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Financing change projects
Dr. Linda Kleemann
16/12/2013

1
Agenda for today
 Your financing options depend on your business model.

 Convince your customers and financiers.

 The temporal dimension: are revenues coming in before or after costs?

2
Your financing options
 Selling products or services
$

 Fundraising for donations and public money

 Both: hybrid models

$

$

$

3
Option 1: selling products or services

4
Option 1: selling products or services

5
Option 1: selling products or services

6
Option 2: Fundraising

7
What is Fundraising?
… is the process of soliciting and gathering voluntary contributions of money or
other resources, by requesting donations from individuals, businesses, charitable
foundations, or governmental agencies.
…. typically refers to efforts to gather money for non-profit organizations
…sometimes used to refer to finding investors for for-profit enterprises.

8
Fundraising types
donations
• from
inheritances
• …clubs
• …campaigns
• …businesses

Allowances &
grants
• from
government
• …foundations
• …firms
• …lotteries
• …fines
• …competitions

membership fees
• for member
based
organisations

revenues
• through
merchandising
• …sponsoring
• …lectures and
talks
• …charity events

9
10

donations
Donations in Germany
2006

3 855

2007

3 912

2008

4 057
Pakistan
Haiti

2009

4 227

2010

4 526

2011

4 262

2012
Mio € 3 400

Source: GfK Nürnberg

4 160
3 600

3 800

4 000

4 200

4 400

4 600

11
Every third German donates
45.00%

42.60%
40.60%

40.10%

40.00%

36.10%
34.30%

35.00%

32.40%

33.20%

2011

2012

30.00%

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%

2006

Source: GfK Nürnberg

2007

2008

2009

2010

12
Average number of times per year people donate
8.00

6.70

7.00

6.30

6.30

2009

2010

6.50

6.00

5.00

5.10

2006

2007

5.40

5.00

4.00

3.00

2.00

1.00

0.00

Source: GfK Nürnberg

2008

2011

2012

13
Fundraising pyramide
80 % of
funding

Lead
donors &
legacies
Major donors

U
P
G
R
A
D
I
N
G

Regular donors
First time donors
responders
Interested members of society
80 % of
donors
Public = suspects

14
Allowances and grants

15
Importance of public money in Germany
Public funds

Philanthrophic money Own revenues

Culture

20,4%

13,4%

66,2%

Education and research

75,4%

1,9%

22,6%

Health

93,8%

0,1%

6,1%

Social services

65,5%

4,7%

29,8%

Environment

22,3%

15,6%

62,1%

Living and working
Citizen rights and consumer
protection
Foundations

0,9%

0,5%

98,6%

57,6%

6,6%

35,8%

10,4%

3,4%

86,2%

International activities

51,3%

40,9%

7,8%

Associations

2,0%

0,8%

97,2%

Germany total

64,3%

3,4%

32,3%

International average
42%
11%
47%
Johns Hopkins Project (Germany 1995)
Source: Nehmermärkte und Nonprofit Bereiche (nach Johns Hopkins) – E. Priller, R. Graf Strachwitz, A.
Zimmer. In: Fundrasing. Fundraising Akademie (Hrsg.) Gabler, Wiesbaden 2003
16
Public funding
 Usually distributed through calls for proposals by grantmaking institutions

Tough deadlines
Consortia may be needed
Reputation and previous experience is important
Knowing the archictecture of proposals is important
Focus on reporting

17
Impact investors and foundations

18
Social Impact Bonds

19
20
Crowdfunding / Crowdsourcing
 crowdfunding = money; crowdsourcing: ideas, time, ….
 Difference to donation is investor principle: investor gets something back if
successful

 Examples: http://www.startnext.de/;
http://www.startnext.de/pages/socialimpactfinance;
http://www.crowdsourcing.org/; http://www.kickstarter.com/;
http://www.indiegogo.com/; https://www.seedmatch.de/;
21
Membership fees

22
23

revenues
24

Charity events
Sponsoring

$

25
Example of how to establish a sponsoring
price: cost per mille (CPM)
Simple version:

CPM= (Advertising Cost ($) / Impressions Generated)*1000
Weighted version:
CPM weighted by quality of impression
Quality categories:
direct contact with consumer
indirect contact with consumer
Sub-contact: via targeted media such as member journals
media-contacts: e.g. via press releases

26
CPM example
type
Format

Size in Pixel

Super Banner

728 x 90

price CPM
Per 1000
contacts
30,00

Skyscraper

160 x 600

25,00

Skyscraper (moving) 160 x 600

40,00

Banner

300 x 100

10,00

Banner

440 x 120

20,00

Rectangle

300 x 250

40,00

Billboard

800 x 200

90,00

Wallpaper

50,00

TAZ data:
Page Impressions (Page Views)
2012/06 - 13,00 Mio.
2012/05 - 12,97 Mio.
2012/04 - 12,38 Mio.
Visits
2012/06 - 4,47 Mio.
2012/05 - 4,75 Mio.
2012/04 - 4,55 Mio.

(Quelle: IVW.de)

Unique Users: 1,29 Mio.

(Quelle: AGOF internet facts 2012-03)

http://www.taz.de/zeitung/anzeigen-verlag/online/

27
Convince your crowd!
 Why should someone buy your product?
 Why should someone invest in your idea?
 Why should someone donate to your organisation?

Look at yourself with the eyes of your customer/investor!

28
1) What investors want to know











What is the impact?
How big is the problem that you are trying to solve?
Why you and not someone else?
What is new or better about your idea?
Who else is sponsoring you?
What does your team look like?
When will I get my money back?
What is the return?
How safe is my money?
Is your idea scalable?

29
2) Why people buy a product









What is my first impression of the advertisement, design, company?
How does it help me?
Does it match my style?
Does it match my values?
How much does it cost?
Do I think the price is fair?
Where can I buy it?
How long does it last?

30
3) Why people donate
Immaterial incentives
 Sympathy
 Guilt and gratefulness
 Religious feelings
 Reducing dissonance
 Idealism
 Social prestige
 Self esteem

Financial incentives
 Tax reasons
 Future „returns“

31
It‘s your turn







Convince us to invest in you, buy your product or donate!
Choose only one of the three options!
In your team prepare a 100 second presentation
Present
All others listen and make their decision who to invest in/buy from/donate to
Remember the questions by donors, investors, customers

32
The temporal dimension
Cost plans - revenue plans - liquidity /cash flow - seed funding

$
$

$

$

1

$

2

3

t
33
Financial plans
costs and funding
project component work package

funding 1
task

Sum

funding 2

funding 3

costs

0€

0€

0€

0€

funding
total
Sum
0€
0€
0€
0€
0€
0€
0€
0€
0€
0€
0€
0€
0€
0€
0€
0€
0€

34
Liquidity plan
costs
project component work package

task

costs
0€
0€
0€
0€
0€
0€
0€
0€
0€

Sum
funding
revenue streams

Apr May Jun
Jul
Aug Sep
When do you have to pay your bills?

amount

Sum

0€

0€

0€

0€

0€

0€

When do you have revenues?
0€
0€
0€
0€
0€
0€
0€
0€
0€

0€

0€

0€

0€

0€

0€

liquidity
cash flow

Is there enough money in each month?
0
0
0
0
0
0
35
And do not forget to calculate costs for
fundraising!
…comparable to marketing costs for your product!

36
Example: Life Time Value of a new donor
𝑥 𝑠𝑡 − 𝑘𝑡
𝐿𝐿𝐿 = −𝐼0 + �
(1 + 𝑟) 𝑡
𝑇

𝑡=1

𝐼0 = Initial investment
T=1, …T
X=average number of donations per year
𝑠 𝑡 = donation in year t
𝑘 𝑡 = donor specific costs per donation
(1 − 𝑟) 𝑡 = discount factor
Alternatively take T=∞ and include additionally a retention rate 𝑅 𝑡 ∈ 0; 1 ,
probability that the donor does not drop out
37
Example: Life Time Value

𝑥 𝑠𝑡 − 𝑘𝑡
𝐿𝐿𝐿 = −𝐼0 + �
(1 + 𝑟) 𝑡

𝐼0 = 100
T= 2
X= 2
𝑠1 = 50 ; 𝑠2 = 100
𝑘𝑡 = 5
(1 − 𝑟) 𝑡 : r= 0,2
>> LTV ≈ 107

𝑇

𝑡=1

𝐼0 = 100
T= 2
X= 2
s1 = 25 ; s2 = 25
𝑘𝑡 = 5
(1 − 𝑟) 𝑡 : r= 0,2
>> LTV ≈ -39

38
contact:
Linda.kleemann@ifw-kiel.de
kleemann@heldenrat.org

39

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Financing models for social enterprises

  • 1. Financing change projects Dr. Linda Kleemann 16/12/2013 1
  • 2. Agenda for today  Your financing options depend on your business model.  Convince your customers and financiers.  The temporal dimension: are revenues coming in before or after costs? 2
  • 3. Your financing options  Selling products or services $  Fundraising for donations and public money  Both: hybrid models $ $ $ 3
  • 4. Option 1: selling products or services 4
  • 5. Option 1: selling products or services 5
  • 6. Option 1: selling products or services 6
  • 8. What is Fundraising? … is the process of soliciting and gathering voluntary contributions of money or other resources, by requesting donations from individuals, businesses, charitable foundations, or governmental agencies. …. typically refers to efforts to gather money for non-profit organizations …sometimes used to refer to finding investors for for-profit enterprises. 8
  • 9. Fundraising types donations • from inheritances • …clubs • …campaigns • …businesses Allowances & grants • from government • …foundations • …firms • …lotteries • …fines • …competitions membership fees • for member based organisations revenues • through merchandising • …sponsoring • …lectures and talks • …charity events 9
  • 11. Donations in Germany 2006 3 855 2007 3 912 2008 4 057 Pakistan Haiti 2009 4 227 2010 4 526 2011 4 262 2012 Mio € 3 400 Source: GfK Nürnberg 4 160 3 600 3 800 4 000 4 200 4 400 4 600 11
  • 12. Every third German donates 45.00% 42.60% 40.60% 40.10% 40.00% 36.10% 34.30% 35.00% 32.40% 33.20% 2011 2012 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2006 Source: GfK Nürnberg 2007 2008 2009 2010 12
  • 13. Average number of times per year people donate 8.00 6.70 7.00 6.30 6.30 2009 2010 6.50 6.00 5.00 5.10 2006 2007 5.40 5.00 4.00 3.00 2.00 1.00 0.00 Source: GfK Nürnberg 2008 2011 2012 13
  • 14. Fundraising pyramide 80 % of funding Lead donors & legacies Major donors U P G R A D I N G Regular donors First time donors responders Interested members of society 80 % of donors Public = suspects 14
  • 16. Importance of public money in Germany Public funds Philanthrophic money Own revenues Culture 20,4% 13,4% 66,2% Education and research 75,4% 1,9% 22,6% Health 93,8% 0,1% 6,1% Social services 65,5% 4,7% 29,8% Environment 22,3% 15,6% 62,1% Living and working Citizen rights and consumer protection Foundations 0,9% 0,5% 98,6% 57,6% 6,6% 35,8% 10,4% 3,4% 86,2% International activities 51,3% 40,9% 7,8% Associations 2,0% 0,8% 97,2% Germany total 64,3% 3,4% 32,3% International average 42% 11% 47% Johns Hopkins Project (Germany 1995) Source: Nehmermärkte und Nonprofit Bereiche (nach Johns Hopkins) – E. Priller, R. Graf Strachwitz, A. Zimmer. In: Fundrasing. Fundraising Akademie (Hrsg.) Gabler, Wiesbaden 2003 16
  • 17. Public funding  Usually distributed through calls for proposals by grantmaking institutions Tough deadlines Consortia may be needed Reputation and previous experience is important Knowing the archictecture of proposals is important Focus on reporting 17
  • 18. Impact investors and foundations 18
  • 20. 20
  • 21. Crowdfunding / Crowdsourcing  crowdfunding = money; crowdsourcing: ideas, time, ….  Difference to donation is investor principle: investor gets something back if successful  Examples: http://www.startnext.de/; http://www.startnext.de/pages/socialimpactfinance; http://www.crowdsourcing.org/; http://www.kickstarter.com/; http://www.indiegogo.com/; https://www.seedmatch.de/; 21
  • 26. Example of how to establish a sponsoring price: cost per mille (CPM) Simple version: CPM= (Advertising Cost ($) / Impressions Generated)*1000 Weighted version: CPM weighted by quality of impression Quality categories: direct contact with consumer indirect contact with consumer Sub-contact: via targeted media such as member journals media-contacts: e.g. via press releases 26
  • 27. CPM example type Format Size in Pixel Super Banner 728 x 90 price CPM Per 1000 contacts 30,00 Skyscraper 160 x 600 25,00 Skyscraper (moving) 160 x 600 40,00 Banner 300 x 100 10,00 Banner 440 x 120 20,00 Rectangle 300 x 250 40,00 Billboard 800 x 200 90,00 Wallpaper 50,00 TAZ data: Page Impressions (Page Views) 2012/06 - 13,00 Mio. 2012/05 - 12,97 Mio. 2012/04 - 12,38 Mio. Visits 2012/06 - 4,47 Mio. 2012/05 - 4,75 Mio. 2012/04 - 4,55 Mio. (Quelle: IVW.de) Unique Users: 1,29 Mio. (Quelle: AGOF internet facts 2012-03) http://www.taz.de/zeitung/anzeigen-verlag/online/ 27
  • 28. Convince your crowd!  Why should someone buy your product?  Why should someone invest in your idea?  Why should someone donate to your organisation? Look at yourself with the eyes of your customer/investor! 28
  • 29. 1) What investors want to know           What is the impact? How big is the problem that you are trying to solve? Why you and not someone else? What is new or better about your idea? Who else is sponsoring you? What does your team look like? When will I get my money back? What is the return? How safe is my money? Is your idea scalable? 29
  • 30. 2) Why people buy a product         What is my first impression of the advertisement, design, company? How does it help me? Does it match my style? Does it match my values? How much does it cost? Do I think the price is fair? Where can I buy it? How long does it last? 30
  • 31. 3) Why people donate Immaterial incentives  Sympathy  Guilt and gratefulness  Religious feelings  Reducing dissonance  Idealism  Social prestige  Self esteem Financial incentives  Tax reasons  Future „returns“ 31
  • 32. It‘s your turn       Convince us to invest in you, buy your product or donate! Choose only one of the three options! In your team prepare a 100 second presentation Present All others listen and make their decision who to invest in/buy from/donate to Remember the questions by donors, investors, customers 32
  • 33. The temporal dimension Cost plans - revenue plans - liquidity /cash flow - seed funding $ $ $ $ 1 $ 2 3 t 33
  • 34. Financial plans costs and funding project component work package funding 1 task Sum funding 2 funding 3 costs 0€ 0€ 0€ 0€ funding total Sum 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 34
  • 35. Liquidity plan costs project component work package task costs 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ Sum funding revenue streams Apr May Jun Jul Aug Sep When do you have to pay your bills? amount Sum 0€ 0€ 0€ 0€ 0€ 0€ When do you have revenues? 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ liquidity cash flow Is there enough money in each month? 0 0 0 0 0 0 35
  • 36. And do not forget to calculate costs for fundraising! …comparable to marketing costs for your product! 36
  • 37. Example: Life Time Value of a new donor 𝑥 𝑠𝑡 − 𝑘𝑡 𝐿𝐿𝐿 = −𝐼0 + � (1 + 𝑟) 𝑡 𝑇 𝑡=1 𝐼0 = Initial investment T=1, …T X=average number of donations per year 𝑠 𝑡 = donation in year t 𝑘 𝑡 = donor specific costs per donation (1 − 𝑟) 𝑡 = discount factor Alternatively take T=∞ and include additionally a retention rate 𝑅 𝑡 ∈ 0; 1 , probability that the donor does not drop out 37
  • 38. Example: Life Time Value 𝑥 𝑠𝑡 − 𝑘𝑡 𝐿𝐿𝐿 = −𝐼0 + � (1 + 𝑟) 𝑡 𝐼0 = 100 T= 2 X= 2 𝑠1 = 50 ; 𝑠2 = 100 𝑘𝑡 = 5 (1 − 𝑟) 𝑡 : r= 0,2 >> LTV ≈ 107 𝑇 𝑡=1 𝐼0 = 100 T= 2 X= 2 s1 = 25 ; s2 = 25 𝑘𝑡 = 5 (1 − 𝑟) 𝑡 : r= 0,2 >> LTV ≈ -39 38