Funding for mission-driven startups typically comes from impact investment capital. As a founder looking to establish a startup with a positive social and environmental footprint, you’ll target impact investors.
Raising funding for social or mission-driven startups is unlike conventional capital. You’ll reach out to investors with detailed documentation explaining the difference your company can make.
Your pitch will include a business model focused on sustainability or Environmental, Social, and Governance (ESG). In other words, you’ll demonstrate how the products and services you develop will contribute to a sustainable environment and community.
The UN has instituted 17 Sustainable Business Goals (SDG), and startups working toward achieving these goals are attracting investor interest. Experts estimate that the worldwide impact investment market has appreciated from $420.91B in 2022 to $495.82B in 2023.
They also estimate that by the year 2030, the market will have grown to $2.2T. Over the next 10 years, the number of entities committed to supporting social startups is likely to rise significantly.
The availability of more capital makes this the opportune time to start a venture and raise funding for mission-driven startups. Read ahead for in-depth information about how impact investing works. Also, learn about the best sources to approach for acquiring capital for your new social company.
The Ultimate Guide To Pitch Decks
Understanding Impact Investing
Impact investors are entities that back startups, projects, and innovative ideas that have the potential to create a positive impact. Any projects that can have a measurable social and environmental impact on the people and planet can get their support.
Aside from capital, startups can also expect guidance in developing viable projects, products, and services. Although impact investors do expect a financial return, they are open to offering funding at favorable interest rates and returns.
Sectors like clean energy, microfinance, sustainable agriculture, housing, education, healthcare, and social enterprise are some of the core investment niches. Impact investment can be of two different types, such as:
- Mission-Related Investments – Such investments focus on achieving a positive impact but also want to generate financial returns.
- Program-related investments (PRIs) – The sole objective for such investments is to offer capital at below market rate. They expect to deliver lower financial gains but also accept higher risk. PRIs get funding from grant providers and philanthropic organizations.
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Funding for Mission-Driven Startups – Sources to Approach
Founders looking for funding for their social impact startups should look for entities that operate in the impact investing sector. There are an estimated more than 1,340 impact-driven organizations that manage close to $502B.
These entities move the funds across several asset classes, making them available to new ventures. Around 88% have reported that their investments have achieved far more than their expected returns.
Institutional investors, banks, venture capital firms, fund managers, and family offices are some of the impact investing sources to approach. You can also apply for grants and reach out to angel investors, incubators, and accelerators.
Bootstrapping and seed funding from friends and family are always initial options when you’re trying to get the startup off the ground. As your venture grows, entering into strategic partnerships helps you not only with acquiring funding but also scaling the company.
Institutional ESG Investors
Organizations like Bain Capital, BlackRock, TPG, Goldman Sachs, Parnassus Investments, Calvert Research & Management, and KKR have impact investing programs. Though, these organizations typically support later-stage companies wanting to exit by selling the business.
In addition to providing funding, institutional investors help startups analyze their performances and gather quantifiable data and statistics. In this way, companies can measure their progress, which can be advantageous when compiling reports.
That’s how it’s possible to raise awareness of the impact the companies are having on the particular social or environmental sector they’re targeting. Not only can you successfully acquire funding from other investors, but selling products and acquiring customers is easier.
Measurable results prove that your company is achieving the goals outlined by its mission and vision.
Venture capitalists and private equity firms divert funding from Institutional investors and channel them toward qualifying startups. You can also approach these entities to fund your new venture.
Several crowdfunding platforms are now available that specifically offer funding for mission-driven startups. Some good examples include Start Some Good, LendaHand, Kiva, and Ours to Own. You can also check out GoFundMe, Indiegogo, and Kickstarter.
Getting funding by pitching on these platforms is quickly attracting interest. Entrepreneurs wanting to build startups that have a positive social and environmental impact can present their ideas to their members.
The feedback and funding founders acquire also help them build a robust customer base if they offer reward-based returns. Offering equity in exchange for the funding they receive is another option.
If your pitch is compelling enough, you have the potential to raise significant amounts of money to kickstart the project. The SEC has raised the fundraising limit for small and medium-sized businesses from $1.07M to $5M.
Starting in 2020, startups can avail of more streamlined processes in the exempt offering framework, with many of the complexities being eliminated. Navigating the legal procedures is much easier now.
Institutional Wealth Managers
Banks and wealth managers like Fidelity typically have a portfolio of clients comprising individuals and institutions. These entities are keen on supporting social and environmental causes and are interested in ESG-driven investment options.
Applying to the wealth managers could get you access to the index funds they handle. Some of the top institutional wealth managers supporting social startups include Morgan Stanley, the Rise Fund by TPG Growth, and the Bridgespan Group.
Founders looking for funding can also consider reaching out to family offices for money. Family offices leverage their assets and offer capital to startups through their venture capital divisions. Their objective is to support social and environmental causes but also expect returns from their investments.
Looking for more information about how to find investors for your startups? Check out this video I have created to introduce you to the first steps in raising funding.
Angel investors are typically individuals and veteran entrepreneurs looking for exciting projects they can support with money and expertise. Some of them are very much interested in providing funding for mission-driven startups that commit to making a social impact.
You can rely on them for mentoring, advice, and a network of potential partners to help you scale the venture. Make sure to leverage networking events and any other channels for interacting with these entities.
Reaching out to a single individual angel successfully can help you gain access to their contacts. Once you pitch your business idea and secure funding, connecting with other like-minded people in their circles could earn you further commitments.
Fundraising for further rounds can get a lot easier as you circulate around the group. Just make sure to have an elevator pitch ready.
Incubators and Accelerators
Social impact founders should reach out to incubators and accelerators that specifically support mission-driven ventures. Some great examples of accelerators include the GSBI Accelerator and the Founder Institute, which supports for-progress startups.
You could also consider applying to Village Capital, which offers qualifying founders seed capital and grant funding at the end of the program. Uncharted, Los Angeles Cleantech Incubator, and the Halcyon Incubator are incubator programs dedicated to supporting impact-driven ventures.
Incubators help entrepreneurs with converting their concepts and industry-disruptive ideas into a Minimum Viable Product (MVP). On the other hand, accelerators speed up the development of the business and compress years’ worth of growth training into a few months.
Both programs offer mentoring, funding, resources, work premises, and administrative support to entrepreneurs. Early-stage, social impact startups needing assistance to transform their ideas into well-established companies can benefit from their help.
Founders confident that their business idea has adequate value to make a difference on a social and environmental front can consider participating in competitions. These annual pitch competitions focus on impact ventures and nonprofits.
One of the most prestigious events is the annual Cisco Global Problem Solver Challenge. This contest is organized with the objective of supporting early-stage entrepreneurs. Any new business concepts leveraging technology to bring a positive social impact can participate with entries. The sixth Cisco Challenge awards prize money worth $1M, which is divided among 20 contestants.
You can also research the Social Venture Partners (SVP) chapters in your city. These are, again, annual competitions for established for-profit and nonprofit social startups and nonprofit ventures.
SVP particularly targets small businesses working to alleviate critical problems like climate change, homelessness, unequal education opportunities, and poverty. Startups working to improve criminal rehabilitation and prevent convicts from returning to crime also receive support.
IMPACT Pitch 2023 is another event that awards $36,000 to new companies seeking to make an impact. Three prizes of $6,000 each are presented in categories like Best Startup Business, Best Early Stage Business, and Best Established Business.
Other prizes are also given out. In addition to cash prizes, the organization also provides winners with mentoring and access to their resources.
Several government and non-government organizations offer grants as funding to mission-driven startups. Typically, the agencies pick out ventures that share their mission and values and support them. Some great examples include the Pollination Project, the Mulago Foundation, Echoing Green, and the Skoll Foundation.
Keep in mind that in fundraising, storytelling is everything. In this regard, for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
Patient capital is a source of funding for mission-driven startups that have groundbreaking ideas that seem impossible on paper. Philanthropists desiring to promote initiatives to help the underprivileged often offer patient capital to ventures that meet their eligibility criteria.
The objective behind patient capital is to provide long-term capital with complete flexibility. This form of funding is also highly risk-tolerant. However, founders are held accountable for the investment and enter into agreements for the return of the capital.
Conditions like these ensure that the startup can scale sustainably and its owners are committed to its vision and success.
Strategic Partnerships & Bootstrapping
Entering into strategic partnerships can benefit a fledgling impact company in many ways. You could acquire sponsors with a mission statement that aligns with your startup’s objectives. Also, reach out to nonprofits, foundations, and corporations who may be interested in supporting the venture.
Such entities may fund smaller, upcoming ventures to gain visibility and traction as responsible and committed to supporting the environment. Consider entering into collaborations to share resources or agreements for mutually beneficial development initiatives.
You’ll start by identifying common goals and work toward connecting with like-minded founders. Don’t pass up the possibility of acquiring interest and funding from family, friends, and colleagues.
Also, approach any other people who share your commitment to making a difference. If they have felt the negative impact of any specific issue, they might be interested in contributing to resolving it.
The best strategy for funding for mission-driven startups always begins at home–with bootstrapping. Invest personal savings and use credit cards and lines of credit to start the business. Demonstrating that you’ve invested personally indicates that you have skin in the game.
Pitching to investors and raising funding will be much easier. Although working with limited resources may result in slow growth, it will also ensure complete control over the decision-making processes. Acquiring funding from external investors may require you to give them equity and board seats.
Before We Sign Off!
Social impact startups are getting visibility and attention from investors and apex organizations like the United Nations. Even so, these ventures face hurdles when it comes to attracting adequate funding and resources.
Analyzing market and industry projections needs non-standardized benchmarks that are yet to be refined. This factor impacts estimates of expected returns. This is why founders can get funding from only a particular group of dedicated investors.
If you’re thinking of building a mission-driven business, you’ll start by researching the funding options available to you. Seek out investors and organizations with goals and objectives that align with your company’s mission.
In addition to capital, you could also impress them with the business idea and get expert mentoring, advice, and networking opportunities. These resources could ensure the long-term success of your venture.
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