Part 1 of 3 blogs regarding ESO financial sustainability can be found here --> What are the 4 hard questions for new ESO Financial Sustainability
No one wants to say it, but money is needed for any entrepreneurial ecosystem to drive positive long-term change. Programs need resources and funding from different types of funders. I categorize the funders into 5 different types of orgs 1. Government/Donors, 2. Foundations, 3. Private Corporations, 4. Investors, or 5. Revenue is paid directly from the entrepreneurs. Even though I couldn't find any recent data on where Entrepreneur Support Organizations (ESOs) make their money, in my work in emerging markets, 40% to 75% of funding for ESOs is provided by governments, donors, or foundations. Most ESOs I have worked with do not work entirely commercially but need outside funding to operate. So I provided an ESO funder Matrix to help guide keys to getting funding and the downsides of that funding, with some explanations below:
Break Down of funders of ESO's
ESO's earning revenue from entrepreneurs: As I mentioned in the last blog, ESOs, which entrepreneurs entirely fund, go into 2 scenarios:
They are primarily real estate companies offering co-working, event management, and networking. There are benefits to their services, but I have not seen any proof that these services significantly impact entrepreneurs. The entrepreneurs who pay for rent have the capital, or the founders are wealthy, so they do not have inclusive services.
There are other ESOs, with Founders Institute as the best example, earning the vast majority of their income from new startups they support. The target founders working are generally professionals in finance or consulting and have money to pay for their program. The FI programs I have visited are impactful, and their business model aligns very well with the founders they are supporting. I have also seen more SME networking organizations creating peer learning that their members fund. The best of these orgs run on small budgets and fees for membership. Some argue that entrepreneurs should pay something to verify the value of ESO services, but others will argue that any money they generate should go toward their business. I see both operate effectively and don't have a strong opinion either way.
Governments and donors like regional governments, World Bank, and USAID are in this funder bucket to provide longer-term financial support. These organizations are risk averse, so very challenging to get awarded funding. The most difficult part, I believe, in working with these funders is governance and the desire to control your strategy over how the funding is controlled. Because of this, it's important to remember that an ESO that receives government and donor funding will become part of a bigger government or even political strategy. So, money from these funders works when your objectives are aligned with the government or donor agenda. Still, there will be a time when these funding organizations will ask your ESO to do something beyond its mission, and the ESO will have to make a strategic decision if it's worth the funding. Despite the bureaucracy and their tenacity to choose organizations they trust, governments and donors are trying to find procurement methods to bring in new partners. Don't be afraid to advocate with these organizations to open the door, especially if you are a new player.
Foundations: I have the least amount of foundation experience, just some information I've learned from engaging with ESOs who have found funding. It is easier to have a productive relationship with them because there is less bureaucracy, and they are more straightforward in getting funding. They are risk averse but not as bad as donors and the government. Foundations like to work with known ESOs with a track record. Typically their missions and purpose are much more narrow than government and donors, so more challenging to align with their objectives. Because of their focus, they create a close network or tribe of people and orgs with the same thought and beliefs and use the same terminology to communicate their purpose. Hard to work with these foundations if your beliefs don't fit within their tribe.
Private Companies: There are 3 areas where private corporations typically work:
They want to learn and explore new markets or technologies and will support an ESO on a unique program like Fintech or Agtech. These are generally one-time support for programs, so we will have to find other funding in the long term.
Corporate support is from the marketing department. When the ESO can be an effective business development channel to connect companies to their target market, private companies will need to see data on how the ESOs reach their community and how effectively the ESO outreach and media channels are working.
CSR support is usually small but closely tied to the company's marketing.
Investors: I won't go far into the investment business model, but ESOs need a track record of building companies that get follow-up investments. If you don't have this or a great deal of capital, don't try.
There is a time for every Entreprenurship Support Organization (ESO) to decide whether it should support entrepreneurs or small businesses that fit their purpose or have more consistent funding by programs their funders desire for them to support. Foundations and private companies are better funders to help support your purpose, while government and donors typically force you to work on their agendas. Funding from entrepreneur services or becoming an investor will typically force your ESO to focus on more highly educated founders rather than more inclusive ones. Good luck in finding funding for your program.
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