Green Is The New Black co-founder Paula Miquelis pens this piece which outlines the trials and tribulations of fundraising a social enterprise. Together with Stephanie Dickson, they started with an idea and built a (conscious) empire. This is how they did it…
You might have already heard, but Green Is The New Black recently received its first seed investment (where an investor invests capital in a startup company in exchange for an equity stake in the company). Ultimately, it helped propel us even further towards our vision of developing the biggest conscious community in Asia and Europe (but more on the latter later).
We did it through fundraising, which if you’ve ever done, you’ll know is not easy. And if you haven’t, keep reading. It was hard for us even though we are two very determined social entrepreneurs who founded our own company. But even talking about a ‘social enterprise’ was quite obscure for many of the people, businesses and brands we approached. After the fact, we got a lot of questions about how we pulled it off so we penned a shortlist the things we wished someone told us, and of course the lessons we learned along the way.
The truth is, we dove in headfirst with little knowledge about the wild world of fundraising. In fact, when Stephanie and I met, we didn’t even consider fundraising. We were happy bootstrapping so we could build a slow but steady business that was 100% aligned with our vision. When it’s your first business, and you put every drop of blood, sweat, and tears into it, opening it up to outsiders is a scary, scary thing. We’d also read up online about so many failures (don’t do that), so we were scared.
Then, someone said to us: “It is better to have a smaller amount of shares in a big business rather than all shares in a small business.” That really resonated. It also instilled a kind of confidence within us that almost immediately, we were ready to take a bigger risk. At the same time, it dawned on us that in our niche, it made sense to grow a big business because big business meant a bigger impact.
This is what we wish we knew when we started…
1. The three most important things we wished you knew before embarking on a fundraising mission
During the race phase, which is when you meet a countless number of potential investors, it is not easy to differentiate between the people who are just keen to meet you versus the ones that are actually willing to write you a cheque. It’s hard to know where and with whom to spend your time with, so you end up wasting a lot of time. Don’t get frustrated, it’s part of the process, and it’s necessary because at the end of the day you never know who will end up supporting you (sometimes it’s the underdogs).
Once we locked down an investor, the shareholder agreement took a lot longer than expected. This could have resulted in a catastrophe if we depended on the investment for cash flow. This is important: to overcome this, start fundraising early or have ample money in the bank, so you retain power when negotiating.
Finally, people advise you to prepare your numbers, but of equal importance is humility and confidence—they make an impression on investors. With respect to numbers, it doesn’t matter how well prepared you are, there is a very high emotional aspect in which you have to connect with your potential investor, make eye-to-eye contact, and negotiate like you would in a market.
“People don’t buy what you do; they buy why you do it. And what you do simply proves what you believe”- Simon Sinek
2. Evaluate and quantify your needs of cash flow and potential growth
Surprisingly, this required a large part of our time. We actually modelled our business plan out in an Excel spreadsheet all the way through to 2021. This included items like revenues, costs, recruitments, hardware investments, insurances — everything. We also created scenarios: good, bad, and realistic, which helped us refine our model. We had the help of our amazing Chief Financial Officer Jan, who moonlights this role after a full day of work as a banker. Surround yourself with external sources, or people who know how to deal with money. Lean on your friends and don’t be afraid to ask for favours, people love to help an entrepreneur.
3. Identify qualified investors and raise smart money
As a social enterprise, we first began to identify the different kinds of investors or organisations that would suit us. We looked at angel investors, venture capitalists and impact investors. We met with several venture capitalists, and it didn’t take long to understand this wasn’t for us as it was hard to speak the same language. We quickly turned back to impact investment funds and angel investors, and eventually, we connected with an angel investor who turned out to be one of our previous clients. Look within your community; there is nothing better than working with one of your clients who are already familiar with you, your principles and your product.
4. Carefully pitch your project to potential investors
First, craft an email according to all your targets. For us, it was venture capitalists, BA or impact investors. Next, set up a meeting and pitch with your deck. Wrap up your meeting with answers to questions they will have. After the third or fourth meeting, send the first letter of agreement that includes the valuation and amount ready to be fundraised. Choose the low hanging fruit, which means investors that really best target people that are familiar with your work.
5. Know the criteria in which investors in your market will weigh on when deciding to invest in a business
Understand your investor’s mission, vision and know the founders. By definition, being an entrepreneur means you are passionate but being a social entrepreneur means you have this drive of impacting the world, which goes beyond making money. This, in itself will attract new kinds of investors—be prepared.
6. Know how to involve and reward investors (directorship vs. equity)
From the get-go, build trust and a strong relationship with your investor. Follow your instincts. For us, agreements were kept simple, and future involvement and rewards were based on trust, communication, and interaction.
7. Adopt a shareholder agreement
We welcomed our investor as part of our family. While there was trust, we also signed a shareholder agreement over a glass of champagne. The agreements also outlined clear communication strategies and regular updates during a (potential) lengthy execution of the fundraising process, a timeline, and next steps. It was paramount to be open from the beginning. Take the first step in giving something away to earn trust, and in return, receive trust.