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Alternative Capital Sources for Social Enterprises

Alternative Capital Sources for Social Enterprises

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Presented by Andrew Tulchin at the Philippine Social Enterprise Forum on 28 February 2012 at the Asian Development Bank, Manila. DISCLAIMER: The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the Asian Development Bank (ADB), or its Board of Governors, or the governments they represent. ADB does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequence of their use.  The countries listed in this paper do not imply any view on ADB's part as to sovereignty or independent status or necessarily conform to ADB's terminology.
Presented by Andrew Tulchin at the Philippine Social Enterprise Forum on 28 February 2012 at the Asian Development Bank, Manila. DISCLAIMER: The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the Asian Development Bank (ADB), or its Board of Governors, or the governments they represent. ADB does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequence of their use.  The countries listed in this paper do not imply any view on ADB's part as to sovereignty or independent status or necessarily conform to ADB's terminology.

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Published by: ADBSocialDevelopment on Jul 10, 2012
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 info@socialenterprise.net1www.socialenterprise.net 
Alternative Capital Sources for Social Enterprises
EXECUTIVE SUMMARY
Many entrepreneurs - social, triple bottom line or otherwise - do not avail themselves of allsources of capital available when they need funding to grow or scale up, thereby limitingprospects to cash flow their initiatives. This paper explores a range of options forfunding: external to the organization, internal, new ideas and classics not to overlook.Entrepreneurs have too much to do and limited time in which to do it. Making good choices basedupon understanding priorities and trade-offs is valuable. For example, bank relationships taketime to build, the money can seem expensive, and they may not be receptive to start-ups. Sociallyresponsible investors or impact investors may have closer mission alignment and more attractiverates, but might be difficult to access from the Philippines, impose specific conditions, requiredetailed documentation or put in place application requirements, which are a cost to theorganization, as well. An organization often overlooks a source of capital, within itself. Leveraging the balance sheetand controlling expenses can both improve cash flow. “Crowd funding” 
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has emerged as anexciting tool to access funds through the Internet.To develop and secure the money needed to grow a social venture, social entrepreneurs mustunderstand what financiers’ value, establish long-term networks, build their credit history overtime, formally register the enterprise, and have contingency back-up plans.Looking into the future, there are financial tools that are becoming available to support socialenterprises in certain places. These include community guarantees, cross collateralization, andsocial investment bonds, among other tools.
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Crowd funding describes the collective cooperation, attention and trust by people who network and pooltheir money and other resources together, usually via the Internet, to support efforts initiated by otherpeople or organizations.
 
 
 info@socialenterprise.net2www.socialenterprise.net 
 
This paper was written by Drew Tulchin & Sunny Yi-Han Lin of Social Enterprise Associates 
 
(www.socialenterprise.net) with support from Malgorzata Wojcik and input from Bart W. Édes, Asian
 
Development Bank (ADB). Social Enterprise Associates is a boutique consulting firm and registered “B Corporation”. It specializes in helping non-profits, for-profits, donors, and foundations with newventures, capital needs & earned income strategies to achieve ‘triple bottom line’ results. Thedocument was developed with support from the Asian Development Bank. Views expressed areentirely those of the authors and not of any other institution. Mention of a specific organization is notan endorsement of their products or services.
 
 
 info@socialenterprise.net3www.socialenterprise.net 
INTRODUCTION
 As an entrepreneur, you have to fight and pinch for every dollar, peso, rupee or other currency tomake your effort successful. Many entrepreneurs - social, triple bottom line or otherwise - do notavail themselves of all sources of capital available, limiting prospects to raise money for theirinitiatives. "Existing social enterprises and entrepreneurs who want to step into this fieldsurmount many new challenges, including lack of funding, weak capacity, lack of governmentsupport and lack of networks."
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 This paper explores a range of options for capital - external to theorganization, internal, new ideas and classics. Please note: mention of any institution or product is not an endorsement or recommendation.One should always do their own research and due diligence beforemaking an investment decision.
I.
 
EXTERNAL OPTIONS
Capital comes in many forms and has numerous sources for social enterprises. As a “do good” entrepreneur, the social and environmental value creation of efforts is a competitive advantage,something that set you apart from others in the marketplace. In addition to traditional financingoutlets, options include socially-driven investors, donors and - in some cases - philanthropy.
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Conventional Finance
Many social entrepreneurs feel they cannot qualify for conventional financing, don’t understandhow to apply for such financing, or distrust the institutions that offer it. “The capital markets”, aka “Wall Street”, may seem out of reach for small, new social enterprises. However, as the largestsource from which to draw, it presents the greatest opportunity. If this is a new world withunfamiliar terms and references, don’t be frightened.Investopediais a premiere resource amongmany for education, personal finance, market analysis and free trading simulators.Sources some social enterprises overlook:
 
Equity: Can you sell part of the business? Even a non-profit or public entity has ‘ownership’, ‘sold’ through imaginative structures, donations or joint ventures with private firms.
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Pred Evans & Sumalee Amnuaiporn, “Social Entrepreneurship in Southeast Asia,” TrendnovationSoutheast Newsletter, 9
th
issue.
 

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