Do you find it exciting to witness ideas taking form? Do you have a knack for finding projects early on that have a lot of potential for growth? Are you ready to embrace the experience of participating in a venture from the ground up?
Funding Start-Ups is not for the faint of heart. Many early stage initiatives fold. Yet, amidst this new growth are the bold ideas that shape our future.
Funding Start-ups is a great approach if you want to support cutting edge work, and are willing to take some risks along the way.
What is Funding Start-Ups?
When Funding Start-Ups, you are channeling money into new and emerging organizations and ideas.
With this approach, your funding recipient may be:
- An individual or informal collective
- A 501(c)(3) nonprofit organization; or
- An incorporated business
While often the organizations you fund will be young, sometimes the ‘start-up’ is an exciting project or initiative within an existing, well-established organization.
What are the benefits and opportunities with Funding Start-Ups?
Funding Start-Ups is critical to getting all hands on deck in addressing our planet’s most challenging problems.This approach can:
- Bring in new voices. Funding Start-Ups changes the landscape of whose ideas get noticed and how they are used for transformation. By scouting out raw concepts, you help create new power holders and new conversations, making room for ingenuity and brilliance to take root.
- Grow social innovation. Every successful solution started as an idea. Yet most social innovators don’t have access to the capital they need to get great ideas off the ground. While the business world regularly funds for-profit start-ups, the non-profit funding world often rejects new growth. By offering seed capital, you help channel our planet’s reservoirs of imagination to solve social challenges.
- Stretch your dollars. The early stage of a great initiative is often when your dollars mean the most. Because start-ups often run on very little, sometimes even small money injections can be the difference between an effort failing or flowering.
- Offer opportunities to give more than money. In the business world, and in some “social venture” models of philanthropy, the entities providing early stage funding are often offering non-monetary support as well: expertise, mentorship, relationships, training and even hands-on labor. This kind of support can be as valuable, or even more valuable, than the dollars you give… as long as the support is truly wanted and needed. Be mindful of power dynamics that can cause a grantee to say yes to help they don’t really want, in order to try to please you. This kind of support can also be offered through formal fellowship or incubator programs.
What are the limitations and challenges of Funding Start-Ups?
Start-ups have limitations that have kept funders from jumping in. This approach can:
- Require taking risks. Like small cap companies in an investment portfolio, start-ups are seen as riskier bets than their blue chip counterparts. That doesn’t mean you have to play it safe by funding only well established organizations. Instead, embrace that some of the start-ups you fund may fold, or morph into something else.
- Demand new ways of screening candidates. When an initiative has little track record, how do you know if it has enough potential to fund? You need to develop criteria specific to screening start-ups. Do the leaders have a history of building for success? Does the team have the needed skills? Are there similar successful initiatives using the same formula? Has the initiative had a few early wins? Look also for lessons on how to screen candidates from the private sector, and when all else fails, go with your gut.
- Challenge your existing methods of evaluation. Start-ups are fluid. Everything may transform as new opportunities emerge–even their underlying mission. To adapt, make sure your evaluation metrics are flexible.
How do I find great start-ups to fund?
Before you start writing checks, consider how to find good candidates for seed capital. You can:
- Clarify your criteria so you know how to identify innovative possibility (see section on screening above for ideas).
- Peruse trusted crowdfunding websites such as Indiegogo and Kickstarter, which are now being used by many start-ups to raise funds and awareness. Crowdfunding pools small donations from a large number of people. By joining with others to support a start-up, your impact is leveraged and your risk reduced.
- Find a partner who is microgranting and fund their most promising grantees to get them to the next level. You might look at Pollination Project or Awesome Foundation to see who has achieved the most interesting results with their $1,000 in start-up money or go to a Sunday Soup or other similar type of gathering in your area.
- Approach existing grantees to explore whether they have new ideas or areas they want to explore, but aren’t pursuing due to restrictions on funding they have already received.
How can I start Funding Start-Ups?
Here are a few ideas to get you started:
For Foundation Representatives
As a foundation representative, you have a couple ways you can choose to structure your giving.
- Consider adding a component to your grantmaking program that focuses on funding start-ups and emerging ideas, which could emerge from your current grantees or could diversify for your grantee portfolio by adding new organizations and projects.
- Create or fund an incubator or fellowship program. Under this model, you and/or your partner organization will give both money and technical assistance to recipients. You might bolster your giving with leadership training, networking opportunities and communications support or consider creating a cohort of grantees that can work collaboratively and learn from one another. Echoing Green, Creative Capital and Kindle Project’s Solutions Lab are a few of the innovators supporting this kind of giving.
- Support an Existing Organization. Any of the organizations listed above, who already have expertise in funding start-ups, would likely welcome your support or involvement. You could either donate to an existing organization or join a giving circle that is focused on funding start-ups.
- Do-It-Yourself. You can fund start-ups using a variety of giving methods – from microgranting, to flow funding, to crowdfudning, to funding individuals. Check out Funding Individuals and read the section for individuals under “How Can I Start Funding Individuals?” In this section you will find 4 options for funding the start-ups of your choice.
Read stories of other funders who have mastered this method
- Seeding Economic, Social and Environmental Change
by: RSF Social Finance
- Solutions Lab: Nurturing Communities from the Edge
by: Kindle Project - Solutions Laboratory
- Living democracy, Feeding Hope
by: Small Planet Fund
- Seeking Connoisseurs of Community
by: Spark Grants - The Greater Tacoma Community Foundation