Investing in Readiness: Growing Early Stage Social Businesses

Building Institutions | Mar, 2013

With social businesses gaining traction in recent years, more funding has become available to them, but many social businesses do not find funding due to lack of a firmly established business model, lack of knowledge on how to fundraise, inability to find like-minded investors, or a lack of investors willing to fund startups. This highlights the need for intermediaries who can bridge the gap between social entrepreneurs and investors. If intermediaries can effectively build the capacity of entrepreneurs to become investment-ready, then the large potential pool of funds that is available for impact investment can be utilized. Dasra’s report, Investing in Readiness: Growing Early-Stage Social Businesses, highlights what makes an early-stage social business investable and identifies the major gaps between entrepreneurs and investors.

The report makes a few specific recommendations for strengthening early-stage social businesses to make them more investment-ready. For investors, it is important to recognize the capital needs of early-stage entrepreneurs as distinct, and support incubation and accelerator programs that build the capacity of entrepreneurs to pitch their models effectively to investors. For social businesses, it is recommended to share Chief Operating Officer and Chief Financial Officer roles among enterprises at an early stage to mitigate high costs associated with human resources. Other recommendations are to standardize impact measurement through third party audits and to create regulation specific to taxation and access to capital for social enterprises under Section 25 of the Companies Act to avoid confusing governance structures.

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