Funding a Social Innovation Startup, Part 1 - Painting the Landscape in Canada
This is Part 1 of a multi-part series of SoJo's journey of seeking the funding needed to scale its operations and bring it to a point of financial self-sustainability.
SoJo (http://theSoJo.net) is an interactive online resource that empowers individuals to turn their ideas for social good into action. Through supporting social innovators navigate the challenges of executing their ideas, SoJo enables its users to focus their creative energies on finding solutions to some of today's most pressing challenges and working with their target communities to affect social change.
SoJo is an early-stage social innovation project, and when speaking with my peers we all share the same rant: there's big talk, but early-stage social innovation financing is virtually non-existent in Canada.
Yes, there are many competitions and awards (which dominate the airwaves leading us to believe that this funding exists). However, the probability of getting them is very slim, based on the ever-growing demand for these competitions and considering that funding is often allocated based on the bias of the grantors.
Over the past 2 years, I've been monitoring the resources and funding options that are available, as I knew we'd eventually need to tap into them and also feed onto our platform. Actually getting the funding has proven to be incredibly difficult, though.
Here is a highly simplified overview of the funding landscape in Canada:
Grant social innovation the support it needs
Innovation, by popular definition, is the act of starting something new or making what already exists better. Although "social innovation" funds are starting to pop up among foundations, applicants must still have either registered charitable status or a proven track record of financial management to show accountability.
Although I understand the funding constraints found within these organizations, I will be honest when I say it's contradictory (and counter-intuitive) to demand applicants fit into traditional organizational structures, when innovation is all about starting something new.
With no charitable number and only a few dollars in our bank account, this makes us ineligible for many of the opportunities available. We've since built strong relationships with some of the larger funding agencies and I will continue to explore and create opportunities. Umbrella organizations exist to support innovative projects, acting as a financial and legal fiduciary but they take a 10% overhead charge on all incoming funds (which is a lot of money for a tiny nimble organization such as ours) and only work with unincorporated projects - further making SoJo ineligible.
SoJo is still eligible for traditional non-refundable grants if we find our own fiduciary sponsor (an organization that assume legal and financial responsibility for administering the funds on your behalf). SoJo partners with over 50 nonprofits and charities. I personally reached out to everyone who is eligible, and not a single organization was able to help us out. Either they are applying to the same funds themselves or their Boards are not comfortable assuming the risk that comes with the added legal responsibilities.
Conversations come to a dead-end, and I end up feeling like I'm 'begging', when I know that SoJo has nothing but value to add. I've spent over 2 months seeking out a fiduciary sponsor and have since realized it’s no longer worth my time to actively pursue this route.
Investing in early stage social innovations
SoJo has a strong model for earning revenues, and they will come from its B2B Social Innovation Whitelabel product: an enterprise-level software product that trains staff within large organizations to spearhead community change initiatives from within their organizations.
This product has been anecdotally validated by various HR professionals and staff from prospective clients. However, rule #1 of business is that until you have a paying customer, your product has not been validated. Without any clients, it’s difficult to seek mainstream debt and equity funding.
This B2B Social Innovation Whitelabel product will create a market that does not yet exist. SoJo has no competitors right now on its public-facing site, and our market research shows that there are no competitors in the B2B market that SoJo will create. The price of this product can only be dictated by the market. With a market that does not yet exist, the return on investment is so speculative that at this point, it won't be even worth anyone's time to discuss those numbers or create a business plan.
The plan is to get our pilot customer to share in the development costs, serving as validation, which will allow us to seek the appropriate funds (or generate our own revenue) to build out this product. Until then, equity or "impact investing" types of funding are not an option for SoJo.
In the interim, I've been advised to take the time to create a competitive analysis for this product which can help convince prospective investors of the potential that lies in this market; however, it’s still going to be long stretch. SoJo has since hired a Business Development intern who will help with these activities.
Although the B2B has great potential, from our strategic planning emerged the importance of focusing on the consumer-facing (B2C) product. With B2B on hold for the next year, these funding options seem ever distant.
Friends and family can’t fund forever
Between the volunteer hours, in-kind support from partners and financial investments from the founding members (and our families), over 13,000 hours and $500,000 have already been invested into SoJo. Though most of this money is in-kind, it does not dismiss the significance of the investment and risk already taken by those involved in SoJo. It’s fair to say that we've exhausted friends and family and this is no longer an option.
As I navigate through the challenges and frustrations of seeking bridge funding to bring SoJo to the point where it can be financially self-sustaining, I plan to candidly document this journey on http://SocialJournal.net, with the goal of welcoming more suggestions and the hopes of attracting more attention to this important, but overlooked issue.