Find­ing the right sources of financ­ing

From tra­di­tion­al options such as equi­ty and impact investors to inno­v­a­tive mod­els such as rev­enue-based financ­ing — there are numer­ous options that you can tai­lor to your needs. In this chap­ter, you will learn how to eval­u­ate and com­bine financ­ing options to achieve max­i­mum flex­i­bil­i­ty, sta­bil­i­ty and scal­a­bil­i­ty.

1. get an overview of the financ­ing options

Think about which sources of fund­ing suit your busi­ness mod­el and your impact approach. Pos­si­ble options are

• Equi­ty
• Impact investors, busi­ness angels and spe­cial­ized ven­ture cap­i­tal funds
• Foun­da­tions and phil­an­thropists
• Incu­ba­tors / Accel­er­a­tors
• Bank loans
• State fund­ing pro­grams for sus­tain­able com­pa­nies
• Crowd­fund­ing with a focus on social or eco­log­i­cal projects

2. exam­ines alter­na­tive financ­ing mod­els

Not every source of fund­ing will suit the needs of your impact start­up. Alter­na­tives such as rev­enue-based financ­ing, ven­ture debt or peer-to-peer lend­ing could give you more flex­i­bil­i­ty with­out los­ing con­trol of your solu­tion.

• Rev­enue-based financ­ing: In this form of financ­ing, a com­pa­ny receives cap­i­tal from investors and repays this through a per­cent­age of its future sales.
• Ven­ture debt: This is a loan grant­ed by spe­cial­ized banks or debt funds to high-growth, ven­ture cap­i­tal-financed start-ups. Lenders accept a high­er risk here com­pared to tra­di­tion­al banks.
• Peer-to-peer loans: P2P loans are a form of direct lend­ing between pri­vate indi­vid­u­als or com­pa­nies, with­out the involve­ment of tra­di­tion­al finan­cial insti­tu­tions such as banks.

3. eval­u­ates the options

To make the best choice, eval­u­ate each option based on avail­abil­i­ty, cost, lever­age and flex­i­bil­i­ty. Hybrid financ­ing is often the key, where you com­bine equi­ty, debt and grants with inno­v­a­tive instru­ments such as social impact bonds. This is how you lay the finan­cial foun­da­tion for growth and long-term suc­cess.

Adapt financ­ing strat­e­gy

To suc­cess­ful­ly guide your impact start­up through the var­i­ous devel­op­ment phas­es, you should adapt your financ­ing to phas­es, mile­stones and pos­si­ble sce­nar­ios .

• Phase-based plan­ning: Assign the appro­pri­ate financ­ing options to the respec­tive devel­op­ment stages of your start­up and decide which form makes the most sense and when.
• Mile­stone-based plan­ning: link­ing your financ­ing strat­e­gy then with clear mile­stones, such as the com­ple­tion of an MVP test or proof of your first impact. This way, you can keep an eye on your goals.
• Sce­nario plan­ning: Sup­ple­ment this with sce­nario plan­ning in which you devel­op best-case, worst-case and prob­a­bil­i­ty sce­nar­ios in order to be able to react flex­i­bly to changes.

Well pre­pared for investors

1. gath­er your impor­tant doc­u­ments togeth­er

Trans­paren­cy is cru­cial when prepar­ing for investors. Make sure that your doc­u­ments are com­plete. Must not be miss­ing:

• your busi­ness mod­el
• all key finan­cial fig­ures and
• your mea­sur­able impact KPIs.

2.struc­ture your pitch deck

A con­vinc­ing pitch shows poten­tial investors why your start­up is unique and why it is worth invest­ing in. Divide your pre­sen­ta­tion into clear sec­tions.

Focus on the added val­ue and show how your start­up com­bines social or eco­log­i­cal impact with finan­cial sus­tain­abil­i­ty. Use data and sto­ry­telling to sup­port your argu­ments with num­bers and tell a com­pelling sto­ry that makes your vision tan­gi­ble.

3. prac­tise, prac­tise, prac­tise

Try out dif­fer­ent approach­es, test your pitch in front of friends, col­leagues or men­tors and adapt it. Prac­tice giv­ing the pre­sen­ta­tion. A con­fi­dent appear­ance and tim­ing are cru­cial to con­vince investors.

Net­work­ing and becom­ing vis­i­ble

Net­work­ing is equal­ly impor­tant for the suc­cess of your start­up: Attend events such as con­fer­ences, pitch­es and mee­tups, and join net­works and com­mu­ni­ties for social enter­pris­es. Use plat­forms such as LinkedIn and start­up por­tals to increase your vis­i­bil­i­ty and make con­tacts with investors and part­ners. Active­ly main­tain exist­ing con­nec­tions and keep your sup­port­ers up to date with reg­u­lar updates. Com­pe­ti­tions and ten­ders can also help to secure fund­ing and strength­en your pres­ence in the indus­try.

Next chap­ter: Test strat­e­gy

The devel­op­ment of your fund­ing strat­e­gy is in full swing and you have pre­pared a pitch for poten­tial spon­sors and investors.

In the next chap­ter it’s time to test your strat­e­gy — by pitch­ing it to poten­tial donors and get­ting feed­back.