The Truth About Raising Money as a “Benefit Corporation”

Mark Horoszowski

Mark Horoszowski is the co-founder and CEO of

Social-Purpose-Corporation-in-Washington In early 2014, our social enterprise, MovingWorlds, become the first Social Purpose Corporation in Washington State to over-subscribe on a seed investment round. Geekwire just wrote about us, but here is the story from our side… and what we learned from it:

Wait… What is a Social Purpose Corporation?

In 2009, B Labs started the Benefit Corporation movement. B Corps grow and sustain on core business operations that make a measurable impact; creating massive efficiencies in their quest for good. This is different from nonprofits which – while also share social missions – typically need one part of their operations to raise money, another to work on the mission, and a third to stay within the tight accounting and legal requirements of 501(c)3 designation.

A major part of the B Labs movement is creating legislation that supports a movement of businesses doing good. At the state level, these new legal entities are called Benefit, Social Purpose, and/or Flexible Purpose corporations. We’re located in the State of Washington, which was the 8th state to adopt this in July 2012. Since that date, 9 more states have followed suit, including Delaware.


Our Social Business

MovingWorlds is a matching and support network that helps people find the best place around the world to volunteer their skills – either on their own time, or as part of employer-sponsored development programs. We work like this:

  1.  We find inspiring social impact organizations and startups around the world that need business and/or technical skills to accelerate their growth and impact. In exchange for time and skills, they provide immersive international experiences to our “Experteers”.
  2. Professionals (or their employers) pay for access to our network and support system for confidence in planning an international engagement. With over 1,000 social impact organizations in our network, we are able to guarantee professionals that we will match them with an organization that will provide amazing local benefits, and never charge any fees.

Our Investment Instrument

We co-designed a revenue-based stock buyback agreement. This means that investors purchase stock in MovingWorlds, and MovingWorlds agrees to buyback the stock at a higher, fixed price based on a percentage of revenue every year. The faster we grow, the faster investors get their money back.

Why We’re Not a Non-profit

This is another post for another time. Long story short…  it’s more restricting, expensive, and it’s very difficult to raise money as a startup 501(c)3 addressing the “talent gap”.

Here are the 8 things we learned raising money as a social purpose corporation

As a social purpose corporation, it wasn’t easy to raise money to scale our social-good business, but we ended up over-subscribing on our seed investment round and became the first social purpose corporation in Washington to do that. We hope that in sharing our lessons, your path to scaling and creating a positive impact will be easier.


Lesson #1 – Raising Money as a Benefit Corporation is Hard

Despite the buzz about social entrepreneurship and impact investing, raising capital is hard. In fact, there is a well documented pioneer gap. You’re not just validating a business and then raising money; You’re validating a business model that helps make the world a better place. Unfortunately, measuring impact is not an easy task. At MovingWorlds, our mission is to address the “global talent gap”, an issue the World Economic Forum considers a leading barrier to progress. In our work, we support catalytic social impact organizations around the world by connecting them to professionals that want to donate their skills. Since we define success as something that is measured 1 year after an engagement, we needed a working prototype for a long time before we were fit to raise capital. This means that measuring our impact in any real quantity takes longer than the lifespan of most startups. How did we get around it?

First: Be Lean

We adopted lean startup principles to test the most significant hypothesis that our business was reliant upon. Not only the business model, but also our impact story. In addition to finding research, statistics, and trends that supported our model, we also evaluated business models similar to our in related industries. Most importantly, we conducted a lot of startup experiments to validate our assumptions – especially our ability to generate revenue.

Your business model rests on a series of assumptions. After documenting them all, stack-rank them from riskiest to least-risky, and then conduct experiments starting at the top – to validate/invalidate them all. Risky assumptions include:

  • Revenue model
  • Lifetime revenue of customers
  • Cost of customer acquisition (i.e. marketing)
  • Length of customer acquisition process
  • Expenses related to providing service (i.e. customer service)
  • Likelihood of creating partnerships
  • Ability to get PR

Hint: Use a business model canvas.

Margins tend to be tighter in social enterprises than in for-profit businesses, and yet you will potentially be competing for the same mindshare and capital from investors. And since investors are adopting lean practices more and more, it is vital that you adopt the same principles. For more on being lean, check out Lean Impact, and Customer Dev Labs for tangible ways to implement lean practices that will increase your chance of success.

Second: Tell Compelling Stories

Instead of statistics, we focused on powerful, diverse stories. Because of the length of time required to show impact in a statistically significant fashion, we needed real people to tell real stories, and to share their stories. Not just with us, but with each other and with our investors. Nothing shows proof-of-concept more than customer stories. If you don’t have customer stories, you’re not ready to raise money.

Third: Engage ALL Stakeholders (not just investors)

If investors are conducting proper due-diligence, they will want to talk to potential customers, partners, suppliers, contractors, and more. The average diligence process takes around 40 hours. During this period, investors will likely contact as many potential, current, and past customers as possible; as well as partners. It is important that everyone remotely intimate with your business has a clear understanding of your mission, revenue-story, core operations, and your ability to make an impact.

TAKEAWAY: BUILD A COMPELLING BUSINESS AND IMPACT STORY. As a social enterprise, you’re either competing for capital from investors who want to make money, or from philanthropists that want tax breaks. You’re best at neither, so you better be REALLY good at both.

Lesson #2 – Have a Proven Business Model


Long into our fundraising journey, we found that even seed investors are investing later and later in the startup lifecycle. Where ideas were funded in the mid-2000’s, today it’s almost essential that you are already generating revenue to validate your business. Thanks in part to the preaching of Steve Blank and Eric Ries, investors know that most startups fail, and that startups without revenue models are almost guaranteed to fail.

Note: A “proven business model” does not mean one that is working for others, it means a business model that is currently generating revenue for you.

Fundraising Fact – Projections

Yes, everyone, including your likely investors, knows that your projections will be wildly wrong.

Fundraising Fact – Assumptions

If you are raising money, you have to understand revenue and cost drivers and barriers, and be able to approximate your ability to create a successful business model.

  • How much does it cost to acquire new customers?
  • How much does it cost to serve customers?
  • What will your margins be?

Fundraising Fact – Experiment

If you haven’t conducted experiments to understand your ability to convert customers and drive value, you won’t understand your cost drivers and barriers.

Fundraising Fact – Business Model

The only proven business model is a business model that is working… and even that is likely to change.

| TAKEAWAY: GENERATE REVENUE THAT ALSO MAKES THE WORLD A BETTER PLACE BEFORE YOU START RAISING. The only thing that keeps businesses in business is revenue. Understand how you will get revenue, and make sure that more revenue means more impact.

Lesson #3 – Align With Investors’ Interests

Investor interests are actually quite simple. They want to:

  1. Understand how their money will be returned (plus interest). This means they want to avoid risk by investing in businesses with proven models. They want to know that you are working in their best interest. And they prefer financial instruments that align with their goals.
  2. Be a part of something story-worthy. Angel investing is a hobby, not an occupation. As such, investors want to enjoy their work and the people they interact with. This means they want to align with you, not just on the business, but with personality, too. Our first investors met us for coffee before they ever heard a pitch.

How to Align with Investors

I’ve spoken with a lot of entrepreneurs who do not want to sell their business, don’t yet know how they will make money, and “are only raising about 1/2 a million”. I think it’s great when entrepreneurs have an interest in maintaining control of their company and only existing for social good (I know we do!), but at the end of the day, if the company can’t generate profit, it can’t exist and it can’t make an impact. And if it doesn’t want to get bought out, that means an investor won’t ever have an exit event. As such, the investor won’t be able to get his/her money back and won’t want to invest.

Raising money is not for every social entrepreneur. But every entrepreneur thinks they need to raise money.

We learned this lesson the hard way after wasting the time of a lot of investors and connectors by approaching them with pre-determined investment terms and no exit strategy. Finally, we changed our approach and started listening to investors. In doing so, we found some that didn’t need to see VC-style growth, but did want to understand how they would get their money back, even with no exit (which is the most likely path for a social enterprise). We then worked with one investor to design a revenue-based stock buyback that made sense for the investors’ goals and our business. For more about this instrument, check out this article. We also did these 3 things to align our interests:

Financing Instrument

We used an investment vehicle that will return our investors’ capital without a traditional exit. As the company grows, our investors will start to see their capital returned based on revenue. We keep control, they get money back + interest.


We capped founding team salaries, and tied future salary increases to revenue and stock. This means that our founding team won’t get a raise until our business is self-sustaining. When we get raises, our investors will also start to see their money returned.


We incorporated as a social purpose corporation. We only on-boarded investors who believed in our mission and knew that social purpose might stand in the way of their profits.

| TAKEAWAY: IF YOU ARE RAISING MONEY, YOU HAVE TO KNOW HOW YOU WILL RETURN THAT MONEY. No capital-return strategy, no way to raise money. 


Lesson #4 – Be Ridiculously Well Organized (in paperwork and communication)

The diligence process for investment takes a lot of time for entrepreneurs and investors (40-80 hours). That’s a lot of time spent on deals that mostly do not go through. As such – especially considering most investors do this as a hobby –  it is vital that you are organized and consistent. Investors want to have fun and mitigate risk… being unorganized is a major red flag. Here are some tips:

Think Like a Project Manager

It takes a lot of work to make an investment happen… document review, presentations, financial review, Q&A, legal, terms, negotiation, legal review, paper-signing, etc. It’s easy to forget about things, miss timelines, and delay the process. It’s your job to manage this process. Done correctly, you can build a lot of confidence. Here are some thoughts:

  • Setup a CRM (like Streak) for your internal tracking of deal flow
  • Use a project tool (like Trello) to track all the moving parts
  • Establish milestones, and send calendar invites with auto-reminders built in
  • After every meeting with investors, informal or formal, be sure to send out a recap and next steps, including dates.

Respect Time

Do what you say you will do, and be where you say you will be, by the time you say you will do it.

Have Clear Investment Documents

Prepare them all, and have them in an easy to share/access folder. Here is a great Geekwire article on that. Dropbox makes it super simple.

Be Clear and Concise

Entrepreneurs like to think creatively, talk about what-if’s, and paint a vision years down the line. But investors first need confidence that the business can first break-even before scaling. Focus on the current revenue-model before trying to be Steve Jobs.

Anticipate and Answer Questions

If an investor reviews your document and asks you questions, it will put you on the defensive. When investors ask business questions – and they will – you have to be well-prepared  (i.e. What happens if you don’t raise enough money?; What happens if your expenses are higher?; What happens if your revenues don’t grow as quickly as projected?). In our financials, we had prepared best-case and worst-case scenarios to show we would be OK if our projections were wrong… (editor note: They already are!).

Don’t Get Trapped by Your Passion

I’ve seen a lot of social entrepreneurs be so passionate about their ideas and the social impact, they muddy the water by not clearly showing how their business can sustain, and create a positive impact in the process.

| TAKEAWAY: INVESTORS DON’T WANT TO WASTE TIME.  If you are trying to raise money, they assume you have a feasible business model that creates a positive impact. Communicate it clearly… in that order.


Lesson #5 – Be Prepared for Backlash

This was the most unexpected event in our fundraising. In addition to comments against our business model (which helps people volunteer their skills), people have also critiqued us for raising investment capital money to create social good. Even worse, people have tried to come after our capital once we got press. Here are some hard-learned tips:

Use Clear Contracts

If you work with other people, in any capacity, have clear terms written down on paper. Even if they are advising, volunteering, or supporting your organization, be clear with expectations and create a contractual agreement that does or does not entitle that person to future revenues and/or investment capital. I hate to say this, but default to promising people nothing, and put it in writing. Call it paranoia, but trust me, it will look good to investors when they see clear paper trails on who you owe anything to.

Be Transparent

Whether it is with an employee, potential recruit, contractor, or service-provider, share as much as you can about your business – including your fundraising goals. Entrepreneurs tend to be secretive about how much they’re raising and their term sheets. If your organization is a social enterprise and committed to social good, you should have nothing to hide, including your salaries.

It’s OK to Make Money By Doing Good

There is a really great TED talk from Dan Pallotta on this topic: The Way We Think About Charity Is Dead Wrong. Also a good NYTimes article about it. In both, Dan shares that

…In the for-profit sector, the more value you produce, the more money you can make. But we have a visceral reaction to the idea that anyone would make very much money helping other people. Interesting that we don’t have a visceral reaction to the notion that people would make a lot of money not helping other people. You know, you want to make 50 million dollars selling violent video games to kids, go for it. We’ll put you on the cover of Wired magazine. But you want to make half a million dollars trying to cure kids of malaria, and you’re considered a parasite yourself.


Lesson #6. Have Grit and Take Lots of Deep Breaths

Grit is the number one predictor of success in people, and startups.  There are a lot of reasons for this, but here are a few:

You Will Fail – Embrace It

Not only will you fail a lot, but most of the time it will be your fault. Maybe you won’t know it until afterward, but you’ll realize how your actions led to some big mistakes. Embrace your failures, take responsibility, and learn from them.

Your Hopes Will Backfire

Early on, we had some really fun opportunities to pitch our business at some notable pitch events. We even won a couple of them, got introduced to lots of investors, and then got zero follow-up. Not even coffees. It was a long fall from the top of the world winning reputable investment pitch events, and then getting nothing from it. Finding an investment partner takes a long time.

It’s an Emotional Roller-coaster

There is a great article in INC about The Psychological Price of Entrepreneurship. This quote comparing entrepreneurship to riding a lion sums it up nicely


Work Hard, Have Fun, and Relax

It’s not abnormal for investment rounds to take over 6 months. Nobody can sprint for that length of time, so pace yourself, relax, and enjoy the little moments during the process. Even if it doesn’t goes as well as planned, you’ll end up meeting a lot of really smart and interesting people.


Lesson #7 – Say Thank You

“It stands to reason that a founder’s flawed ego is often the root cause of startup failure.” – Tom Eisenmann

If your social enterprise succeeds in raising capital and then continues to scale, it won’t be because of you, but because of the people around you. When Derk and I started MovingWorlds, we were at a place where our skills and network allowed us to do that. These are things nothing of us can take credit for. We’ve worked incredibly hard over the past 2 years to build MovingWorlds, but all the hard work would have been nothing without our mentors, advisors, friends, families, former colleagues, contractors, partners, and customers. A few examples:

  • A friend introduced us to our first investor
  • A fellow entrepreneur and professor introduced us to our second investor
  • Friends and former colleagues referred us to a few of our earliest customers
  • A stranger turned friend made introductions that led us to our first corporate customer
  • Complete strangers excited by our mission helped us spread the word
  • Our families kept us smiling throughout it all


Lesson #8 – Be Bold

Social entrepreneurship is hard because it’s tackling challenges that governments, regular businesses, and nonprofits haven’t been able to solve. For the same reason, it’s incredibly rewarding. The world doesn’t need another Facebook for dogs… We need access to clean water, food, education, healthcare, and the ability to earn a fair living. And I believe that if we do that right, we can care for Mother Earth in the process, too.

In Conclusion…

Here are the 8 lessons we learned raising money as a social purpose corporation

  1. Raising Money as a Benefit Corporation is Hard
  2. Have a Proven Business Model
  3. Align With Investors’ Interests
  4. Be Ridiculously Well Organized
  5. Be Prepared for Backlash
  6. Have Grit and Take Lots of Deep Breaths
  7. Say Thank You
  8. Be Bold

If you’re working on growing a social enterprise, Godspeed to you, and let me know if I can help. Yours in moving worlds.

Mark and the MovingWorlds team