community (rather than making a quick buck) so the focus isn’t so much on the interest or repayment. These typically come with wrap-around support and technical services too.
Crowd-funding: This could be token (getting a coozie for example), equity, debt, or donation. In some of my previous posts, I had some major hesitations about crowdfunding but the space has evolved significantly. I love the fact that it is community oriented, allows the community to buy-in, and in the case of for-profits even be equity owners. The thing about crowdfunding is it’s an art. Putting together the collateral, building the buzz, using the right platform, etc. So you’ll want to invest (and price in) getting some help here. There’s OneRepublic, Crowdvest, TruCrowd, NextSeed, Crowdfunder, WeFund, Let’s Launch, Etc.
Social Impact Grants: More and more foundations are granting funds to social enterprises and socially conscious businesses with an eye toward alleviating systemic issues. This is done under program related or mission-related investment laws
Incubator or Accelerator Funding: More and more incubators and accelerators are coming with funding. Some are just pass through’s for VC funds, but many are setting up their own funds. The benefit of this (especially impact-oriented) is they tend to have more favorable terms, come with community, and mentorship.
Demand Dividend: This is where a larger investment is made and repayment depends entirely on cash flow.
Government Funding: This could come in the form of grants, but it can also come in the form of tax waivers, subsidies, or contracts. Federal procurement can be tricky and has it’s own 50 lb. set of laws, but it’s still an option.
Pay-For-Progress: Also known as social impact bonds this is where there are different levels of investment put together to create an investment package. The key is, each level de-risks the level above it and the person receiving a service or intervention (like a school) doesn’t pay unless there are results. This is still really new in the US and can get a little complex. Still, it’s a great idea when working with institutions that can be hard to get in with like the government or schools.
Variable Payment Options: This is where there’s an investment where repayment is deferred for a bit and repayment is made based on specific metrics determined by the person lending and receiving.
Corporate CSR Funds: This could be in the form of grants or funding from corporate venture arms. Not a huge fan for the same reasons expressed above BUT these can be more favorable than firms and foundations. The important thing is to understand what the catch is, and have an attorney read over anything you sign.
Closing Thoughts on Fundraising
Of course, these aren’t all of the options. Still, it just goes to show that contrary to what the blogs, Mediums, and media outlets present there are other options.
Think of this as a Lego building. Who wants to use all of the same blocks? Spread the pieces out, see what you’ve got and build something that truly works for you and your priorities.