A Dummies Guide to Funding Social Change

The world of funders has acquired several new inhabitants creating diversity in charity. Historically, institutional and high net-worth donors represented the biggest fund raising sources. They are now matched by philanthropists, crowdfunders, impact investors, venture capitalists and other kinds of supporters. How do you make sense of this dynamic, new world? Our guide will help you decode it!

The spectrum of funding social change

Technology entrepreneur Vishy Kuruganti, a close follower of the social entrepreneurship space, provides a simple, no-nonsense guide to distinguishing various categories of funders. He calls impact investing “the type of investing that lies between venture investing and philanthropy…Philanthropists write cheques purely for social impact while venture capitalists invest in companies primarily for financial returns – any resulting social impact is incidental and considered a ‘bonus’.[1]”

Famous last names

By tradition, wealthy families who desire to give back to society follow the model of philanthropy. In India, the Tata group has been giving money to charity through various Trusts like The Dorabji Tata Trust, The Sir Ratan Tata Trust and other related programmes. Funding is typically given to specific sectors that benefit the disadvantaged and alter their condition without any expectation of return or gain on the money given. Sir Dorabji Tata, for example, put his own money into the trust, including shareholdings in his companies, personal effects, properties and other commodities of value[2]. More recently, Wipro founder,  Azim Premji donated more than 25 per cent of his wealth to set up the Azim Premji Foundation that will work in the health and education sectors.

For the larger good

Impact investors look for financial returns on their investments while also effecting social change.They work with those unreached by government or larger private service providers.  Impact investing in India has not been traditionally popular, but is on the rise and accounted for 23% of private equity investing in 2013.[3]  Kuruganti has listed over 30 institutional impact investors in India, including global firms like Gray Ghost Ventures, Ennovent, and the Omidyar Network[4]. Intellecap's report on impact investment in India found that in 2014, 70% of all impact investment happened in the microfinance and financial inclusion space.

All boats will rise

Venture capitalists tend to be more sceptical of the ‘investing for social good’. Instead, they believe that market innovations and disruptions will provide solutions to social problems. Mahesh Murthy of Seedfund argues that “the digital innovations that have had the most impact on our planet, including bringing down governments and saving lives are Google, Twitter and Facebook. But these are regular investments and not “impact investments” by any yardstick.[5]” Aavishkar invests in early stage entrepreneurial companies in health, education, energy, microfinance and financial inclusion. They look for social relevance and rural focus as part of their “promise of multiple bottom line returns.[6]” Other firms like VenturEast also invest in seed- and incubation-stage businesses in life sciences and healthcare businesses that benefit those unreached by such services and provide financial returns.

The power of the crowd: Crowdfunding has often been described as old wine in a new bottle. These organisations gather funds from individuals and sponsors to fund specific projects that organisations may have. Their funding capacity may not be as large as the first three entities, but they provide much-needed gap funding to realise existing projects. In India, organisations like Ketto, HopeMonkey, BitGiving and Orangestreet use crowdfunding and corporate sponsorship to raise money. Milaap Social Ventures Private Limited connects borrowers in need and lenders on their website. Individuals can lend to those in need, and expect to have their money returned later.

Value for money

Philanthropists lend a helping hand while impact investors and venture capitalists try to change social and economic environments through their work. For each of these supporters, their money is a way to effect some change in the world. As Winston Churchill said, “We make a living by what we get, but we make a life but what we give.”