8 Unexpected Questions from Investors

by Patrick Lai

Lions and Martyrs are entering the colosseum to do battle. The Lions are investors, hungry to invest in solid BAM/B4T businesses. They hope to make money, as well as create new opportunities for the Good News among the least reached. The Martyrs are starting new businesses in spiritually, and some cases, economically difficult locations. The Martyrs are coming to lay it all on the line, praying not to be eaten alive. They are hoping to tame a Lion or three and bring each Lion, along with their expertise and their money, into their start-up business.

If you’re raising money for your company and you want to pitch potential investors and shareholders, it’s important to plan ahead for the questions savvy investors may ask.

Naturally, the Martyrs, and anyone who is seeking capital, can expect to be asked about your financial projections, timeline, the competition, your team, marketing strategy, risks, personal experiences, how much “skin” do you have in the business, and your exit strategy. Expect experienced investors to study your business plan with a fine brush and comb. Plus, investors will also grill you on your spiritual and personal life, to learn what you are made of.

Read more

Do Economic Incentives Matter? A Nosey Economist on BAM Financing

AND THE AWARD GOES TO...

Our goal is to provide the BAM Community with the best content and resources available. We are currently highlighting various articles and resources which have stood out above the rest. Below is the “Editor’s Pick” for the spring of 2015.

Please enjoy and thanks for following!

Interview with Dr. Steve Rundle

Steve, I know you have been doing some interesting research on BAM in the last few years, can you briefly describe what you have been looking at?

As an economist, I’ve always been interested in the relationship between the structure and governance of a company and its performance. Since the 1990s, when I first started meeting people who were combining business and missions, I naturally asked lots of nosey questions about the company’s financing, revenues, profits, and so on. I was especially intrigued by the role venture capital might play in funding businesses that were not only extremely risky, but were being managed by people who, in many cases, admitted that they weren’t too concerned about profits and that in fact they would be satisfied with just breaking even. I was not surprised to discover that no venture capital firms existed in this space, at that time. Most of these businesses were either donor funded, or in some cases funded with the help of one or two “Angel Investors.”

But this raised lots of new questions about the performance of these businesses. What are the expected outcomes, and how are practitioners incentivized to achieve those outcomes? Practitioners who are affiliated with a missionary sending organization may be discouraged from being too serious about business for fear that it will distract them from their ministry goals. One way to remove that distraction is to require the practitioner to raise donor support, in which case they will not be dependent on the business for income. This might sound logical at first, until you start meeting other BAM practitioners who are entirely dependent on their businesses for their salaries who are having an incredible impact. So I wanted to look at this more carefully by comparing the outcomes of people who drew 100% of their income from donors with those who are 100% business supported. Read more

How They Were Funded: Three BAM Stories

Dreaming is the easy part of starting a business. Putting the pen to paper, turning ideas into action, and getting others on board to believe in the vision with you is where the real work begins. Getting financing for the business is at the crux of turning ideas into reality, where the vision grows legs and gains momentum. This is true for a startup or for recapitalising a growth-stage business.

Every business is financed differently and it can often look a bit messy. Here are three sketches that represent a small cross section of how BAM practitioners have financed their business, both in the startup phase and long term.

Garment Manufacturing – Donor-based Startup, Crowdfunded Growth

Peter and Marit and their business partners began with a vision to create jobs for an exploited and underserved segment of the population in Nepal. In 2013 their business was born, an ethical garment manufacturing business in Kathmandu. The Nepali Government requires foreign-owned businesses to invest a minimum of $50,000 per partner in business startups. To invest their $50,000, Peter and Marit opted to involve their wider stakeholder community and raised donations for the startup capital. Eighteen months into operation, the business is self-sustainable and able to keep moving towards their growth goals. The donor startup capital approach has given them freedom to take some calculated risks, which has been key in determining the direction they have taken as a company. Read more

Do Economic Incentives Matter? A Nosey Economist on BAM Financing

Interview with Dr. Steve Rundle

Steve, I know you have been doing some interesting research on BAM in the last few years, can you briefly describe what you have been looking at?

As an economist, I’ve always been interested in the relationship between the structure and governance of a company and its performance. Since the 1990s, when I first started meeting people who were combining business and missions, I naturally asked lots of nosey questions about the company’s financing, revenues, profits, and so on. I was especially intrigued by the role venture capital might play in funding businesses that were not only extremely risky, but were being managed by people who, in many cases, admitted that they weren’t too concerned about profits and that in fact they would be satisfied with just breaking even. I was not surprised to discover that no venture capital firms existed in this space, at that time. Most of these businesses were either donor funded, or in some cases funded with the help of one or two “Angel Investors.”

But this raised lots of new questions about the performance of these businesses. What are the expected outcomes, and how are practitioners incentivized to achieve those outcomes? Practitioners who are affiliated with a missionary sending organization may be discouraged from being too serious about business for fear that it will distract them from their ministry goals. One way to remove that distraction is to require the practitioner to raise donor support, in which case they will not be dependent on the business for income. This might sound logical at first, until you start meeting other BAM practitioners who are entirely dependent on their businesses for their salaries who are having an incredible impact. So I wanted to look at this more carefully by comparing the outcomes of people who drew 100% of their income from donors with those who are 100% business supported. Read more

Capitalizing Growth-Stage SMEs: Profile of a BAM Investment Company

Excerpt from the recently published BAM Global Think Tank report on Business as Mission Funding

Transformational SME – BAM Investor Profile

Transformational SME (TSME) was established in 2001, after two and a half years of market research and business plan development. Their goal is to capitalize growth-stage SMEs with patient, strategically integrated financial, intellectual and human resources to achieve economic, social, environmental and spiritual impact in the Arab world and Asia. 

TSME is a BAM company, composed of an investor-capitalized fund, which operates as a Bare Trust under UK law, and a professional fund management company registered in Canada. TSME provides primarily mezzanine loans to carefully screened, Christian-owned and managed SMEs which through genuine business as mission seek to achieve the so-called “quadruple bottom line”.

In addition to mezzanine finance, TSME provides mentoring and coaching to investee companies and a variety of technical advisory services, for example, pre-investment consulting to start-up companies, and a range of input to strategic mission partners such as mission agencies wishing to engage in BAM. They also engage in strategic talent search for key professional roles within BAM companies. Read more

Lessons from the Edge: Investing in BAM Companies

Insights from a BAM Practitioner

Peter has lived and worked in a professional and business capacity for over 30 years throughout Asia, Europe, the Middle East, South and North America and is a pioneer in the business as mission movement. He currently consults on business as mission all over the world and is the CEO of a global investment fund for BAM enterprise in the Arab world and Asia.

Financial capital is only one of many kinds of patient capital needed by business as mission companies 
There are seven forms of capital which need to be strategically integrated into a BAM business over a long, patient, persistent timeline in order to achieve the sweet spot of optimal impact. These seven forms of capital: human, intellectual, financial, social, spiritual, infrastructural and natural capital, all need to be strategically integrated in a balance that will be variable for your context. If you are not paying attention to all of these forms of capital, you risk being knocked off the sweet spot and your impact will be diminished.

Return on investment from BAM companies is possible
Although not easy, it is possible to invest with modest expectations of financial return into even the most difficult environments and, risk of loss notwithstanding, see a full return of capital and a modest return on investment. One challenge is finding companies that are investor-ready and able to meet the rigorous standards necessary. However we have found that relationships, based on integrity and trust within the Christian community, bring remarkable risk-reducing benefits. Company owners generally are admirably open and honest in their applications and conduct of their business affairs, and often make significant personal sacrifices in order to serve Christ, and to honor the loan obligations of their companies.

Competent mentoring can make a vital difference for BAM companies
There is a compelling value proposition for BAM companies and their investors in receiving competent, wholistic mentoring. The mentoring provided has been vital in building relationships of trust with the companies, which then facilitates growth and even greater acceptance of advice. Responsiveness to experienced input has enabled companies to grow and develop into better-managed and effective models of Christ-honoring business. Mentoring has been instrumental in early recognition of looming problems, with timely solutions protecting against financial and other loss.

5 Funding Models for Your Kingdom Startup

by Mike Baer

Post first published on the Third Path Blog, reposted with kind permission.

The still famous line from the movie Jerry McGuire is “Show me the money!” Some of you have been thinking that as you’ve read the rest of this series. How do I get money to launch my startup? I’m going to outline several “programs” you can consider:

The “Missionary for a Moment” Model

I have to tell you upfront that I have rejected this model for years. However, recently a close brother whom I respect greatly challenged my thinking and got me a little closer to acceptance than I was before.

The Momentary Missionary Model essentially uses raised donations or support to cover living, travel and certain startup expenses just like a normal missionary would raise support to cover living, travel and ministry expenses. What makes this work is that you are committing to your “donor-investors” to be off their giving roles within a specified period of time, to have your business profitable and to live off it.

Your donor audience in this scenario is sympathetic although they may not be the most investment savvy. Be careful to not take unintentional advantage of that sympathy. This is business. Read more

Bootstrapping your Business vs Seeking Outside Investment

What would you say were the most important things to prepare or think about as I approach a BAM investor? What are some typical pitfalls or mistakes I could avoid?

Before you walk down the road of approaching an outside investor, why not consider the possibility of self-funding – also known as “bootstrapping” – your company? If you decide to bootstrap, you may be surprised at how differently you approach your business, as well as the funding process. Bootstrapping can create a healthy foundation from which to begin your business, and can provide invaluable lessons to entrepreneurs. Lessons learned from bootstrapping can include:

  • Tests your business plan – A bootstrapped business that can bring a product or service to market, develop a customer base, and create a revenue flow will help you identify the strengths and weaknesses in your plan. You now have the solid proof you need to affirm your ideas and build on them. You will have determined if the market needs or wants your product, what the market is willing to pay for your product or service, and what will be required to put the business on a path to profitability. In addition, you will have a better sense of true costs, not just cost of goods, but hidden costs that are usually not considered or may not be known when a plan is developed. Bootstrapping will also force you to consider how the product or service is being developed, and it may cause you to re-consider aspects of product development as being unnecessary for product or service launch.
  • Provides incentive for a low burn rate – Limited financial resources will greatly influence the decisions required to operate your business, while at the same time maximizing efficiencies. This may include hiring employees that can function in more than one role, outsourcing certain roles until you can afford to bring them in-house, minimizing overhead like office space (know anyone with a spare garage?), as well as using a creative approach to marketing.
  • Skills and values development – Self-funding can be a useful mechanism in helping you gauge your true passion and commitment to your business. It will help you develop a higher level of accountability as well as resourcefulness, resilience and courage. It will most certainly test your risk aversion.

Read more

Approaches to Business as Mission Funding

Excerpt from the recently published BAM Global Think Tank report on Business as Mission Funding.

The word ‘funding’ refers to the spectrum of financial resources required for a business venture through the normal life-cycle phases of every business: start-up, growth, maturity, and decline. It includes a range of monetary sources, each with attributes unique to each stage of growth. Funding takes on many shapes and sizes, from self-funding to crowdfunding, microcredit to bank loans, and seed funding to venture capital.

Broadly speaking, the subject of funding includes sources, structure, application and management of monies in all areas of the business. In the context of business as mission, perceptions and actions relative to both the business and the capital should be informed by Biblical principles.

In a broader context, funding is distinguished as being financial capital – such as debt or equity – alongside other forms of capital input, such as intellectual, human, social, spiritual, infra-structural and natural.

BAM funding models

Traditional sources of business as mission funding parallel those in typical business funding. In the majority of cases, profitability is the key issue that drives capital to those companies most likely to achieve viability. For most investors, profitability is a non-negotiable measure of success. Read more

How to Prepare for Investors

What would you say were the most important things to prepare or think about as I approach a BAM investor? What are some typical pitfalls or mistakes I could avoid?

Funding for your new business is obviously crucial – no cash, no business. So let’s think about this from an investor’s perspective. What is it that interests him or her? What does he or she want to see? What questions answered?

Here’s what I’d be asking:

  • What exactly is the product or service that you intend to sell? Don’t assume that I understand it. Make it simple for me.
  • What is the market demand for this? Is it a cool idea, a “me too,” or is there a real demand? In other words, do people really need/want your product or service?
  • Who will your competitors be? How is your idea better than and different from theirs?

This first set of questions is about your viability in the market place. Is this a real business? This second set of questions is about you. Can I count on you? Read more