beyond fundraising
DESCRIPTION
Many entrepreneurs – social, triple bottom line or otherwise – do not avail themselves of all potential capital sources when seeking funding to grow or scale, limiting prospects to cash flow their initiatives. This seminar explores a range of options for funding: external in the marketplace, internal within an organization, new ideas and classics not to overlook.TRANSCRIPT
Sponsored by:
Beyond Fundraising
Drew Tulchin November 20, 2013
Twitter Hashtag - #4Glearn
Part
Of:
Sponsored by:
Advising nonprofits in:
• Strategy
• Planning
• Organizational Development
www.synthesispartnership.com
(617) 969-1881
INTEGRATED PLANNING
Part
Of:
Sponsored by: Part
Of:
Coming Soon
Sponsored by:
Today’s Speakers
Drew Tulchin Managing Partner
Social Enterprise Associates
Jamie Maloney Community Developer, 4Good
Founding Director of Nonprofit Webinars and Host:
Sam Frank, Synthesis Partnership
Part
Of:
Webinar Beyond Fundraising
Drew Tulchin Managing Partner
Social Enterprise Associates
4Good Nov. 20, 2013
Training Objectives
• How to leverage new capital, manage cash flow
• How to work with vendors, bankers and other providers of capital
• How to get more money from sources you already have
• Have fun, learn and share
About Social Enterprise Associates
Drew Tulchin, Managing Partner, MBA • Written >100 business / strategic plans
• Efforts raised >$100 mil. in capital
• Biz plan winner, Global Social Venture Comp; raised $1.2 mil. in social investment
• Judge in national social enterprise & social business competitions
Consulting firm - Registered ‘B Corp’ Network of experts offering consulting & capital raising to triple bottom line efforts- for people, profits, planet. Registered ‘B Corporation’, recognized: 2011 'One of the Best for the World' small businesses 2012 Honoree NM Sustainable Business of the Year
Consulting Examples
SW Native Green Loan Fund: Structured term sheet that recruited $1 million in impact investment
Solar Energy Loan Fund: Wrote business plan, financial projections and located investors that led to $400 K in funding
Restore the Earth Foundation: Developed investor pitch that quantified social value of 10,000 acre wetland reforestation
Sea to Table: Coached entrepreneurs and orchestrated $1 million funding package from multiple sources
World Food Program: Devised five year plan for $400 million private sector engagement strategy
Nemours Health Services: Assessed impact, measured SROI, cost / benefit, to diversify funding; create new funding proposal
Resources
Free publications: www.socialenterprise.net
Topic Examples:
• Surfing the Crowdfunding Wave
• Nonprofit Earned Income Strategies
• New Sources of Capital
• Integrating Social and Environmental Metrics
Getting Started
Group Brainstorm List financial vehicles/channels
open to NGOs, small businesses
Framework &
Structure
12
Definition of Terms
• Measures degree which operating income covers adjusted operating exp
Financial Self-Sufficiency
• When operating income is greater than adjusted operating expenses
Project Profitability
• Cash or assets used to generate income
Capital
• Present needs met without compromising ability for needs met in future
Sustainability
• Compensation from participation in a business, including wages, salary, tips, commissions, and bonuses
Earned Income
More Terms
Risk capital The wealth that a person allocates for investment in new or speculative securities with high risk.
Loan
The act of giving money, property or other material goods to a another party in exchange for future repayment of the principal amount along with interest or other finance charges.
Savings
The amount left over when the cost of a person's consumer expenditure is subtracted from the amount of disposable income that he or she earns in a given period of time.
Venture capital
The money provided by investors to startup firms and small businesses with perceived, long-term growth potential. It typically entails high risk for the investor, but it has the potential for above-average returns.
& Finally – Terms Socially Responsible Investment (SRI)
An investment strategy which integrates social, environmental and/or ethical criteria into the processes of analysis, selection, and choice of investment except for the financial criteria.
Socially motivated capital
The money provided by investors to fund businesses or programs that actively achieve social or environmental impact.
Mission related investment
The investment of a foundation's endowment assets in
opportunities that align with its program goals.
Triple bottom line
A business oriented solution generates returns of financial performance, social impact, and environmental sustainability entrepreneurs, their organizations, and the industries in which they operate. And, now, the Quadruple Bottom Line – the 4th Dimension.
Quadruple Bottom Line
Source: www.npsp.sa.gov.au
Why go Beyond Fundraising?
Volume of Capital
Philanthropy
ANNUAL giving of all US Foundations
Investment
DAILY transactions of the financial markets (“Wall St.”)
$ 30 Billion
$ 1 Trillion
Which pot of money would you rather be drawing from?
Benefits of Beyond Fundraising
Do more with less Less government $$ Twice as many NGOs as 10 years ago Don’t leave money on the table Build self-sufficiency Be the dog or the tail?
Continuum of Financial / Social Expectations
High Low Risk / Return Expectations
High
Social Value
Creation Expectations
Philanthropy donation
No expectation of return
PRI from a foundation
~0-2% year interest
Socially responsible
investors debt • Fewer obligations
• ~3-5% in dollars or local currency (8-10%)
Banks debt
~10% year interest
Venture capitalist
• Ownership expect • 20% returns a year in equity
Places to Learn More
Best sources we like
Investopedia.com Dictionary: a Forbes digital company provides a comprehensive financial dictionary/glossary
The Dictionary of Sustainable Management: an online dictionary constructed by the Presidio Graduate School defines sustainability and business-related terms
Glossary of Business Terms from Skoll Foundation: a glossary of business terms relevant to social entrepreneurship
Glossary from Nonprofit Good Practice Guide: a glossary of terms and expressions that are commonly utilized in the nonprofit sector
Income Statement
Income Statement
From Social Enterprise Associates Tip Sheet #12:
Nonprofit Earned Income Strategies: Where to Start www.socialenterprise.net/assets/files/TipSheet12EarnedIncomeStrategies.pdf
• Is social enterprise a fit for your organization?
• What are steps in decision-making?
• Does this solution match the problem?
Incremental Steps
Step 1: Internal Organizational Assessment
•Does organization have sufficient staff capacity?
•Are there strong internal systems for new effort?
•Does organization have sufficient knowledge, expertise in this area?
•Is there sufficient cash flow to take on new projects?
Incremental Steps
Step 2: Feasibility Study
•What are the organization’s goals for this undertaking in terms of money and mission?
•What are the costs and revenues associated with this new project?
•How operational will the organization do this ‘new thing’?
•What organizational changes and adjustments need to be made?
Incremental Steps
Step 3: Market Analysis
•How big is this opportunity?
•Who else is doing this?
•Who are the customers and what are they doing now to satisfy this ‘need’?
•Is there space for us?
Incremental Steps
Step 4: Business Plan
•What is purpose of this social enterprise?
•What is value proposition (special sauce)?
•How will it make money?
•Who is the management team?
Incremental Steps
Step 5: Financial Projecting
•How much money is needed in year 1, 3 and 5?
•What type of financing is appropriate: donations, equity, debt, partnerships, contracts?
•What are the key sources of revenue & major costs?
•When does this project break-even, if ever?
•What happens if expenses are 50% higher and/or revenues 50% lower?
Incremental Steps
Step 6: Fundraising & Investment
•Who are targeted ‘investors’?
•What is value proposition for funders & investors?
•Why should they choose this project?
•How much ‘in the bank’ is needed to begin ops?
The Capital Pie Where you are now your existing universe • How do you want to diversify (split the pie)? • How do you want to grow the pie? • What’s needed to be stable, increase revenue & manage cost?
Brainstorming List NGO Earned Income Options
Brainstorming List NGO Earned Income Options
• Facility revenue
• Program service fees
• Events
• Grants
• Marketing partnerships
• Sponsorships
• Membership fees
• Book publication
• Earned interest
• Capital gains
• Bartering
• Product sales
• Consulting contract / service fee
• Training, expertise
• Honorariums, speakers
• Licensing
• Supporting organizations
• Advertising
• Awards, competitions
• Teaching
• Affiliate referrals – i.e. those dxmn bracelets
Example Projects Greyston Bakery http://greyston.com/programs/
“We don’t hire people to bake brownies, we bake
brownies to hire people.”
Cash Flow
Internal Options for Capital
• Accounts Receivable Money owed to you. High net sales to A/R ratio = faster collections
• Accounts Payable Money you owe. Increasing purchases to average A/P amount = faster payments
• Leverage Existing Assets Money earns money
From Social Enterprise Associates’ “Finding Money for Your Business: Often Overlooked Options”
www.socialenterprise.net/assets/files/InvestorsCircle.pdf
Cash Turnover
ASK & TRY Can you get paid before you do the work
Offer incentives for invoices paid as soon as possible Negotiate w/ vendors to pay them later, slower
Difference b/t your A/R and A/P Keep your cash the longest
How?
Crowdfunding
Are you a good fit?
1. Benefit from small amounts of capital up to $15,000 2. Have product pre-sales, particularly to finance making something 3. Early stage specific project 4. Willing to do own marketing; have outlet to reach people: facebook, e-newsletter, etc. 5. Lack an existing payment processing mechanism online
37
Crowdfunding Websites
More than 4 million people pledged $734 million since 2009 launch Average contribution $71, most common contribution $25
Successful campaigns average 40 days to fund Average contribution $86, most common contribution $25 Common perception better for smaller projects
3rd largest crowdfunding site Campaigns often focus on individuals: education, medical bills
38
Crowdfunding Websites
Tell a story; stand out. In 2012, Indiegogo campaigns with videos raised 114% more than those without. Cultivate donors & share. In 2012, 14% of Indiegogo campaigns had a single contributor refer more people to the campaign than the campaign owner Most give small amounts. 85% of backers give less than $50 Give something meaningful. Make the perk something people want: gift, memento, product
Who’s done crowdfunding?
Kickstarter’s most funded projects:
Food: Windowfarms
Fashion: 10-Year Hoodie
Technology: Affordable 3-D Printer
Example Projects Espanola Community Market is coop in NM (and a client). Open to general public; features foods made or grown locally Gofundme campaign to raise money for staff, longer hours, more inventory
Kickstarter success: Lucky Penny Farm raised
funds for equipment to expand product offerings. Most gave $65 to $250. Project totaled $11,850 (above $10,700 goal).
For… Backers Received:
$15 A Facebook thank you
$25 Bar of goat milk soap
$65 Luck Penny t-shirt
$100 New Product Sample
$250 Plate of goat milk cheeses
$1000 Farm outing
$2500 Cheese pairing with 10 guests
$3500 Presentation by owner
Direct Public Offerings
“Crowdfunding meets fundraising” Laws vary by state
Anyone can invest
Best for small-to-medium sized companies & CO-Ops
Made to unlimited # of accredited AND unaccredited investors
Directly to investors (no middleman)
DPO Examples
Thanks to: Cutting Edge Capital
Balance Sheet
Balance Sheet
Assets = Liabilities + Equity
Build credit over time
Leverage
Put what you own to work
Treasury Management
Alternative Sources of Capital
• Community partners overlooked as donors
• ‘Upselling,’ ‘cross-selling’ existing relationships
• Fee for service: training, TA, consulting
• Individual donors: high net worth, community wide, program alumni
• Build relationships over time
• In-kind value
• Impact, social, faith-based investors; foundations’ PRIs/MRIs
• Off balance sheet transactions
• Crowdfunding
Practice what you preach to clients - build assets:
How to Work With Banks?
1. Understand what financiers’ value and how they make decisions
2. Establish long-term networks
3. Build credit history, credit score over time
4. Formalize and report on the organization
5. Have back-up plans (contingencies)
Financing 2 Cents
Foundational thoughts: • YOU must be credit-worthy • Organization needs to document why worth an investment • If you aren’t willing to put skin in game, why should an investor? • Be realistic, know market based risk costs Options: • Go to funders earlier than later, when you have $ • Self finance: bootstrap, leverage assets. Watch credit card debt • Friends, Family, Fools – put it in writing with real docs • Peer to Peer Lending – cool new options but caveat emptor
The 5 C's of Credit
49
A complete & attractive
loan package
Capacity
Capital
Collateral
Conditions
Character
The 5 C's of Credit - Defined
50
Most important by bank to consider loan application Personal credit score diagnose how well you manage your finances Financial statements to evaluate financial health of your entity
For a bank to know how much invested in your entity Written & verbal credit information sharing reflects level of
responsibility of the organization and its leaders
Often necessary to secure debt Independent appraisal can estimate value of collateral U.S. Small Business Association Guarantees increase opportunity
Capacity
Capital
Collateral (or guarantee)
I
II
III
Reasons you are asking for a loan Written explanation of conditions state how you will use money
Most subjective factor Provide biographical summaries of key managers and advisors Get to know your lenders
Conditions
Character
IV
V
Treasury Management
Defined: Administer financial assets and holdings Goal: Optimize liquidity, make sound investments, manage excess cash, and reduce financial risks Use $ to make $ (even when interest rates low): 1. Talk to your banker. Know by NAME 2. Use your cash to maximize $ 3. Leverage your assets when you have them (i.e. line of credit)
Leverage Existing Assets
Peer-to-Peer Lending
Ebay, for debt
Borrowers request loans, amounts vary by site, range $2 K to $25 K
Lenders invest as little as $25
Facilitated by website for fees
This is DEBT, it must be PAID BACK
Peer-to-Peer Lending • Loans funded to date: $2.2 billion
• Interest paid to investors to date: $192 million
• 1,880,000 member lenders
• $583,000,000 in personal loans funded
• Direct loans
• First loan max $5,000 (up to $50 K)
• 0% interest, repay w/in 24 months
• Share your story
Resources
IdeaEncore
Social Venture Network
Global Impact Investing Network (GIIN)
Aspen Network of Development Entrepreneurs
Impact Investment Exchange Asia
SoCap, PRI Makers, SRI in the Rockies, HUB Ventures
Let’s Sum Up
Recap, Review Tips & Tricks
Resources: William James Foundation, Skoll Social Edge, SoCap, BID Network, Soc. Ent. Alliance, competitions, SSIR, ClearlySo & more
Free publications: www.socialenterprise.net
Questions? Answers?
Drew Tulchin
Social Enterprise Associates www.socialenterprise.net
Thank you!