Funding for Sustainability Businesses

Sustainable businesses are the need of the hour. There needs to be an innovation of products, technologies and most importantly awareness and information to be able to achieve that. It is easy to ideate, but difficult to execute with one big gap between the dreams and the reality. You may think of doing good to for the environment or the community, but it is the only money that makes the business go. Prof. Anjana Vivek, a Consultant, a Professor, a Chartered Accountant, and an Entrepreneur running her own consulting, VentureBean at Bangalore, discusses with Anju about what to expect when you pitch for funding.

Anju: The key ingredient to achieving your dreams is passion. But the reality check is also its survival, the long road, and then comes the question about funding. What do VCs/ Angel investors generally look for when they think of funding sustainability businesses?

Prof. Anjana Vivek: Much depends upon your idea and which investors you go to – the nature of the investors, their mandate and the kind of investments they do. It also depends on whether the investor is an individual or an entity backed by a group of persons and/or institutions.

An individual may support a not-for-profit, say a health related project, where the funding could be driven based on her personal experiences facing similar situations with family or friends. She may want to promote the cause even without expecting any returns. Many times when people talk about social or impact funding they say they are not investing for the financial return. For example, instead of seeking 20% return they may expect 10-12% return on investment. Further, some persons may even fund in the form of grants without any returns expected.

One also needs to look at the legal aspects. Some organizations may also put aside money for grants. CSR money is also available. While impact fund may not be completely commercial, investors may have preferences- someone may want to support underprivileged, some may want to finance health care, others may want to address environmental causes of solutions for a water crisis. There could be an angel fund where the investor has his own philanthropic preferences. Venture Capitalists, on the other hand, invest purely for commercial reasons and financial returns.

Therefore, an entrepreneur has to think long term; the reality could be very different after a plan is built. Taking the right direction is key, keeping a focus on the long term expectations and dream. For example, if I am driving towards North India, my car should not go southwards. I may deviate a little to the East or West on the route but should avoid going in a completely different direction.

The most important factor is that communication is strong.  Why does the social entrepreneur want to do what she wants to do? The plan should address survival in the year ahead to a 3-5 year horizon; as well as long term expectations and dreams. Some points to think about include what is a long term gain, who could be the financial partner, what is the worst or most pessimistic scenario with minimum funds and the most optimistic scenario with maximum money one would need. There is no short term fix or quick answer. Planning is a process. You may re-visit and re-position your plan along the way. It also depends on who the investors are and how mutual expectations are aligned.

 

Anju: Are there any specific forums for not for profits to know more about angel investments or funding?

Prof. Anjana Vivek: One has to do a lot of homework. It gets more complicated for not for profit or social sector.  There may not be essentially any specific category, but there are some associations and groups of social entrepreneurs whom one should connect with. Also, networking must happen online as well as offline (locally in the city where one resides or does the business).

Other than the large institutions or trusts, there may be individual groups. It may be a crowdfunding or angel investments groups. There are many such websites.  Network with some of these individuals, who might be doing similar work. There are people who have received funding. Ask for their experiences and references. Usually, people do share their bad or good experience.  Try to cross check and validate them.

Once you are through with your research and homework, make a sound pitch. There are no shortcuts. It does need time and effort.

 

Anju: By the Government of India, there is a mandatory rule of 2% CSR spent for large organizations. The scope is about being “Net Positive”, much like the US and Europe. Though the consumers in India are not so much conscious yet, then it is apparently a start point for a good cause.

Prof. Anjana Vivek: Yes, it is new and the philosophy behind is good. Some people are trying to get into that space as specialists from a consulting perspective. But then we also see a lot of people clamoring for the CSR money because an organization has budgeted for it.

An entrepreneur should not just approach any organization. He should try to understand the organizational philosophy and its goals and the tangible benefits the business can bring to the society or the ecosystem and communicate this.

 

Anju: In the online spaces, financial transactions appear to be much easier with simple “Get Donations” button. What about their declarations and taxations?

Prof. Anjana Vivek: One should consider business, legal and taxation aspects and must check if there are any legal and tax issues to be addressed before proceeding.

Sometimes legal and tax aspects are ignored and only the business or social contribution is kept in focus It is not only about receiving donations for a good cause but also about the source of the funding and how funds are received and utilized. If some regulatory issues exist, this could impact the future of the project as well jeopardize raising funds for the next level.

 

Anju: Crowdfunding is gaining more and more popularity and it seems to give wings to a lot of young entrepreneurs. What are your observations?

Prof. Anjana Vivek: Crowdfunding platforms have been gaining in popularity. Entrepreneurs need to do some research to understand and match investors with their scope of work. Further legal and tax aspects are to be addressed.

Agreements and legal documents are to be entered into with care. Sometimes investors expect specific returns in a certain time period. Sometimes there is an expectation of even double or triple the return on investment.

A platform could be global, but one will have to follow the guidelines of the country where one resides. With the Internet, the world appears borderless, but to receive money and pay taxes etc, one must check guidelines applicable to the country of residence.

 

Anju: What are the trends of the projects that see funding? If they are unique with some tangible impact or a product design, and app design, with lesser gestation time, do investors get more interested in those?

Prof. Anjana Vivek: As for the uniqueness or the special interest areas, different investors look for different things., while there are 1000s of people waiting to be funded, only 5-10 of these may get the funding they seek.

VC funding is not very easy to get. All companies funded do not see great success. The number of successful companies is a small fraction of those funded. News and articles focus on those who get money, not on those who do not! For instance, app designs which appear to be an easy one to work on are over-crowded space. Millions of apps are being created. It may be a nice idea but the questions that one would ask up front are – does it have a customer base? What are the repeat business and the long term sustainability? Likewise, there are many ideas for products designs or services.

The key is to build a business case.  It has to be sustainable, profitable or have the potential of bringing a great change from a societal angle or the environmental perspective.

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