The Art of Asking Investors for Money with Miller Center for Social Entrepreneurship

There’s a certain art to asking investors for money in a way that gets a “yes.” That art is something that the team at Miller Center for Social Entrepreneurship knows well — graduates of its accelerator program go on to raise an average of $1.2 million within three years.

So, how do they do it? We recently had the pleasure of hosting Miller Center’s Senior Director (Andy Lieberman), Director of Impact Investing (Paul Belknap), and Director of Partnerships (Jeff Pilisuk) for an exclusive two-part workshop all about “The Art of the Ask,” where they took us behind the scenes of their proven fundraising approach to help our community reach the next level of growth.

Whether you’re a seasoned fundraiser or just starting out, learn how to elevate your fundraising game with the key takeaways they shared below!

Tips to Keep in Mind Before You Start

Have your own house in order

Raising impact capital is a tedious and time consuming process. Before you embark on that journey, it’s important to make sure you have a strong foundation in place. Specifically, the Miller Center team suggests evaluating the readiness of your enterprise to raise capital along the 6 dimensions of sustainable growth and scalability (below):

Regardless of your legal structure, the six principles above need to be in place. Remember: these are all interdependent, so you can’t change one without impacting the others. The most important thing is that all six of them align and are moving in the same direction.

Don’t get in the wrong funnel

The reality of impact investing is that it’s a very narrow funnel with significant dropoff at every step: only a fraction of the enterprises that make it to the initial review stage will exit the funnel with a closed deal. Don’t get in the wrong funnel if you can help it! Do your homework on potential investors before making contact to make sure that your work is aligned with the kinds of investments they make, and their specific criteria which will vary from institution to institution.

A Fast “No” is Still a Win

As with any competitive process, you will inevitably hear a lot of “no’s” before you get to a “yes.” Instead of letting that deter you, keep in mind that a fast “no” is still a win - it’s better than a slow “no,” and in some cases, even better than a slow “yes.” One of the best ways to get to an answer more quickly is with a clear, concise, justifiable ask. It should be just enough information to get the investor interested in learning more, or to get to a fast “no” that saves you time and resources. We’ll dive into the components of a justifiable ask below.

How to Craft a Justifiable Ask

Based on over 20 years of experience accelerating social enterprises globally, the Miller Center team has identified four key components to a justifiable ask:

1. Funding amount: How much money you need

2. Type of capital: Grants, debt, equity, or some combination of the three 

3. Use of funds: How you will use the money to achieve your strategic goals

4. Investor return: What the investor can expect back

Let’s look at each of the four aspects in more detail:

Funding Amount

This is where you tell the investor how much you are looking to raise, typically accompanied by a cash flow sheet that shows when you will be short of money, and by how much. For example, take the cash flow sheet below:

This sheet shows that by 2025, the enterprise will have a funding gap of $270,097. If asking for a lump sum, it would make sense for this entrepreneur to ask for around $350,000 to account for unexpected expenses. Alternatively, since the bulk of the money won’t be needed until a few years down the road, this entrepreneur could instead ask for a smaller amount now and plan to raise the remainder in the future. 

It’s not an exact science, but in determining your funding amount, the Miller Center team advises that you:

• Ask for enough money to implement the next phase of growth

• Correlate your ask to your growth plan and strategic initiatives

• Bound the ask by time, with clear expected outcomes

Type of Capital

This refers to where the capital is coming from. For the purposes of this workshop, we looked at the three main types: grants, debt, and equity. Each has its own pros and cons, but at a high level:

• If you’re at an early stage and still figuring out product/market fit, grants or crowdfunding are good options.

• Debt requires a different mindset, because the investor expects their money back. It involves more requirements, and more paperwork. To successfully raise debt, you need to have regular cash flow, be able to demonstrate clear market demand, and have unit economics that make sense. 

• Equity is technically the most expensive form of capital because it involves giving up part of your company. To raise equity, your enterprise needs to have a fast path to profitability and exit.

The right type of capital is different for every enterprise, but the following tips can help you narrow it down:

Consider the Intermediary

As the Miller Center team pointed out, the funds don’t typically go directly from the source to your enterprise - there are a number of different intermediaries that are used. 

When you’re out there looking for money, it’s important to remember that you’re looking at the vehicle (i.e. grant, loan, equity, variable payment options) - and that vehicle is set up to meet the needs of certain kinds of capital sources. Until you, the capital source, and the intermediary are aligned on how the money will flow, the deal won’t be able to happen. So, as you consider what type of capital to ask for, make sure to factor in the needs of the capital source in addition to your own.

Look at your stage of growth

Another thing to think about in determining ideal capital source(s) is your enterprise’s stage of growth. Grants and crowdfunding are more appropriate for early-stage enterprises, debt makes sense if you have established regular cash flow and can pay it back, and equity requires you to be further along in your growth journey with a pretty fast path to profitability (particularly if you’re after venture capital equity.)

Use of Funds

Once you know what type of capital you are after, you need to be able to clearly articulate what each source of funding will be used for to the greatest extent possible. A helpful formula for thinking through both the funding amount and use of funds is: Baseline growth + strategic initiatives = growth plan

In other words, your goal is to draw a clear connection between how the funds will 1. Make strategic initiatives possible that will take your impact and revenue to the next level, and 2. Support the scalability of your baseline business. 

Because these strategic initiatives haven’t happened yet, it can be tricky to come up with exact numbers. The Miller Center team advises that you factor in a slight buffer for unexpected costs, without over-inflating. It’s a balancing act of not too much detail, but not too little - just enough to reasonably justify.

Return to Investor

This portion of the ask explains what the capital source will get out of funding you. Keep in mind that the return is not always financial - it also includes social impact. All investors are going to want to see some kind of documented impact to date, and some kind of documented projection of future impact.

With grants, for example, there is no expectation of repayment. But beyond the short-term impact of the grant, the grant issuer will also want to see how your enterprise will be strengthened and the cost of each beneficial outcome will go down as a result. 

With debt, the investor will want to see that their repayment of the loan is included in your cash flow projections and that the infusion of capital will enable your enterprise to get to the next phase of growth. 

With equity, the investor will want to see updated capitalization tables, and a clear path to exit. Even if it’s vague, the important thing is that you demonstrate that an exit is part of your ultimate strategy, and thought has been put into the strategy to get there.

Putting it all Together

The Justifiable Ask Template

Once you’ve determined your funding amount, type of capital, use of funds, and return to investor, you can put them together using the following template:

Here’s an example of what that would look like: “Clean Birth Africa is seeking $250,000 of equity investment to add staff and cover startup costs to expand to two new districts in Uganda. That investment will enable us to become financially self-sustaining in 2024 and deliver 750,000 safe births per year by 2026.”

Common Pitfalls to Avoid

As you take these concepts into your own fundraising work, make sure to avoid these common pitfalls that may get in the way of your success:

• Asking for too much funding (or not enough funding) at once

• Not knowing how you will use the funding

• Not having the ability to realistically achieve your strategic initiatives once the funding is received

• Asking for too many different types of capital at once (if you are going after a mix of funding types, try to eliminate interdependencies as much as possible.)

• Being unclear about the type of capital you are asking for, by either not specifying or using ‘and/or’ in your ask

• Asking for debt without proven customer demand or solid cash flow to show ability to make repayments

We’re so grateful to Andy, Paul, and Jeff for sharing their time and insights with our community. If you’re an entrepreneur looking for support on your capital raising journey - whether that’s pro bono support on a pitch deck, network connections to industry leaders like these, or time and money saving guides - we invite you to join us on the TRANSFORM Support Hub!