First and foremost, remember that no entrepreneur ‘gives away’ equity – they trade it.
Why is there this common obsession with entrepreneurs to hang on to equity? Owning 100 per cent of something that isn’t yet worth anything is – still – owning nothing. Equity without the potential for profit is useless, but trading your equity can bring about growth, business expansion and success.
No one entrepreneur has all of the requisite skills and talent to create a successful business. Invariably we all need to rely on others so, whether trading equity for skills (by bringing in partners), or raising equity funding to buy in those skills, it really amounts to the same thing. Hog the cake and you go nowhere.
Once you’ve overcome this false hurdle, there’s no doubt that accessing adequate funding can be daunting – and it’s rarely a one-off event. Thankfully there are now a plethora of options, including crowdfunding, so rather than getting snubbed by your bank, seek out alternative finance routes. You will have to be clear about what any money or investment will be used for. Basic stuff I know, but nevertheless vital for understanding which finance solution will work best for you and your business.
Debt or equity finance?
Debt finance can help with specific funding goals, but this can be a prohibitive option, as the money has to be repaid month-on-month. Banks are notoriously risk averse and anyway, which entrepreneur wants to saddle their business with bank debt? Banks are just as inclined to pull the rug from under an entrepreneur’s feet as an unscrupulous venture capitalist – for start-ups the only difference is the loan is probably secured against you home or is personally guaranteed!
So, then there’s equity trading or finance. As a mission-driven business, it’s easy to think that a venture capitalist or angel investor will answer all your prayers. Sadly most VCs are more interested in looking good than doing good. They think ‘ethics’ is one of the Home Counties. It’s all about the exit, meaning short-term financial gain will always win out against longer-term social return. Your karmic pounds will not pay their bonuses.
Ultimately, green or social impact investment is treated no differently than any other investment. The metrics are always the same – it’s hard money on hard terms. And when the chips are down, money is a VC’s God, period.
Having set up and run several social businesses over the years, I know the importance of maintaining the ‘feel-good feel’ of a business throughout its growth. Keeping sight of social impact and retaining business values are vital.
Where should I turn with my ethical business?
There is a new breed of ethical investor in today’s democratic world: the crowd. While crowdfunders can invest in many different types of business, the crowd maintains a collective common goal – to help businesses that they believe in. And on my crowdfunding platform, CrowdMission, the businesses people believe in are those that are doing social good while turning a profit. Equity investment and ethics can and do mix.
CrowdMission allows anyone – whether they’ve got £10 or £100,000 – to invest in businesses which resonate with their own values. It follows, if someone generally looks to buy green/fair trade/organic/free-range/renewable products or services, then they will approach investing in the same way.
For example, one of the first businesses we’re featuring on CrowdMission is Power Predictor, which has created tools to analyse the potential for solar and wind energy production. Power Predictor helps governments, businesses and homeowners identify the true potential for renewable energy generation, based on actual weather conditions at any specific site. Power Predictor has already sold more than 15,000 units world-wide, and is looking to raise £250,000 on CrowdMission – (www.crowdmission.com/power-predictor)
A final thought from one social entrepreneur to another: whatever decision you make to access finance for growth, always make sure that your business retains your goal, your beliefs and your ethical position. These can’t be bought or compromised. No matter what, keep your business in your heart and your heart in your business.
Karen Darby is founder of equity crowdfunding platform for social entrepreneurs, CrowdMission
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