Welcome to the fifth week of this course, Business Modelling and Business Planning for Social Innovation. This is already the last week of the second part of our MOOC specialization. I really hope that after finishing this week, you will also enroll in the third part of the Social Entrepreneurship MOOC specialization. That course will be entitled Growing the Impact of Your Social Enterprise. It will be in the third course that you submit the final version of your business plan, so do come back, and see how well your startup idea performs against the other participants in this course. But now, let's turn towards the content of this session. Last week we have introduced you to the idea of social impact investing, which is what we're going to talk a little more about today. Social impact investing is a very interesting trend that makes it possible to provide funds to social enterprises, such as the ones you guys are going to start by the end of this MOOC specialization. What we're going to do today is look at a number of guest speakers. We're going to meet a real impact investor, Harry Hummels, who is actually managing assets of about $1 billion that are invested in social and environmentally responsible assets. Not all of that money goes towards social enterprises, but a good part does get invested in microfinance, housing, energy, and so on. Harry Hummels will tell us a little bit more about where he sees the field of impact investing moving. We again have today a contribution from my colleague Anirudh Agrawal, from the Copenhagen Business School. He will talk about his experience with impact investing in India. Next, we will ask you to start thinking about your own impact investing needs. That means you need to start thinking about where your capital will come from. Before you can do that, you need to clarify what your capital needs actually are. How much money do you need to raise? And what are you going to do with that money? Then starts the step of trying to identify where that money might come from. And finally, today's the time for your final peer evaluation exam. As announced, this last submission of this course is different in that we ask you not to upload a written assignment, but instead a three minute video pitch. This video should be aimed at potential investors, and should outline the problem you want to address, the solution you offer, your business model, and earned income strategy. And finally, your investment needs. This video will be a key stepping stone on your way to what's your final business plan, which will be due at the end of the third course of this MOOC specialization. But now let's start by listening in on a discussion by Lara Hale and Catarina Gomez. Two of our PhD students who will talk about social impact investing in our first video session for this week. >> So who would you go if you needed money to start your social venture? Who do you target? >> I'm quite serious that I would talk to Richard Branson. >> Okay. >> Yeah. >> Can you explain logic behind that? >> He's just more symbolic, because this is someone who's incredibly wealthy, and invests much of his money into ventures that he considers to be ethical, and having a high potential to make some sort of social impact. >> Okay, but are you not afraid that if you go, like, to the Bill Gates of the world, that you're going to depend on private philanthropy for social change, or social goods? >> Terrified. >> Like what are the, yeah. >> Absolutely terrified. >> I'm terrified by this perspective. >> Yes, and in fact I would say it's something that a lot of small businesses are confronting nowadays. Because with the financial crisis from 2008, there was this fallout where over the following years in 2009, 2010, a lot of the foundation grants or other sorts of forms of charitable donation have been completely sliced. So it becomes this question of, well, if we're not going to get the money there, are we just going to cease operating or do we start to look at private investment? >> Mm-hm. >> But private investment has its own costs, and one of those can be that those who are investing in you start to gain some sort of control over the decision-making. And the depth of this can vary quite a bit. But ultimately, you don't have the freedom of your creation that you used to have. >> Exactly, yeah. >> So one possibility is to see as much as possible how to cut costs and use your personal finances or remodel the business in such a way as that you don't need to seek outside funding. >> I guess the limits of that would be, what kind of impact you are going to have, right? What will be the scale of change that you're going to provide if you're going with your pocket money to launch your initiative? Or, I mean we could talk about self-financing in terms of having a side commercial operation to finance your foundation or your social business. But I could think of a million reasons why you shouldn't do that. >> So let's say you have to make the decision for outside funding. Where would you turn? >> I mean, if I could have the choice, I'll definitely look, I mean if I was providing some essential public service like improving the current public services in terms of health education, I'll definitely go to the public sector. If not with a profitable business model, but at least with a cost-efficient way of delivering the public service. So that's where I would go, in the first way, if I was providing a public service. If I was selling some good or service with an added social or environmental value, then I might look into private investments. That may be sustainable investors that would want to know about the profitability of the company as well as the social and environmental added value. >> What are some of the challenges if you're approaching the public sector, if you have more of a social service like that? >> I guess, well, the challenge would be: not all public sectors are used to work with social entrepreneurs. There are a lot of obstacles in terms of bureaucracy, in terms of how do you do contracts. So it might be a challenge to provide a public service, through social entrepreneurs. But if you look at the tendency to improve the efficiency of the public service, this last 10, 20 years, I think it's a way to go for cost efficient but quality public service. I think it depends on what you're trying to do, right? It depends on if you're trying to give a quality public service or if you're trying to have a new green business or a new- >> Product? >> Product. >> But then also it comes back to this idea of the business plan. Because which kind of product or service you have and who you're targeting for investment is going to change a lot by whether you're looking at foundations to invest, or if you're looking at the public sector to invest, or venture capitalists. So it's going to have a big effect. >> Yeah, there's no like, one size fits all, I don't think we can give a straight answer. But reflect about what type of change we are trying to do and what type of service are we trying to provide. It's some of the key questions that one should ask before going to investors or searching for finance, then you can adapt your strategy I guess. >> Your assignment for last week was to think about different sources of capital for starting off your social enterprise. Many of you have talked about philanthropic donations and about venture capital. However, there is one important source that you will draw on much earlier. And often this is referred to as the three Fs: family, friends and other fools. Remember the Ruby Cup case. The three women actually put in a lot of their own money and got family and friends to support them with capital in the very early stages of their startup. Typically in these days, you do not need a lot of money, but it is very important that you have patient money. Now, the good thing here is that your family will be probably quite supportive of you. However, there are also downsides. Often your family might not be the best source of giving you the bad news. You might have to fold down your activity. Also, usually, they will not be qualified for the kind of area that you're working in. And there could be potential for conflict. Now, the second source after family and friends, typically is so-called business angels. Business angels are individuals who have started a business or possibly several businesses in the area that you are active in, and who will help you in a very early stage with seed capital. But business angels provide more than just money. Often they are an excellent source of advice. They know the area that you're active in. They might be able to provide you with access to accountants, or to suggest a good lawyer. They will also be able to share with you their experience. They have gone through starting up a business and they might actually tell you the hard news when you are facing a major obstacle. Business angels are a good source for a reality check. Once we move beyond that level, you will typically get towards venture capitalists or venture philanthropists. They will probably only invest into your business once you have a certain proven track record. Typically, these investors have two types of funds: early-seed funds, and then expansions and growth funds. The early seed funds are more wiling to take risks but will probably require a larger share in your business. So they will be more expensive to you. Later-stage funds will be less expensive because the risks are reduced. You have proven your track record. And it's easier to estimate where your company will go. Typically, venture capitalists or venture philanthropists might require to take a seat on your board in order to give them a chance to directly influence the development of your startup. This is good news, because once again, you get a lot of expertise this way. But on the other hand, it might also influence the future development of your organization. So be careful when you look at different investors and make sure that their values and expectations are aligned with what you want to achieve. A traditional philanthropist will be less supportive of a for-profit strategy. And a traditional for-profit investor will not keep supporting you for a long time just because you have a beautiful social mission, unless there is also profit linked to it. Now there are two more sources of capital that you should consider. One, is other businesses out there. This could be suppliers of yours, it might even be competitors. If you can build a business case why they want to associate themselves with you, they might provide you with capital and a lot of other resources as well. You do give up some control in the process, however, you will gain a lot. Again, the Ruby Cup case has shown us how access to an organization such as Coloplast can help get access to design, research and development, production in China, health advice. So consider these possibilities. Finally, there are traditional banks. Bank loans are a good way of financing your venture in the early days if it is available. This will very much depend on the context that you're working in. Increasingly, there are specific loan programs made available by the government to support social enterprises.
