3.2 Finding the Right Investor
When determining whether a prospective investor is the right fit for a social enterprise, the social entrepreneur should consider both formal and informal criteria. The questions in the below figure are designed to help the social entrepreneur make the decision on whether the social investor is the right fit.
Figure 3 Investment fit
Source: Own illustration
Many social investors concentrate their funding on a particular sector or geographic region, thereby deepening their expertise and allowing them to transfer knowledge among the social enterprises. For this reason, the geographic focus and the sector focus tend to be important on the part of the investor, and are usually strict criteria.
Investors tend to focus on a specific investment stage, which can make it difficult to come to an agreement when the social enterprise is at a different business model stage than the social investor‟s usual focus. Some social investors only finance a proven business model, while others finance start-ups with a promising concept. In most cases, this “proof of concept” is usually not negotiable.
However, the financing terms and the investment stage do offer room for negotiation. In the case of significant capital needs exceeding a limit of approximately US$ 1,000,000, social investors can syndicate the investment (simultaneous investment of two or more investors). The different investment stages are Seed, Early Stage/Start-Up and Later Stage/Mature.
The social entrepreneur also has to consider if the social investor shares the same values and has a similar mission. During the first meeting with the social investor or a discussion with other investees, this can be gauged. Some investors compare this process to the steps leading to a marriage, where formal criteria are just a part of the considerations and the subtle or dynamic impressions that the investor and investee have in their interactions determine whether the arrangement is the right fit.