Chapter 6 Funding Social Entrepreneurship. Opening Discussion Read the case of FareStart and answer the following questions: Why was FareStart able.

Chapter 6

Funding Social Entrepreneurship

Opening Discussion• Read the case of FareStart and answer the

following questions: Why was FareStart able to attract a variety of

funder types? What might be some of the challenges of

maintaining highly diversified funding sources?

Chapter Outline

• Funding public sector and for-profit social entrepreneurship

• Funding nonprofit social entrepreneurship• Philanthropy and social entrepreneurship• Government funding• Earned income, loans, and equity

Funding Public Sector Entrepreneurship

• Entrepreneurship in government can be funded through normal tax-related channels, with tax dollars allocated to agency budgets.

• Public entrepreneurship can also take the form of market-based activity: Government-run business enterprises receive

payments for goods or services. These are treated the same as private businesses

with respect to purchases and sales.

Government Revenue from “Business and Other” Sources• Includes revenue from government social

entrepreneurship

Funding For-Profit Social Entrepreneurship• The firm creates social value over and

above routine market-related transactions.• More firms are starting to integrate social

ventures with the firm’s strategy and marketing.

• Funding comes overwhelmingly from internal sources: Internal budget allocations Percentage of corporate income Donations, mostly from employees

Funding Nonprofit Social Entrepreneurship

• For public charities, 2010 revenues came from: Private fees: 49.6% Government: 32.2% (fees 23.9% + grants

8.3% ) Contributions: 13.3%

• Funding for social entrepreneurship varies based on funding available in the venture’s subsector.

Sources of Nonprofit Revenue by Activity Fields• Revenue sources vary widely by

subsector.

Sources of Nonprofit Revenue Growth by Activity Fields• Growth of income sources also varies widely.

Nonprofit Social Venture Funding

• The data shows that nonprofit social ventures can get funding from a variety of sources.

• The social value produced for others is key to appeals for philanthropy.

• The value of goods or services produced for consumption is the key to sales.

• The objectives of government are the key to obtaining government contracts or grants.

Characteristics of Nonprofit Funding Types• Note that each type of funding affects the

nonprofit differently.

Characteristics of Nonprofit Funding Types• Private contributions have high volatility,

and donors can create pressure on goals and processes.

• Government funding may last longer, but government has many requirements and standards.

• Commercial income can vary in volatility, funds can be used as needed, and there is pressure to use standard business techniques.

Income Portfolios• Think of multiple funders as constituting an

income-generating portfolio.• Give priority to portfolio considerations. • Align funders with the mission.• Seek portfolio balance in regard to funder

numbers, stability, growth potential, and so on.• Consider the economic role of funding (cover

costs, generate surplus, and so on).• Avoid funder incompatibilities.

Philanthropy and Social Entrepreneurship• Most funding from individuals; religion gets

most. • Donations can play more or less of a central

role. • Most donors are conservative; it may be difficult

for a new venture to get wide support.• Donor-investors may support ventures that

Are committed to social change. Share values of nonprofits they support. See themselves as partners in social value creation. Want donations to achieve demonstrated results.

Philanthropy and Social Entrepreneurship• Venture philanthropy is

another source of funding: It uses the venture capital

model. It includes multiyear

funding, funding for overhead and capacity building, and organizational assistance.

Philanthropy and Social Entrepreneurship• The federal government’s Social

Innovation Fund combines public and private funds: The government grants funds to

intermediaries. Intermediaries match funds and identify

recipients.

Government Funding

• It can come through a variety of paths: Directly from an agency From one level through another level From individuals who get money from government

• Funding can present challenges in terms of requirements, transaction costs, slow payments.

• Nonprofit can respond by making more use of their boards, knowledgeable executives, engaging policy.

Earned Income• It is important to consider the degree of

income generation and contribution to the mission.

Earned Income• Disposable (low income, low mission relation):

Is this worth doing? • Supplemental (low income, high mission

relation): Can the level of income be increased?

• Sustaining (high income, low mission relation): Is too much income being generated? If so, consider splitting off a subsidiary.

• Integral (high income, high mission relation): Beware of tensions between mission and market.

Earned Income Strategies• Getting paid for what you already do

Starting to charge clients

• Launching a new venture Production of goods and services Assets of staff or other tangible or intangible

assets

• Building revenue relationships Partnerships with corporations Cause-related marketing, joint ventures, licensing,

sponsorship

Loan and Equity Financing• Program-related investments are made by

foundations and provide a return on investment.

• Impact investors seek to make positive impact and financial return: May place a higher value on either return

(finance first) or impact (impact first). Social impact bonds: intermediary raises

private capital, monitors activity, and evaluates results.

Discussion• Consider the variety of funding methods we

have outlined in the previous slides and answer the following questions: Which would have the easiest time raising

funds for social ventures: nonprofits, for-profits, or public agencies?

How might a nonprofit have to relate differently to donors versus investors?

How might the search for earned income influence the mission of a nonprofit?