How to Raise Social Capital- The Must, Want Principle

It is no secret that the term "Social Capital" is an oxymoron; "Capital" is a pot of money I give that comes back to me as a larger pot of money and "Social" is the giant sucking sound of the pot of money I give that comes back as a demand for another even larger money pot. This is not bad news; its just really tough news. But there is also the good news - most investors are interested in a social return - they just don't know how that is possible. So here is the secret - make it clear and explicit how it will be possible. Capital is a Must (money makes the world go 'round), Social is a Want (what good is money if the world don't go 'round?). A social entrepreneur must make it clear from the outset how the must and the want will be satisfied and what compromises will be made in case of conflict between those two objectives.

The questions I get most often are around strategies for raising social capital and in my informal survey of over a hundred social entrepreneurs, greater than 90% end up getting seed investment i.e. social capital, from a foundation or a philanthropic individual and hence incorporate as a non-profit venture. This is perfectly fine, as long as the entrepreneur exercises financial self-discipline, which is not the same as boot-strapping - it is about creating a revenue stream from the business. By definition, a foundation is not interested in a financial return so it confuses second round investors and can become a barrier when you need to raise serious money. Two rules of fund raising, made explicit from the beginning help overcome the "social capital" oxymoron:
Rule #: identify and recognise the Investor Types and their expectations
*Entrepreneurs: In-kind equity, equity
*Family and Friends: equity, debt, grants
*Individual Investors (angels or social investors): equity, grants, debt
*Foundations: Grants, Program Related Investments (PRI’s)
*Venture Funds: Equity
*Social Venture Capital: Equity, debt
*Banks: Debt, equity
*Corporations: Equity, debt
*Corporate Business Partners: Warrants, equity, debt
*Government: Grants
Rule #2: Identify business lifecycle, seek appropriate investment from appropriate investor
*Lifecycle Phase: Seed, Startup, Early expansion, Late Expansion
*Type of Investor: • Risk/return expectations • Exit strategies
*Type of Investment e.g. grant, debt, equity and so on
*Size of Investment e.g. grants are typically small and appropriate as seed and loans for expansion
The bonus rule of course is to ask for help in forms other than "money".