How to crowdfund a social business

If you’re starting up a business that has social element, crowdfunding has changed the game. Traditional investors might be warier of investing in your business, whether that’s due potentially smaller profit margins, risk of failure, or just not ‘getting’ your cause – and if your business does have a strong social cause you might not want investors influencing your business decisions anyway. 

Theresa Burton, chief executive of  Buzzbnk, says: "Crowdfunding began as a way for people to finance things they believed in, so really crowdfunding and social enterprise are natural bedfellows. Investments in social enterprises engage people in two ways - a decision to lend or take a stake in a social enterprise is a "heart and mind" decision that comes with a sense of making a contribution to society as well as (but not always) the expectation of a personal return or reward.

"As well as raising finance, turning to crowdfunding platforms also enables social businesses to garner support from prospective customers and even to recruit new employees. The greater visibility and marketing support offered by platforms are part of why a social enterprise would actively choose to crowdfund, rather than go to a bank. The positive spin-offs can take on a life of their own once the crowd is involved."

Here's why crowdfunding is great for social enterprises.

Taps into people who care about the cause

The clue’s in the name – crowdfunding. You need to get as many people involved as possible to make your campaign a success, and getting as many people on board with your idea is the hardest part. But if your business has a social cause that you care about, it’s very likely that there are other people out there who share your passion for this cause. You have a ready-made audience waiting for you - now you have to find it.

You retain control

Retaining complete control over the venture means that you have the final say about who or what your profits help support, how much goes where, and the direction you want to take the enterprise in – you don’t have to compromise your business vision or your social vision.

You can see impact

The amount of people pledging to your cause can give you an idea of how much impact your venture will have on the problem you’re looking to solve, and of how important it is to others – useful if you decide to approach investors down the line, and for generally getting a sense of how people feel about your business and the cause it addresses.

It gets your cause publicity

As you tirelessly market your crowdfunding campaign, you’re not just getting word of your business out there – you’re also letting people know the cause it’s addressing, meaning that you’re making a difference from the get-go.

Case study – Violet Jay

Violet Palmer is the founder of Violet Jay, selling ethically-sourced hair extensions. The global hair extension industry is one where exploitation of the women who give their hair is common; Violet Jay’s sourcing process is transparent, so you can be sure that your hair extensions are cruelty-free. Now Violet is developing a range of argan oil treatments in partnership with woman’s argan cooperatives in Morocco, empowering the women in the region and giving them a sustainable livelihood. Long-term, Violet wants to establish a community centre for the women of the region, and fund a tree-regeneration programme so that argan can be harvested for years to come.

In order to raise funds for this project, Violet is going down the crowdfunding route – here’s how she is approaching her campaign.

“My initial Virgin Startup loan was a great help to get the fundamentals such as website, R&D and branding sorted out. I’m now ready to take my business to the next level and launch my full range of ethically-produced organic argan-based products manufactured directly from Morocco.

I had researched ways of gaining additional capital for my business and crowdfunding seemed the best and most popular option with new businesses as, unlike a business loan or an investment, you won’t have to make repayments and will still have 100% control/ownership of your business. I also thought that it would be a great way to launch my product line as I could offer a product from my range as rewards for 'pledges'.

Once I made the decision, I decided to just go for it. As you will only receive the funds if you have reached your goal and will lose nothing financially if you don't, I believe that it’s a low-risk activity worth a try. I chose to go with, as I saw that it’s in partnership with Virgin Startup. As I have received great support from Virgin Startup and it is such a reputable company, it was an easy decision.

The advantages of using crowdfunding for me include accessing a broader audience for my business, and for others it could potentially act as the initial marketing push that your business needs for launch. It could also be a 'testing' platform for your idea and is a great tool to get valuable feedback.

So far, I'm finding my biggest challenge getting visibility for my campaign. It was only after I had started my campaign that I had realised that the most successful campaigns had a big push through - not only on social media, but through PR coverage also.  This applies for all businesses, whether or not you’re a social enterprise – don’t assume people will know about your cause and find you themselves.

I believe that if this wasn’t a social enterprise, I would have sought angel investment over crowdfunding – an important element of social enterprise is knowing you have the freedom to control where the money goes.”

Violet's campaign is still going - support it here.

Top tips for crowdfunding a social enterprise

- Choose the right platform. With so many platforms out there, pick one that fits with your social enterprise – like Violet, can you give rewards for pledges, or are you happy to give away equity to the community? Also consider things like fees – platforms take varying percentages of each pledge. How can you make sure that as much money as possible goes towards your business and cause?

Be prepared for a gruelling campaign. Marketing is vital to the success of any crowdfunding campaign – prepare as much as you can beforehand. Before launching, build your social following and let people know it will be happening, so you have people lined up ready and eager to pledge. Target people you know also care about the cause your business supports, and ensure that this community knows about your campaign.

-  Tell a compelling story. Don’t assume that people will know all about the problem you’re trying to solve – explain why it’s an issue, and how your product or initiative will help. Violet created a documentary exploring the women’s cooperatives in Morocco to educate people on how her initiative will improve their lives.

-  Choose the right rewards. If you’re running a social enterprise, unless like Violet you are creating a specific product it can be hard to think of rewards to give people. For example, if you were raising money to build a community centre, what kind of rewards would you give? Rather than products you might decide to name a part of the centre after a donor, or invite them to a big launch party. Tangible rewards are a big draw, even in the social entrepreneurship space – approach pledges like donations that give the pledgee a little something extra.

- The ‘friend of a friend’ rule. When setting up your campaign, think about who will see it – at least in the early stages it will be friends and family, and people they’ve shared it with. Don’t write your copy with a group of big investors in mind, for example, if the people most likely to see it are your friends who just graduated from uni.

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