Paul Lovejoy is the founder and lead investment advisor at Stakeholder Enterprise, the nation's first and only registered investment advisor specializing in crowdinvesting for the general public.
New Ideas for Funding Your Social Enterprise: Crowdfunding
Funding your social enterprise can be a daunting experience. There are challenges with every route. Determining which option is right for your business is a decision all social entrepreneurs must face. The 5 traditional routes are:
- Grants — Free money with strings attached
- Self-Funding — Money that you put into your business
- Equity — Capital funding in exchange for a percentage of your company
- Debt — Money you have to pay back
- Crowdfunding — Funding in exchange for deliverable goods or rewards
Many social enterprises do not qualify for securing a grant and self-funding can be very limiting as it is based on your own financial condition. Crowdfunding can be challenging — and sites like Kickstarter deny you any funding at all if you don’t reach your funding goal (which happens 60% of the time). This leaves equity and debt funding, which is the route most businesses go, social enterprise or otherwise.
In the past, start-up businesses would seek out banks for debt financing and venture capital and angel investors for equity funding.
However, today there is a new option that may align more with the values of social enterprises.
This is where a large group of regular people pool small amounts of money to help finance a business venture, either with a loan or in exchange for future equity.
How Crowdinvesting Aligns with Social Enterprise
In the past, banks and wealthy accredited investors dictated which projects and companies got funded, creating additional hurdles for women or minority founders. According to Crunchbase.com just 1.8% of all VC funding went to black founders and just 2.2% went to women founders in 2021.
Crowdinvesting, however, has democratized the landscape for startup investing, allowing the general public to invest directly in black- or woman-led businesses. This has increased the opportunity for disruptive companies to create businesses that could potentially benefit all of humanity.
Just 5 banks control almost half of all the banking assets in the United States. When there is a large concentration of wealth within a small group of financial institutions it increases the likelihood of a financial crisis. Remember “Too Big to Fail”?
When regular people become lenders, they compete with traditional banks. Healthy competition not only reduces the chance of another financial crisis by diversifying the financial markets, it also redistributes wealth, sending more of it back to the people who need it most: innovative business owners.
Engages The Community
By offering your customers the opportunity to benefit financially from investing in your social enterprise, you give them a stake in your success — “skin in the game.” When your customers have a vested interest, they want you to succeed! This increases the chance of these customers not only buying more from your business, but being motivated to promote it to their friends and family.
Respects Your Mission
When receiving equity funding from traditional angel investors and venture capital firms they often put pressure on founders to change their mission goals in order to what they perceive as a more profitable business model.
Through equity crowdinvesting you aren’t beholden to a few wealthy voices in your ear to change. The general public does not have the same expectations that traditional investors do and your social enterprise is less likely to suffer from “mission drift.”
Low Investment Requirements
WIth most crowdinvesting platforms having only a $100 minimum investment requirement, it makes crowdinvesting accessible to just about anyone — allowing regular people the opportunity to build wealth the same way banks and accredited investors do.
Finding The Right CrowdInvesting Platform
There are about 50 different crowdinvesting platforms that are members of FINRA and registered with the SEC. Therefore, finding the right platform can be tricky if you don’t know where to look. At Stakeholder Enterprise, we consider the following 4 platforms a great place to start.
Their platform makes equity funding as easy as it gets. They have a step-by-step process that is simple and intuitive for raising capital. The platform is a Certified B Corp and the founders were instrumental in changing the laws to allow the general public to invest in startup companies.
This platform specializes in loans to small businesses, many of which are social enterprises and don’t know it! This is a great resource if you are not interested in giving away ownership in your social enterprise. The loan terms are fair and they provide free coaching to help you have a successful funding campaign.
This platform provides equity funding primarily for technology-based social enterprises. They have a growing network of impact investors that are specifically looking to make positive social and environmental change.
If you have a real estate project that is geared toward community development then SmallChange is the place you will want to start. Both equity and debt funding are available on this platform allowing you to pick the right funding source for your project.
The landscape to fund your social enterprise has dramatically changed in just the past few years. The options available to you are no longer cold and concerned with profit bottom line only. We all now have the power to invest in the change we wish to see in the world by funding a social enterprise that can be that change.
Learn more at Stakeholder Enterprise.