It's to support and extend the delivery and success of the startup. That means it's not just about money, but about support, networks and so on. Of course some businesses/social enterprises are built by individuals and teams who have that expertise already, but the vast majority benefit from finding new networks, mentors etc. Organised funding (grants, venture capital, social investment) often comes with this additional support, which can be vital to success.
Grants are and option:
If your venture is working to address any social problem, markets might not be easy to find, which means other forms of investment might not be suitable (or forthcoming) – this is where grants are really well suited. Not because sustainability or growth aren't possible, but because they can take longer to identify and realise.
Investment is in many ways about risk: backing an unknown team; investing in an unproven idea. Where there's more risk and where the rewards aren't necessarily financial, this again is where grants are particularly useful.
Put yourself in the shoes of your potential funders:
If you understand their economic and social motivations, you will have the best chance of determining what type of funding to raise (and succeeding at doing so).
Are you a high-risk, high-growth business? Then your investors want meaningful enough upside to compensate for the risk. Are you confident of steady returns? Then a debt instrument is likely to appeal to investors. Maybe you're doing something cool and fun with no particular economic return – in that case, the social motivations of rewards-based crowdfunding (like Kickstarter) might be right for you. Understand your funders, and the rest will fall into place.
Equity crowdfunding is a good first step on the equity ladder:
By raising initial capital through platforms like Seedrs, a startup gets not only the money it needs to take a first step but also an installed base of supporters who can help test the product, spread the word and make connections. From there, the business can go on to raise angel money, venture capital, join an accelerator or pursue any of a range of different funding options.
Scott Sage, partner, DFJ Esprit
The pros and cons of venture capital:
