Rodney Schwartz, Clearly So
Profit in itself is not evil. It depends on how you generate it, what you use it for, and what you have sacrificed (if anything) along the way to achieve it. I agree with you and have felt for some time profit is criticised in this sector in particular. To address these issues I wrote a piece for Social Edge called "Punishing Profit in the Pointless Pursuit of Purity" - here is the link.
Localism can play an important role, as can community shares, because people assess risk differently when it is something they can access easily or pass every day, like the local pub. It will be some time before the mechanism to support this effiort at scale are in place
In my view people use "gut feeling" about people. Often this may mean, subconsciously, "he is a good guy/gal--reminds me of me" or something like that. Sometimes it is a more sophisticated view than this. In all cases, when a team comes with an accomplished and relevant track record it is the best possible guide to future success and raises considerably the likelihood of investment.
1) socents will get the funding they need, the money is out there. But, they need to prove themselves to be backable, and they have not always done a good job of this.
2) crowdfunding will rise (it already has - what else is Kiva, Zopa or Justgiving, really) but it will take some time to meet the massive funding needs of our society
3) the greatest challenge the sector faces? As I said above - proving and demonstrating "backability"
Gareth Zahir-Bill, Consultant
Projecting financials for a start-up is tough, for a retail business tougher still for a luxury brand in very uncertain times tougher still. If possible its always useful if you can demonstrate how you project your margins accurately, can show how overheads/expenses scale with sales , can show how you project the overheads themselves.
If you are primarily on-line you may be able to demonstrate some link between marketing spend and sales (e.g. money invested in pay-per-clicks translating to sales). Its particularly useful for management or the board to have clear demonstrable experience in doing something similar, also its useful to present projected and actual results for previous months or years (hence the need to keep accurate management accounts). Institutional investors may track businesses for months if not years to see how they hit initial projections and in doing so gauge their ability to forecast accurately.
In my experience a good management and board wont join a business with an ill thought through business model, at the same time a good management team/ board will improve the business model and give confidence to investors.
Like most start-ups , one develops alongside another, I would concur on the strength to a proposition of investing NXDs, somebody who is putting their money where their mouth is rather than for a day rate and sandwiches, not they also need to bring more than just cash
David Thomas, Danaqa
The main problem that we had when raising funds was convincing people that the numbers that we had in our projected financials were realistic, that the returns that we were showing them were realistic and that the social aims that we were aiming for were realistic.
We reached a point having raised about 50% of our desired capital that people who we had a personal connection with were exhausted. We then decided to form a strong board of directors (replace with trustees for the more socially leaning social enterprises!) - with 3 strong non-execs and 2 non-investing directors, with a strong mix of social/business (legal and HR)/finance/development backgrounds to push the venture on.
This completely changed the atmosphere of the venture and our attitude. After the board had formed, finishing the fund-raising was not so much of an issue as new avenues contacts and confidence was there.
We are still very much at start-up phase, though due to the successful fundraising have a reasonable contingency which will hopefully keep us sustainable.
Anyone who is thinking about starting any type of venture social enterprise/business or charity has to be aware that it is going to take a lot of time. Any prudent investor/funder/lender/donor is going to ask the difficult questions. The only way you can answer them is with research. Using percentages (there are 12 million people in London if 0.1% use my service then...) is not realistic or smart.
You have to find similar business/ventures and ask them questions, you have to count people, survey (even informally) and research prices. For us (being an ethical retail business) this also involved sitting for hours and hours outside shops/spaces counting. So when the difficult question was asked, we had a decent answer
Simi Shah, Social Investment Business
We manage the Communitybuilders and Social Enterprise Investment Fund (SEIF) which provide investment options for social enterprises. Communitybuilders provides loans, grants and business support to multipurpose, community-led organisations and the SEIF aims to enhance the role of social enterprise in the provision of health and social care. (Both funds are closed at the moment)
When looking to raise capital, if you're going to be successful it's best to get back to basics and make sure your application to funds is as thorough as it can be.
It's important to check the criteria of whatever fund or product you're applying for. This may seem quite obvious, but a lot of valuable time and energy can be wasted by either misreading (or not reading) the rules, or just by 'taking a punt' with a lender who stated they weren't interested in a particular kind of project. I'd say make sure it is the right fit for you.
Demonstrating the reasoning and assumptions behind your projections is an important part of a proposal and without it the numbers and outcomes you are promising become less convincing and dilutes the comfort a funder can take in you.
We spend a lot of time speaking with investees about this task and I think one problem I've seen is that groups sometimes appear as though they did the numbers first and then went to look for assumptions that supported their anecdotal evidence.
Stephen Rockman, Merism
We look for the 4 'M's:
Management - at seed level its about building relationships and backing the person
Money - how far will our money take the business
Market - is there one and how big is it?
Motion - what stage is the business at? is it building momentum? (we're OK with pre-revenue)
The challenge for socents is that there may well be some compromise on money/market and motion so its the relationship that counts : be credible, have realistic expectations and above all be business-like - even if you're a non-profit.
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