This is in continuation of our previous blog on ‘Growth pangs of a non-profit.’ In this blog we make an attempt to share our efforts to create a middle ground of opportunities to raise growth capital for non-profits.
A year ago when Rang De had just completed its 5th year, we started seeking funds to help grow Rang De. Our first grant from ICICI Foundation to establish the model provided us the much needed start up capital to set up a peer to peer model that is aimed at providing access to low cost credit to underserved communities. We used this grant judiciously and ensured that we use it to build the model. Our team size did not expand beyond 10, our operational expenses were moderate and we experimented with the model.
Now we realised was a good time to plan for the next few years and grow our impact meaningfully. Our efforts to get support from foundations failed miserably though — we ended up being offered funds that would not help Rang De’s operations beyond a couple of months.
Going back to our previous blog post, we felt we were victims of a typical funders’ syndrome of wanting to support projects and not the organisation. As always, we were left with no choice but to go back to the drawing board and look at a more effective way of raising funds for the organisation.
Here were the challenges that we looked at addressing in our new, and what could be a game changing, approach to raising growth capital
Challenges of non-profits
1) The valuation of a non-profit is currently based on its financial metric and hence always remains at ‘zero’
2) Lack of growth capital for a non-profit that has established the model and was looking at scale
3) Lack of variety in the types of funding — debt, grants and equity (based on the need of the organisation) which is currently restricted because of the structure of non-profits
4) Perception that non-profits are less effective and not accountable
5) Inability of non-profits to attract human talent because of limited financial resources
Challenges of for-profit social enterprises
1) Financial gain getting a greater emphasis, impact taking a back seat
2) Investors’ mindset being attuned to getting financial returns as opposed to creating value in terms of impact
3) Over a period of time, entrepreneur ends up getting disillusioned and faces existential questions for the enterprise itself
4) While a for profit social enterprise may attract human capital — however their motivation and passion may not be around solving the problem at hand
Rang De’s current fundraising model, inspired by Prof.Muhammed Yunus’s social business model helps create the much needed middle ground for social enterprises. In a way, this model is a best of both worlds that combines ‘The doggedness of the non-profit’ to ‘the scale of a for-profit.’
The key features of the model are:
1) A valuation based on social impact and sustainability
2) A quarterly impact guidance that ensures the organisation is transparent about its impact targets
3) Adopts principles of lean to ensure that the organisation is effective
4) Offers no financial returns to investors but provides a tangible social return
We launched our fundraising efforts last November and we have gained significant traction. Here is an article that was published in Economic Times about the model.
And here is a link to Ram’s TEDx talk in IMT Dubai
If you would like to get involved in our efforts, please get in touch with firstname.lastname@example.org or email@example.com
And don’t forget to attend our Google + Hangout with Team Rang De on 3rd November at 20:30 (IST) to know more about the middle ground Rang De is treading.