Because I’ve been working in the social investment and development sector for more than 20 years, sometimes it feels like I’ve seen everything. Yet, whilst I get impatient with the time it takes to see meaningful change occur, I’m amazed at the resilience of the sector—to beat the odds time and again.
What is starting to get to me though, is the one thing that seems to drive the sector—the quest for finance and money. It’s the first, the last and the most equalising thing in our sector, either you have it or you don’t. There’s no middle ground. And thanks to social media, it seems that the social purpose sector (made up of non-governmental and not for profit organisations, social enterprises, charities & public benefit organisations) are taking their search for money to public platforms where all they talk about is how to access money.
I’ve been watching this pattern for over a year now, and I feel somebody has to say something. And it appears that I’m not the only one: Twitter accounts like @thewinydonor and @nonprofitssay agree that lots of people and organisations want money to make the world a better place, yet it’s either not there, or if it is, they’re not ‘getting a slice of the cake’. They then take to social media in search of people who share their thoughts, that there’s no money to be had.
Here’s my point; do the organisations looking for money know there are a range of options available across the capital spectrum? And are they ready to utilise the capital available? Are their organisations ready for the responsibility that comes with money and, once they get it, are they ready to put the money to good use? Because it seems to me even if they are adequately funded, it may not necessarily mean successful interventions or organisations, nor a great future.
So, What Are Your Options as far as Capital is Concerned?
- First, let’s deal with the ‘free money’: It’s no secret that philanthropists, donors, grant-makers and social investors have become much more strategic about where their focus is. This means, at most, they have 3 investment portfolios where they are placing their bets. To remain responsive to issues such as disasters, or ad hoc requests, a little bit of capital is left for portfolios such as community development, welfare, and donations. But know this, if you are playing in this pool, chances are you will get small amounts on a once off basis. Because, in as much as investment portfolios have been reduced, the small amounts require a lot of administration, so small budgets are also allocated to this portfolio. In addition, you’re facing stiff competition, everyone is looking for free money, and so your proposal and application must be great.
- Secondly, lets deal with ‘free money but with strings attached’: If your organisation is looking for longer term and larger amounts of free money, you’ll have to work for it. In this case, you’ll have to find out which focus areas and investment portfolios are funded and you must know who funds what. Then you must develop a good proposal, present extensive and scientific research with proof of engagement to ensure buy in and support from the recipients. You’ll also have to submit a lot of documentation—to prove your credibility, capability and competency. You must commit and deliver what you promise, in other words, already be clear on how you’re going to implement, manage, measure and what will appear in your impact report. Again, please consider how many organisations do the same as you and be mindful of your competition.
- Still looking for free money, prepared to consider the strings attached, but you’re looking for money plus+: Do you want unrestricted funding as opposed to prescribed and allocated to programmatic expenses only—in other words little or no operational costs covered—to use the money to grow your organisation, build future processes, systems, resources, change your modus operandi and even your legal status? Well then, you may have to sacrifice a few things:
- For one, you may have to enter into partnerships. Funders that’re focused on a single portfolio, and are prepared to invest for the long haul, may hold your feet to the coals and ask for a long list of commitments. Some of these commitments may include sharing the funding with a partner. Are you ready to let go of your ego and work with your competitors?
- Secondly, are you ready to commit to specific outcomes and results? And, are you convinced that your impact evaluation methodology and approach can solve a complex social problem and is the best way to achieve that? You may have to change your business model and add components, you might need to recruit more staff to get specific competencies on board, and you may have to commit to targets. If you can’t commit to targets, are you prepared to pay back the money, or sacrifice some of the money? ‘Pay for results and pay for outcomes’ has become important because investors want to see impact. The days of doing the same old type of program are long gone. Funders are now looking for scale, depth and long-term impact.
- Lastly, are you prepared to change the way you do things? To change your business model and implementation procedures, or even change locations? These days funders want agility and flexibility. Are you able to change quickly and at scale?
So, as far as free money is concerned, the saying ‘There is no such thing as a free lunch’ proves itself true within the economic and social development sectors.
What Other Options Do You Have?
Funders, grant-makers, philanthropists, companies and social investors are now looking to protect their own assets as well. They want to circulate their money, so that they have more money to do more good. Which means, although there will always be a little place for free money, that place is shrinking, and shrinking fast.
In as much as funders, grant-makers and philanthropists have become more clear about what they do and don’t want—which focus areas they do or don’t want to influence and the kind of organisations they do or don’t want to work with—they’re changing the way they fund.
For example, investors are realising that to invest in small business they’ll generate bigger systemic impact, contribute to skills development and employment and grow the economy. Whilst in the past some money was allocated to give people skills, they are now also facilitating loans to grow businesses, but these loans must be paid back. They can do this one business at a time, or they can look to impact an ecosystem to facilitate greater change—which is why so many have started funding accelerators and incubators. An initial investment may be made to get things going, in setting up facilities, get partners on board, but soon after the businesses they invested in must start paying for services. Similarly, once they’ve helped a small business, they must help the next one and someone must pay. Paying back the money helps to fund a cycle of development that becomes a little more sustainable.
In addition, some problems are very big to solve, and individual funders can no longer cope with the demand, if they don’t get anything in return. So, they’re starting to pool their funds or resources, so that more money can bring about more change and they’re looking for larger groups of other organisations that can share the risk and reward, but they want something in return. This return can be either more business or better relationships with government, more customers and new markets, access to new technology or new opportunities and therefore, what was given freely before, now has an expectation of some payback attached.
Possibly more importantly, investors, funders and grant-makers have realised that having the status of a not for profit or charitable organisation does not actually guarantee impact. Thus, the realisation they can work with anyone to bring about change means two things:
More competition for traditional charitable organisations (to compete with commercial organisations) and new ways of doing things. Therefore, if you aren’t prepared to change your status, compete commercially and try new approaches to make the world a better place, then you’ll soon be outnumbered.
Therefore, leveraging commercial capital must be considered (not free money): And now you have a spectrum of possibilities.
- You can look for a private investor
- You can look for an institutional investor
- You can look for a loan
- You can even look for guarantees
Different investors can help enterprises using every type of business model, at each stage of their development, from idea testing to expansion, and from philanthropy to trading and public contracts. Grants, flexible capital, impact investment, guarantees and commercial finance all have their place and can achieve even more when they’re combined.
To figure out what combination works, it helps to clarify what problem is being solved.
- Are you trying to help small social enterprises and/or non-profits access investment for working capital? If so, blended grants and loans could be the answer, potentially combined with enterprise development funds.
- Are you looking to scale up new technology with a positive social impact? Tax breaks, subsidies or acceleration programmes funded by humanitarian agencies or development banks could be the solution.
- Or are you trying to solve a specific social issue like homelessness, refugee integration, or employment for people with disabilities? The tools required could be any combination of research, sector-specific expertise, government involvement, social movements, and multiple types of finance.
- If the focus is on improving the system, and you use the right combination of tools required, far more people’s lives will be improved. However, remember that finance is but one aspect of the development cycle. Financing alone is not enough: you need a mixture of the right team, business model, enterprise income and investments.
Impact investors will always have expectations for their managed funds. Foundations will always need to factor in their specific mission, as well as regulations that limit their activities. Small investors may not have the capacity to deal with the complexities that can arise when working with multiple partners, using a variety of tools. And the commercial and social worlds have different cultures and languages and there may be trust barriers to overcome.
If you really want to create positive social impact, and you really need resources to achieve that dream, please consider more deeply whether you’re ready to make substantial changes. The days of free money are almost over. To access investment in the future, you’ll have to be ready to manage it, once you get it.
Therefore, the question is; Are you ready for the money?