Impact Café: Impact Financing

You’ve got the plans or product to really make a difference, but not the means to turn it into a serious business? For entrepreneurs on a mission to make the world a better place, there’s impact financing. But how does it work? And what is it exactly? During a special edition of Impact Café, entrepreneurs and investors discussed dos and don’ts, along with personal experiences and helpful tips. 

For this edition, host Impact Noord teamed up with Founded in Friesland and Founded in Groningen, Ik Ben Drents Ondernemer (IBDO) and the new Impact Oost. Niek Huizenga moderated the discussion panels with the investors and entrepreneurs. Check out the full video (in Dutch) here, or keep on reading to catch up on the highlights.

People, planet & profit: An introduction by Willemijn Verloop

Who better to explain the definition of impact financing than the founder of Warchild, Social Enterprise NL and Rubio Impact Ventures? “Traditional investors and venture capitalists look at financial potential and financial results to determine the success of a company”, impact investor Willemijn Verloop says. “But that needs to change. We believe that the most valuable companies of our time will be the ones that solve society’s biggest challenges. So rather than look at profit, we also look at a company’s healthy return for people and our planet.”

Rubio is a large fund, with a focus on entrepreneurs with big ambitions: “We invest in companies looking to create systemic changes. That means creating an impact beyond the company itself. So creating a broader change, one that doesn’t transform the company, but the market.”

What do investors look for?

The investor panel consisted of Nanouk Grootendorst (Rabo Foundation), Ellen Ploeger (Flinc/NOM) and Stefan Hager (IBDO). If there’s one thing these three unanimously agree on, it’s that impact entrepreneurship is more popular and important than ever, but the biggest stumbling block is a good business model. “In our opinion, a company isn’t sustainable if it can’t sustain itself”, Nanouk says. Stefan agrees: “You need a healthy revenue model. If you have to go from subsidy to subsidy to survive, you’re not really making an impact. Subsidies are a start to help you grow and make a continued impact, not to keep you afloat. 

More than ideals, it’s about the potential of these ideals. “We also look at the team, when we look at the potential. Are they the right people for the job? For the NOM and Flinc, a diverse team is also very important”, Ellen says. “Our goal is to have at least 35% of the management teams of the companies in our portfolio consisting of women in the next three years. But more than anything, we want all the companies in our portfolio to succeed, so we can’t treat impact ideas differently. So that means we’re not taking extra risks, or more favorable financing or interest terms. Your idea needs to be scalable and your product needs to be competitive.”

Nanouk and Stefan both agree. “And your impact targets should be quantifiable too”, Nanouk adds.  Stefan also adds a valuable tip: “When you’re talking to an investor, pay attention to the types of questions they’re asking and the topics they’re steering towards. That can really teach you a couple of valuable things, even if an investor says no.” 

Tips from entrepreneurs

From the entrepreneur perspective, Kim van der Esch (Mr. Chadd), Danny Hoendervangers (Square11) and Mark ter Maat (Koffielust) also shared their dos and don’ts for financing. “Do your homework”, Danny says. “There are a lot of different funds, subsidies and schemes out there, and it’s about finding the right one for the stage your company is in. You need to do your research and find out if your company is also the kind of company these different funds are looking for. Have a solid business plan  and make a selection of the relevant funds to contact. And be prepared to be rejected a few times.”

“Focus, but don’t be afraid to change course either”, Mark says. Kim wholeheartedly agrees: “With Mr. Chadd, we focused on parents as our customers first. But having a few thousand users simply doesn’t work for a platform like ours, so we changed course and decided to focus on schools as our customers.”

Planning ahead is another thing all three entrepreneurs agree on. “Depending on your ambitions, a single investment round probably isn’t enough. And it’s a good thing to be prepared before you actually need funding”, Danny says. “Definitely!” Kim says. “An investment process is very lengthy. We’ve recently had a successful financing round and we’re already working on the proposal for the next round. And when you’re in the very early stages as a company, it’s usually very hard to find an investor. We started Mr. Chadd with our own money and asking friends and family is probably the best way to help with startup capital. That, or subsidies or philanthropists.” 

And when you’re writing your proposal, make sure it’s cohesive. It really took us a lot of time to make it cohesive as a whole, because there were several people involved in writing it,” Kim continues. “And find experts to help you out and collaborate with”, Mark adds. “A university can help you out with scientific validation of your product or the problem you’re solving with it, which really helps. And it also never hurts to find a consultant to help you out.”

And when you land a meeting with an investor, Danny has a very practical tip: “Leave something important out of your pitch, something you know and understand through and through. An investor is sure to ask about it and you’ll be able to provide them with an impressive answer.” “Practice your pitch, but most importantly, be yourself”, Mark adds. “An investor isn’t just looking at the idea, but also at the entrepreneur behind it. Stay true to yourself and your goals, because you’re the one who wants to make an impact and make the world a better place.”

If you’re thinking about impact financing and are looking for experts or more information. Impact Noord can help you out! 

And here are some helpful resources and organizations:

Drenthe: Ik Ben Drents Ondernemer

Groningen: GroBusiness

Friesland: YnBusiness