Financing Alternatives for Social Impact Companies
With Rupa Gupta and David Cooper
ONE WORLD recently hosted a second successful webinar for our new impact series, which will highlight CEO Network members (more details here) and ecosystem partners through interactive discussions. This discussion featured impact investor and advisor, David Cooper, as well as co-founder and CEO of Sown to Grow and member of the network, Rupa Gupta.
During the webinar, which centered around “Financing Alternatives for Social Impact Companies,” Cooper was able to share his knowledge from the investor side while Gupta was able to share her experience as an entrepreneur.
With 20 years of experience directing the acquisition, financing, ownership, and disposition of early stage mission and purpose driven companies, Cooper began the discussion by sharing the vast amount of options now available to impact driven entrepreneurs. According to Cooper, there are many organizations that have the expertise in building great social and environmental enterprises, including Toniic, Social Venture Circle, SOCAP, and Tech Future’s Group.
With a focus on “values aligned” investments, Cooper then expanded on what are known as Donor Advised Funds, or DAFs. A DAF is a sub account of a public charity, a charitable giving vehicle that can make investments into for profit social enterprises, in order to grow the DAF. DAFs facilitate charitable capital while also providing tax benefits to the donor. Several of the DAF resources mentioned during the webinar were DAFCAP, a list of transformative funds that included some which tap into DAFs, Realize Impact, Investor Flow, the Daf Salon, Mission Driven Finance, and Impact Assets.
For donors in the impact space, DAFs are a great way to participate in social and environmental enterprise with tax exempt capital. For entrepreneurs, this kind of capital provides the ability to be innovative with their mission driven companies because the donors are well intended.
When explaining his own experience using DAFs to fund companies, Cooper outlined how DAFs are both beneficial to entrepreneurs as well as investors. Reflecting on his experience, Cooper said:
“We were able to lower the cost of capital by a factor of about 50% from what the market would have dictated. Where I am going with this is that DAFs can be very flexible because the intentions are around the donor in this case, in terms of what they are trying to accomplish from their charitable theory of change.”
While Cooper expanded on the benefits of DAFs, it is important to note that they are still new and in the development stage. This means that the full opportunity presented by DAFs will be something to look forward to in the next few years.
During the second portion of the webinar, the focus was shifted from the investor side to the entrepreneur’s perspective, with Rupa Gupta expanding on non-dilutive capital resources. Starting out with foundations, Gupta advised looking into local foundations that want to invest in their communities or foundations focused within specific categories of impact. According to Gupta, The Council on Foundations, as well as the United Philanthropy Forum, are beneficial resources with a wide variety of organizations sorted into specific areas of focus.
Another valuable resource expanded upon by Gupta was government based funding through a department known as the Small Business Innovation and Research Program, or SBIR. Having first hand experience with SBIR, Gupta explained that many federal agencies have an SBIR. With Sown to Grow being an online classroom platform, Gupta was able to receive several rounds of funding through the National Science Foundation.
Other resources mentioned by Gupta were SEED Fund, which is classified as an SBIR, as well as the National Institute of Health, another governmental organization that offers grants.
Reflecting on the benefits of funding a company through grant money, Gupta has found that while grant money can sometimes take longer, it challenges entrepreneurs to hold themselves accountable to their original impact based mission. With regards to this, Gupta said:
“You might not think it’s that worthwhile when you are writing a 15 page proposal, but I would encourage you to bake that kind of thinking, as in a direct connection to impact, into your other systems, as it will help with your company business model.”
Overall, the webinar was full of useful information and provided an in depth analysis of alternative forms of financing in the impact sector. To delve deeper into the topics addressed, please watch the full webinar here.