This guest post was written by Ron Flavin, Growth and Funding Strategist, Angel Investor, Author and Speaker at Ron Flavin, Inc., and previous Co-Director of the San Francisco Founder Institute - and was originally published on his blog.
Many founders of a Social Enterprise Startup are curious about the KPIs (key performance indicators) investors look for in a social enterprise startup and how they are different from the KPIs of a traditional startup. What are the social enterprise key performance indicators investors look for and does every investor use the same metrics? Let’s take a look and find out.
Social Impact Startups or Social Enterprises: How are they funded?
In the past, social enterprises were mostly nonprofits primarily funded through bootstrapping, individual donations and government grants or grants from charitable foundations. But today the landscape is rapidly changing as there are a growing number of impact investors, including angel investors, venture capital firms, high wealth individuals, family offices, and other private investors interested in supporting social enterprises that make a strong social impact and offer market rate returns. According to the Global Impact Investing Network (GLIIN), as of 2019, 1,340 organizations managed $502 billion (USD) in impact investing assets worldwide.
To meet the growing interest in impact investing, there are an increasing number of startup accelerators and startup incubators that support the launch and growth of social enterprises and social impact startups. Sites such as Donor Box offer a list of startup accelerators for social enterprises. Even global startup accelerators such as the Founder Institute are offering cohorts that focus on social enterprise startups and have initiatives such as FI for Good that are designed to support social entrepreneurs. If you are interested in launching your own social enterprise, the Stanford Social Enterprise Hub offers a wealth of resources for social entrepreneurs.
Social Enterprise Startup Key Performance Indicators (KPIs): How do they differ from regular startup metrics?
There are many different ways that social enterprises determine their success. When I used to serve as a peer reviewer and review team leader of funding proposals submitted to government programs such as the U.S. Department of Treasury New Market Tax Credits (NMTC) program, Community Financial Development Institutions (CDFI) fund and others, we used the Triple Bottom Line (in its simplest terms, people, planet and profit) as the primary KPI for social enterprises seeking funding through these programs.
In the traditional startup world, KPIs vary by industry, sector, type of startup and more. Investors will of course look at profit potential, but many will also look at KPIs such as monthly recurring revenue (MRR), annual recurring revenue (ARR), customer acquisition cost (CAC), burn rate, percentage of revenue from new customers, cash-on-hand and months of runway, user retention, churn rate and more.
Social Impact Investors: What do they have to say?
For private investors, including venture capital funds, angel investors and family offices, the social enterprise key performance indicators relevant to them, are going to vary from funder to funder.
Some investors use social impact metrics such as alignment to one of more of the United Nations Sustainable Development goals. Alignment to any or all of these goals can come at the level of the organization’s mission statement or they can be directly tied to the social enterprise’s KPIs. But make no mistake–social impact investors care about doing good, but they also care about making a profit. While their return on investment (ROI) expectations are generally significantly lower than traditional venture capital firms, profit is still going to be a big part of the decision-making process.
In writing this article, I had the opportunity to speak with Alex Sloane, a top San Francisco-based national expert on the topic of social impact investing for individuals, corporate, family and foundation partners. Alex has spent his career investing in and successfully growing entrepreneurial for-profit and nonprofit organizations that seek to drive financial and/or social impact. He is co-author of Choose Your Own Impact Adventure: A Guide for Impact Investors, which outlines a step-by-step process to help impact investors choose the right social enterprise investments for them.
Alex mentions that comprehensive strategies to integrate social impact and financial goals, blur the line between those categories in the process, and as such, are still a nascent practice. He went on to say that this approach requires consideration of various social issues of concern; available financial instruments; sources of capital; different returns, liquidity and risk profiles; tax considerations; and, in some cases, finding comfort in making tradeoffs between these variables.
For the impact investor, Alex stresses the importance of developing a theory of change. In other words, what actions are needed to drive the lasting, systemic change you seek? What investment could drive improvements in your issue area? By following the process outlined in the guide, you will be able to identify the available investment opportunities with likely market-rate returns, plus meaningful social impact that are important to you.
Social Impact Investors: Where do you find them?
Here are just a few places you can look for social impact investors to fund your social enterprise:
- Angel.co: To find angel investors who prefer to invest in social enterprises, Angel.co remains a key go-to resource for social entrepreneurs.
- Crunchbase: This is one of the top resources for startup founders to search for venture capitalists or venture capital firms. A quick search of investors interested in funding social enterprises or otherwise interested in social impact, revealed nearly 10,000 results.
- LinkedIn: Never overlook the tremendous value of the search functionality of LinkedIn. This professional network offers incredibly powerful tools and resources to help you uncover social impact investors and social enterprise investors.
Once you’ve found them and created a list, approach your targets carefully. Blanketing your prospects with unsolicited messages will not only give you the reputation as someone who is unprofessional, but also as someone who should be ignored.
Instead, look at each prospect and see who you have in common. Ask your shared connections (assuming you know at least one shared connection well enough to do so) for a ‘warm’ introduction. From there, don’t begin immediately with an ask. Instead, introduce yourself and start to build a rapport with that person. Then, ask for advice, not for money (thank you, Madeline Duva). Next, perhaps ask if you can include them in your monthly updates. As you build the relationship, you’ll know if or when the right time to approach your prospect is. Just don’t rush it, or you will likely destroy the relationship and possibly your reputation (investors love to talk to one another and share stories).
Interested in learning more about funding for social enterprises?
Contact me today and let’s talk.
This post was written by Ron Flavin (Growth and Funding Strategist, Angel Investor, Author and Speaker at Ron Flavin, Inc., and previous Co-Director of the San Francisco Founder Institute), and was originally published on his blog.
Ron Flavin is a growth and funding strategist who helps entrepreneurs and organizations to develop innovative growth strategies, identify new revenue sources or secure the funds they need to grow and prosper. Using his own unique methodology, he work with his clients to develop a step-by-step growth and funding action plan that builds a bridge between vision and financial goals. Using this model, he has obtained more than $200 million in funding for his clients, and been part of decision-making teams that have allocated more than $1 billion in funding. As a result, Ron knows first-hand what those who hold the purse strings look for when determining which proposals get funded and which ones get tossed aside.
Graduates of the Founder Institute are creating some of the world's fastest growing startups, having raised over $950M in funding, and building products people love across over 200 cities worldwide. See the most recent news from our Grads at FI.co/news, or learn more about their stories at FI.co/journey.