Nonprofits and social enterprises need money to start their businesses, but they often can't go to the same sources as a small business operator. The "social capital market" is a very different world, with different rules.
"Social capital market" is a term widely used to describe loans, program-related investments, and other financing tools that are made available by foundations, government agencies, corporations, and individuals to support nonprofit ventures. Unfortunately, though, it's not well coordinated or organized.
Also, the social capital market is much smaller than traditional capital markets, which include bank loans, venture capital, and private equity. Traditional money is usually unavailable to nonprofits since they cannot issue equity (ownership) in their businesses without spinning them off, which creates a series of other considerations and challenges. The social market focuses on social impact—hence the term "impact investor"—before financial return, which is inherently much harder to gauge and monitor. As such it does not have the innate efficiency or discipline of the traditional market.
If you are going to start a social business, be prepared to spend an inordinate amount of time raising money. By most estimates, traditional businesses invest 3 percent–5 percent of leadership time raising funds for a venture, with the rest devoted to making the business work. Many social enterprises spend 20 percent–50 percent of their leadership time raising money, a potentially significant distraction from the actual work of the organization. Be aware of the need to spend this amount of time raising funds, and check out relevant forums such as Investors Circle, Social Venture Network, and SoCap for leads—knowing what you're getting into is half the battle.
© 2011, nonprofits101.org. Compiled from Darian Rodriguez Heyman, ed., Nonprofit Management 101: A Compl