Funders in the social impact space and founders of social ventures depend on one another to drive positive change at scale. The journey to scaling impact is non-linear, multifaceted and rife with challenges. Therefore, building trust and alignment between these two crucial actors is imperative for fostering effective relationships that combine the right balance of expertise and resources. However, the relationship between these “doers” (founders) and “supporters” (funders) is often opaque, marred by complex dynamics that threaten the success of the partnership.
So what are the key ingredients to a successful and effective partnership between these agents of change? 100x Impact Accelerator unpacked this question through a candid panel discussion and working groups conducted with our community of philanthropic funders and founders of social enterprises and non-profits during this year’s Skoll World Forum in Oxford.
I’ll share some of their insights below.
A Hard Truth for Funders
“Some funders are clingy and micromanaging and some are not, and the ones that truly make the difference are the ones who understand that [founders and their teams] are as equally motivated, if not more, to get the job done, and they will figure out how to do it while the [funders] sit patiently — even for 10 years.” – Haroon Yasin, Co-founder and CEO of Taleemabad
The hard truth for funders to hear is that ventures primarily need space and trust from them. Often, funders overestimate the role they should play in supporting ventures, and as a result they end up unintentionally burdening them. Instead, funders should look to strike a balance between a trust-based approach that gives founders room to focus and adapt, and a “tough love” approach, characterised by rare but deep, impactful interactions in which funders ask critical questions that add rigour to the venture’s strategy and impact. For instance, Taleemabad has worked with various funders, including 100x Impact Accelerator, to refine their “end-game” strategies for scale and to gain clarity on where to prioritise resources and efforts for long-term impact.
However, funders should exercise caution when providing advice, and avoid positioning themselves as “experts” in these interactions. To achieve real impact, they need to engage with and respect the expertise of those who understand the local context and are working to generate impact on the ground. It is this humility and willingness to learn that will foster effective collaboration. Misplaced expertise that is not rooted in local context can be counterproductive and even dangerous, in some cases leading to undesirable outcomes amongst the venture’s end users.
On the other hand, founders should recognise that those working at funder organisations often navigate internal governance challenges that require strong advocacy for the ventures they are seeking to fund. So building that trust with individuals who will champion them is important. Founders can build trust with funders by showcasing their deep expertise in the field and rooting their claims in data and evidence. Demonstrating intimate knowledge of the problem at hand — whether through proximity to the challenge or lived experience — enhances credibility, a quality that funders consider important when making investment decisions.
The role of active, flexible and patient capital
“When we are confident that we have met a founder we want to partner with for the long term, we can attract other forms of capital and create a market for it.” – Nalini Tarakeshwar, Head of Programs and Impact Transparency, UBS Optimus Foundation
Social ventures often struggle to access the right kind of capital needed to scale their impact. This involves not only the availability of the funding but also the kind of funding on offer. Funders can help ventures scale by offering flexible, patient capital that’s sustained over a long timeframe. At an earlier stage, this fluidity in funding gives founders enough runway and flexibility to refine and test their model. At later stages, it provides them with the capacity to attract larger and more sustainable types of investment that will enable the implementation of audacious end-game scaling strategies based on solid evidence — the type of strategies that will carry a venture to where it wants to be in the long term.
For instance, some of UBS Optimus Foundation’s investments aim to support a venture throughout its growth journey, starting with grants for the early-stage design phase. These grants help social entrepreneurs to test and validate their models. This initial support is followed by patient equity investment spanning five to 10 years, which could later grow into open-ended, low-interest loans. Additionally, the Foundation provides governance support and facilitates the involvement of more investors and partners for follow-on funding. An example of this phased and flexible approach is Chancen International, a venture that is also part of 100x’s portfolio. Chancen was funded by UBS Optimus Foundation to provide innovative financing that enables young people from low-income backgrounds in Africa to access tertiary education. This partnership started out with a small design grant from the Foundation, which evolved into an equity investment to support the establishment of a blended finance vehicle. UBS made this follow-on investment into the blended finance vehicle as an anchor equity investor, thereby attracting other investors.
The Bill & Melinda Gates Foundation also adopts a similar approach, offering grants to de-risk capital and provide time for social ventures to prove their model before receiving larger equity investments.
Patience on capital vs. patience on impact
“As a strategic impact-first investor, we are patient with capital but impatient optimists on impact. We recognise the time impact takes, but we’re laser-focused on progress towards those goals, what companies are learning from market feedback along that journey, and what the data shows.” – Archana Srivatsan, Head of South Asia Venture Capital at the Bill & Melinda Gates Foundation.
We’ve discussed the need for trust between founders and funders, but the currency that buys this trust is evidence. Whereas funders can be patient and flexible with capital, they still require early evidence of impact. This is why most funders cannot afford to be completely hands-off. This evidence can be in the form of quantitative data or qualitative insights from customers that demonstrate impact from the onset. When founders lack clarity, rigour or customer insights, it complicates investment decisions for funders.
However, funders need to be willing to fund research to obtain this kind of data, which can lead to a Catch-22: Impact data is the fundamental thing social ventures need to acquire larger, more flexible sources of funding, but funding is needed to do the research that provides that data itself. For many very early-stage founders, obtaining that funding can be a huge challenge.
Proactivity and Transparency: Crucial Parts of Founder/Funder Relationships
“Something I would urge funders to do is really look deep and beyond the people who are sitting next to them, because you never know where the next social unicorn could actually be hiding.” – Safiya Husain, Co-Founder and CIO of Karya
In the early stages of their funding journey, founders typically face the burden of navigating through various funding options, and they often must contend with unclear or limited information provided by funders in their public calls for applications. Transparency is crucial at this stage, and it’s important for funders to widely share available opportunities and clearly communicate their selection criteria and processes. Operating in a dual mission sector where profit and impact are both prioritised often leaves a lot of grey areas in terms of who qualifies for funding, and whether impact or profit is the funder’s primary objective. Certain funders may have a slight preference for either profit or impact without fully disclosing it, which leaves entrepreneurs guessing. This lack of openness slows progress and bars some potentially highly impactful ventures from entry altogether. Funders can play an important role in levelling the playing field by making their processes more transparent and accessible, and by funding a diverse range of ventures beyond their usual networks.
A key takeaway from 100x’s breakout sessions at the Skoll World Forum was that it may be time to rethink the conventional funding model. Currently, the burden of seeking funding lies with the founders, which could be described as “impact seeking money.” What if we were to flip this to “money seeking impact”? This alternative, somewhat radical idea would allow founders to concentrate on achieving impact as prospective funders proactively reach out to them.
Power dynamics: tackling the elephant in the room
“The best donors treat doers as partners, and gratitude flows in both directions. That’s how it should be, because donors and doers are solving each other’s needs and working collectively to achieve impact.” – Abdulhamid Haidar, Founder and CEO of Darsel.
In many funder-founder relationships, power dynamics are a significant concern — despite efforts to address them. Achieving balance requires a radical shift in how funders redistribute power, as their current efforts to reduce this discrepancy are falling short. It begins with acknowledging who leads the work and brings the relevant expertise.
While funders provide support and resources, it’s the founders who deliver impact. Yet it is not uncommon for these “doers” to feel like beggars, as if funders are doing them a favour and must be given unreciprocated thanks while demanding unshared accountability. In an ideal partnership, both parties should recognise that they are solving a common problem, and both should work to satisfy each other’s needs.
Matching future social unicorns with funder unicorns
At 100x, we define “social unicorns” as ventures with the potential to expand their impact on the scale of billions. But during our conversations at the Skoll World Forum, the idea of a “funder unicorn” emerged.
Funder unicorns are unique (unfortunately rare) types of funders who work with founders to create a trusting relationship and provide the flexible funding needed at different stages of a venture’s scaling journey — while also serving as thought partners who provide long-term strategic support. An ideal relationship between a funder unicorn and a potential social unicorn involves patient, catalytic capital that allows founders time and space to grow and iterate models for greater impact.
A funder unicorn proactively levels the playing field for ventures that would otherwise miss out on funding opportunities due to their lack of connections. In exchange, the founders of prospective social unicorns must recognise the importance of demonstrating evidence-based impact to simplify the funding decisions for these funders.
Founders should also welcome (within reason) the funder’s thought partnership as they evolve their scaling strategy. Open dialogue, shared experiences and a commitment to collaboration are the key building blocks of these relationships, which enable meaningful and lasting impact by bridging the needs of founders and funders in their pursuit of social impact.
Note: Haroon Yasin, founder and CEO of Taleemabad, Safiya Husain, cofounder of Karya, Nilini Tarakeshwar, Head of Programs and Monitoring & Evaluation at UBS Optimus Foundation, Archana Srivatsan, Head of South Asia VC at Bill & Melinda Gates Foundation, and members of 100x’s alumni community from Rocket Learning, Gramhal, Darsel, Labhya and Unlocked Labs contributed to this analysis.
Fan Gu is the Deputy Director and Head of Impact Investments at 100x Impact Accelerator.
Photo courtesy of Andrea Piacquadio.
Publisher: Source link
