Social Entrepreneurship & Crowdfunding: a match made in heaven?
Author: Marisa Ferentinou, Synthesis Center for Research and Education Ltd (Cyprus)
Published on: 2022/03/14
A social entrepreneur is someone who, via the creation of a business project, sees an economic opportunity based on solving a social problem. This is not to be mistaken with charity or altruism (Kroeger & Weber, 2014). It entails developing a business approach that relies on the application of an original and interesting solution and is motivated by a desire to serve others and bring about positive social change. As a starting point for the establishment and strengthening of a consolidated and more equal social and economic order, the social entrepreneur aspires to deliver efficacious responses in order to create financial, social, and environmental value (Zahra & Wright, 2016).
The financing of social enterprises is gradually receiving attention in academic literature. (López-Cózar & Priede, 2015). Similarly, crowdfunding, as a funding method, has gotten literary attention in recent years, yet, its potential application in financing social entrepreneurship is a relatively new subject in academic works.
In general, the most common source of funding for a social enterprise is the entrepreneur’s own funds. Furthermore, the 3Fs (family, friends, and fools) are frequently used. These are people who, inspired by their personal relationship with the entrepreneur, choose to donate finances to the project with the goal of supporting the initiative rather than gaining financial returns. This is consistent with the theoretical foundation of social enterprises, which is that: self-financing is used to fund growth and development, profit-sharing is limited, and earnings are used to improve goal achievement and produce social value (Priede Bergamini et al., 2017). In any event, both choices (self-financing and the 3f’s) are viable in the early phases of the development process, but the proceeds are typically limited, and thus rarely sufficient to contribute to the expansion and financial sustainability of the business.
Crowdfunding is a novel way to support a variety of projects, including enterprises, cultural events, and social projects, allowing the founders to ask for donations from a huge number of people, each of whom normally contributes a little amount (Priede Bergamini et al., 2017). It’s an open offer that’s usually made through a website and can come with or without a counter-offer (Kleemann et al., 2008; Schwienbachery & Larralde, 2010). In most cases, as in the case of the SELC project, there will be three sorts of participants in a crowdfunding process:
> the entrepreneur (people initiating the campaigns);
> a group of persons who choose to contribute funds to support the entrepreneur (the backers), and
> some sort of a platform in which the campaigns spread their message and receive the funds (crestemidei.org).
Social entrepreneurship’s growth is tightly connected to the progression of digital technologies as these give room for amplified awareness and the chance to communicate your social mission to a wider audience.
The lack of traditional funding for social enterprises is related to the special nature of social enterprises that raises issues with legitimacy, liability, and institutional support. Therefore, the lack of access to traditional funding and market mechanisms is the main challenge that social entrepreneurs face (Chandna, 2022). Crowdfunding can pose a solution (although not a magical one) and moderate the challenges related to accessing funds.
Chandna, V. (2022). Social entrepreneurship and digital platforms: Crowdfunding in the sharing-economy era. Business Horizons, 65(1), 21–31. https://doi.org/10.1016/j.bushor.2021.09.005
Kroeger, A. & C. Weber (2014). Developing a conceptual framework for comparing social value creation. Academy of Management Review, 39(4), 513-540
López-Cózar, C. & T. Priede (2015). Identificación de las principales fuentes de financiación empleadas por la empresa social en la actualidad. Economía Agraria y Recursos Naturales, 15(1), 41-59.
Priede Bergamini, T., Lopez-Cozar Navarro, C., & Hilliard, I. (2017). Is Crowdfunding an Appropriate Financial Model for Social Entrepreneurship ? Academy of Entrepreneurship Journal, 23(1). https://www.abacademies.org/articles/is-crowdfunding-an-appropriate-financial-model-for-social-entrepreneurship-6609.html
Zahra, S.A. & M. Wright (2016). Understanding the Social Role of Entrepreneurship. Journal of Management Studies, 53(4), 610-629