Today, there is a new breed of startups that occupy the space between for-profit ventures and NGOs, bringing the startup DNA and ‘tech-for-good’ into public and social sectors for disruptive innovations to solve some of society’s big problems. These start-ups can access non-dilutive, non-equity funds such as grant funds, philanthropic capital, CSR funds, impact investments and other creative finance models to operate.

If you are a social impact or non-profit entrepreneur solving for developmental challenges that are not currently the focus of market forces, here is a sneak peek into raising stage appropriate capital for your organisation, along with the sources of funding.

According to the India Philanthropy Report 2020 by Bain Consulting, domestic philanthropic capital (including individual giving and CSR) more than quadrupled from Rs12,500 crores in FY 2010 to Rs 55,000 crores in FY 2018. For social entrepreneurs, that’s terrific news.

However, what is more important is the entire pie is almost never available to you. Pieces of it are, depending on the organisational maturity of your non-profit. This piece only focuses on giving you a perspective on what is the highest ROI piece of the pie for you at various stages of your growth, and some things to remember while targeting each of those pieces:

1) Launch/Pilot phase – Always the toughest phase for anyone, whether in the for-profit or non-profit arena. Your money in this phase is almost always going to come from either your wallet or friends and family. If you do know a high net-worth individual ( HNI) or two well enough to pitch to them, you can, though you might want to conserve that bullet for the next phase. The critical thing to communicate at this early stage is who you are (qualifications), what your vision is and why you are doing what you want to do (personal story or connect with vision).

2) MVP phase – To get to a minimum viable product, there is some risk funding available. This is usually the time to focus on incubators, accelerators and early-stage competitions. All of these are looking for early-stage ideas where some proof of concept is available. This is also usually the right time to approach HNIs in your network, with some evidence to show. While the entrepreneur is still the most important component at this stage, the learning from your experiments in the pilot phase becomes integral to communicate too. While you should have gotten a 12A and 80G in place as soon as possible, you can’t really exit this stage if you don’t have it by now.

3) Growth phase – Ah, finally the turning point, where you graduate from fishing in lakes to the sea. This is usually when you hit the three-year mark and are hence legally allowed to take institutional money, mainly CSR. This is also usually where you can begin to access the UHNI money, which along with the CSR adds up to Rs 37,000 crores, two thirds of the Rs 55,000 crore pool that we started with. Proof points of impact and the potential to scale become the key to communicate in this phase, to the new set of more experienced / advanced investors. The critical thing to remember here is research. CSR is often constrained by geography and verticals, and most of that information is in the public domain, usually company annual reports. The exception to this rule could be when you have the confidence of a senior influencer in a company or its CSR committee which has budgets parked for novel interventions every year.

4) Scale phase – The scale phase usually is when you have demonstrated impact on a critical mass of people, and are now ready to scale to new geographies. Apart from the entire pool of Rs 55,000 crore that is now available, you can access foreign capital (another Rs 13,000 crores as per Bain Consulting in FY 18), of course assuming you have gotten an FCRA. Even more importantly, this is usually the stage in which you can tap into the largest pool of money in the system (and one that most often gets ignored), the government, which at Rs 145,000 crores of spending is nearly 3x of the philanthropic capital in the country. The critical thing to remember in government partnerships of course is to be a partner (utilising their infrastructure and hence lowering your costs) rather than a vendor (which is what you become when you take money from them).

While every non-profit/social impact startup will be different with the organisational maturity based on the complexity of the problem and the ability of the early team, an easy thumb rule think about the stage on timing would be Pilot (0-1/1.5 years), MVP (1.5-3 years), Growth (3-5/6 years) and scale beyond that.

The writer is Director of Corporate Partnerships, The/Nudge Foundation

Disclaimer: The opinions expressed are the author’s.

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