Editor’s Note: This story was originally published December 1, 2017
Starting a business is tricky enough. Starting a business with a mission to improve the lives of millions or save the planet is even harder.
So-called “social entrepreneurs” face bigger challenges than other company founders in converting their ideas into viable businesses. Investors are harder to find, and there are fewer established networks to provide support.
Now help is at hand, with a growing number of companies offering money, office space and training programs to help these fledgling firms get off the ground.
“Our objective when selecting entrepreneurs is to find ideas that can become a business worth over £50 million within ten years. We are looking for impact and scale, ideas that can help millions of people,” said Joe Ludlow, managing partner at London’s Bethnal Green Ventures (BGV).
BGV supports entrepreneurs who want to use technology to change people’s lives for the better. Since 2011, it has backed 104 “tech-for-good” startups, investing £2 million ($2.7 million) in total in exchange for a 6% stake in each.
“We are trying to demonstrate that investing in tech-for-good can be comparable in terms of return to investing in other early stage technology companies,” Ludlow said.
Graduates of BGV’s accelerator program have raised £39 million ($52.6 million) from impact investors, mainstream venture capital funds and private foundations.
Finding the capital to achieve a viable scale is one of the biggest challenges for “impact businesses,” partly because the startup scene is so dispersed, according to Luni Libes, who set up Fledge in 2012 to help entrepreneurs with a mission as well as a profit motive.
“There are fewer investors and they can be harder to find,” Libes said. “There is no equivalent of Silicon Valley for social good startups, there’s no one place where people are flooding to to start these types of ventures.”
Fledge is headquartered in Seattle, but it also runs accelerator programs in Peru and Spain, and will expand to Canada and Italy in 2018.
So far, more than 80 startups from 22 countries have gone through Fledge’s accelerator program, which offers mentoring and entrepreneurship education, and prepares social enterprises to attract new investors.
Among its graduates is Evrnu, a startup that has developed a process to recycle cotton and partnered with Levis to develop recycled jeans.
Fledge invests $15,000 to $20,000 in each of its “fledglings.” In return it gets a 6% stake in the company. So far it has invested $1.7 million.
“We’re not investing for an exit, but for a share of future revenues,” Libes said. “Many of the companies I work with have no desire to sell or go public. They are driven by their mission, not dollars. They want to solve big problems.”
Building a community
Entrepreneurs also need to feel part of a community when building their businesses, according to Henrique Bussacos, a partner at Impact Hub.
Impact Hub describes itself as “part innovation lab, part business incubator, and part community center.” It opened its first hub in London in 2005, and now has a network of almost 100 around the world.
For social enterprises that wish to scale, choosing the right approach is key.
“Social enterprises are focused on scaling their impact, this doesn’t always mean scaling their financial figures at the same pace,” Bussacos said.
And as social enterprises grow, they can help a new wave of impact businesses get off the ground.
For example, the Impact Investment Exchange supports companies through its ACTS accelerator program, which is subsidized by partner grants. Once companies have raised capital from investors, they pay back into the program, enabling it to support a new crop of startups.