What social enterprises should expect from investors

If you’re a social entrepreneur beginning a fundraising journey, you may be looking to head down the investor route. And, if that’s the case, you’ll doubtless have plenty of questions.

Depending on the scale of their idea, social enterprises will inevitably have to call upon the services of an investor at some stage. Looking for ‘smart money’ (a phrase which describes the combination of cash and expertise offered by an investor) isn’t easy, and if you haven’t done it before, there are several things you’ll need to be aware of.

This blog assumes you’ve had little to no experience dealing with investors and outlines what we believe to be the most important aspects of such encounters.

Don’t over-expect

It’s best to keep your expectations of investors at the modest end of the scale. Some will want to take a hands-on approach, while others will prefer very little interaction.

What works for you very much depends on your circumstances, goals and level of experience, but go in expecting too much, and you’ll nearly always be left disappointed.

Even with the money on the table considered ‘smart’, few investors will expect to sweat too much of their own time on your venture. They’re busy people, and are unlikely to want to risk a huge time investment in your burgeoning social enterprise.

If that’s the case, don’t take it personally. Providing they demonstrate a genuine desire to help you (no matter how remote that help might be) and can offer the funds on favourable terms, you should be on to a good thing.

Be ready for fees

This might come as a surprise, but it isn’t uncommon for investors to request an annual fee – that can sometimes run into several thousand pounds – in exchange for their services and funds.

They do this for a very good reason; it creates a transaction which in turn generates a contract and some very clear expectations from both parties. Put simply, investor fees hold them to account – it very much becomes a two-way street (and that’s good news for you).

Be weary of requests for paid non-executive seats

Some investors will demand a salaried non-executive board seat, even if they’re only investing a relatively small amount.

Unless their place on the board is likely to deliver a tangible return in the form of the time they offer your social enterprise, or a significant injection of experience in some other form, such arrangements should be approached with caution.

The size of the demand is usually indicative of the amount of help you’ll be given by an investor during their board tenure – and it’s likely to be on the slim side.

Get ready to be challenged

It’s easy to develop a romantic view of investors – particularly if they’re of the ‘angel’ variety. They swoop in with their cash to which they give you immediate, unrestricted access and quickly become an invaluable confidant, in exchange for a fair piece of the pie.

In reality, investors are demanding. They have entered the realm of your social enterprise in order to gain a healthy return, and that means they’ll take an active interest in how the business is performing.

They’ll challenge you, regularly, and while it might be rather difficult to come to terms with the robust feedback they offer on your business plan and sales progress, you should heed their concerns and advice.

Just bear in mind that the relationship works both ways – you can challenge the investor, too, so don’t be afraid to stand your ground or question the value they’re offering if the need arises.

Final advice: do your due diligence!

There’s a signifiant number of investors out there who are actively looking to work with social enterprises. That means you’ll probably find several who appear to fit the bill, but before opting for the one who’s either the nicest or appears to be offering the best terms, it’s vital you do your homework.

Be clear about what it is you want from an investor, and ask plenty of questions. Dig into their credibility and funding history – are they say they are? Did their past investments result in successful businesses?

Any investor relationship you strike up is probably going to last for a significant period of time, and ending such arrangements early will be painful and incredibly costly. Make sure the investor you have in your sights is good enough for your social enterprise.

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