M-RCBG Associate Working Paper No. 59

Mapping the Money: An Analysis of the Capital Landscape for Early-Stage, For-Profit, Social Enterprises in the United States

May Samali



Much ink has been spilled detailing the ascendancy of social entrepreneurship and the potential for companies to produce both social impact and financial returns. However, according to recent studies, for-profit social enterprises struggle to receive funding in their earliest stages of development. This funding shortfall is a significant problem because, without seed capital, many promising startup social enterprises cannot grow and scale into the successful, mission-driven businesses we all want to see in the world.

To better understand the funding predicament facing early-stage, for-profit, social enterprises (ESFPSEs) in the United States, this Working Paper focuses on three key questions: What does the capital landscape look like for ESFPSEs in the U.S.? What challenges do ESFPSEs face when accessing capital in the U.S.? What changes can be instituted to improve access to capital for ESFPSEs in the U.S.? These questions are answered using a combination of quantitative and qualitative methods—including online surveys of ESFPSEs and personal interviews with ESFPSE funders and experts.

The research findings are divided into three parts. The first part maps how and from where ESFPSE founders are capitalizing their businesses. The second part constitutes an examination of the fundraising challenges faced by ESFPSEs under four headings: funders’ aversion to level of financial returns; funders’ aversion to companies in early stage development; entrepreneurs’ heavy time investment and long due diligence periods; and entrepreneurs’ lack of access to capital networks and deal information. The third part provides analysis of the changes suggested by surveyed companies and interviewees to improve the funding landscape for ESFPSEs. These changes are grouped under three headings: establishing intermediary organizations and platforms to connect social enterprises and impact-oriented funders; introducing new and more flexible financial instruments for social enterprises; and providing impact investing education and fundraising training for social enterprises and funders.

This Working Paper is adapted from an original paper submitted as a Policy Analysis Exercise (PAE)—the capstone project of the Master in Public Policy (MPP) curriculum at the Harvard Kennedy School of Government. The PAE requires MPP students to undertake a research and consulting project for a client. The project, which forms the basis of this Working Paper, was undertaken for Tumml—a San Francisco-based 501(c)3 accelerator and seed fund focused on empowering entrepreneurs to solve urban problems. The original paper includes recommendations for action on the part of Tumml, formulated in response to the survey and interview findings. While this Working Paper does not include the original recommendations presented to Tumml, the research findings are nonetheless significant and relevant to founders, funders, and policymakers in the broader social enterprise ecosystem.

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