Patient Capital: The Tool For Long-Term Profitability And Social Impact
Updated: Apr 13, 2022
Different businesses require different methods of acquiring capital. While the quick profit business model remains ever so popular, it doesn't resonate with the mission of every business. This is where the concept of patient capital comes in. From its name, it offers a patient, steady approach to growth — unlike the impatient paradigms most new business owners might know. It empowers a sustainable long-term vision for profitability and social impact.
In this solo episode, we sum up the conversation we’ve had with our guests over our Patient Capital series. We reiterate what patient capital is and debunk its misconceptions. Then, we lay down important questions business founders should answer before venturing into patient capital funding.
Do you want to know if patient capital funding is right for your business? Stay tuned to this episode!
Here are three reasons why you should listen to the full episode:
Learn about the concept of patient capital.
Understand the goal of patient capital funding.
Answer critical questions in venturing into mission-aligned capital.
Visit Christina Sjahli's website for Her CEO Journey™’s Patient Capital series!
The Ins and Outs of a Venture Capital Fund Part 1 & Part 2 - The Journey of Vonetta Young
Venture Capital For Good: Investing in Social Impact with Lyndsey Boucherle
The Right Investment is Key: The Value of Capital for Mission-Driven Business with West Tenth
Better For All Stakeholders: Impact Investing and Investment Cooperatives with Lizette Peña
How to Heal the Planet and Create Shared Value for People with Regenerative Finance — The Journey of Mindy Christensen
Changing the World Starts with Finding the Right Lending Partners — The Journey of Caryl Levine
Regenerative Finance for Good Ingredients, Businesses, and Planet — The Journey of Caroline Duell
Consult the Profit Reimagined™ team about your financing strategy. Set up a time here!
Download the Forecasting Guide so that you can create a better and improved financial forecast for your business!
[1:48] What is Patient Capital?
“When you believe in regenerative finance, this means you see making money as the result of doing the right thing…”
Patient capital is aligned with your mission and purpose, focusing on long-term growth instead of short-term growth. Here, the funder understands it takes time to build the business. This understanding means that the business owner can make decisions not centred on revenue growth or profitability alone.
“[Patient capital] is regenerative instead of extractive, focus on the long-term growth instead of short-term growth — which means the funder understands it takes time to build a business.”
The patient capital funder goes deep into your mission, stakeholder values, business operation, and business' contribution in helping the planet. They provide capital that makes sense for business growth in profitability and social impact.
“The patient capital funder is able to see the bigger mission and make sure founders in their portfolio companies make decisions based on its mission and stakeholder values — not only investor values.”
[3:16] The Goal of Patient Capital
Patient capital DOES NOT mean not building a profitable business. Instead, it is a business model that nurtures long-term profitability.
“Even though they don't focus on financial results, they still want to see a business that can be profitable in the long run.”
Founders should have a level of financial acumen or expert support, like a virtual CFO. Money is the tool — not the goal — in building a profitable business that positively impacts people and the planet. However, it’s still a critical pillar when it comes to business, so looking for CFO outsourcing services could be the vital element that pushes your business forward.
“Founders should have a level of financial acumen. If they don't have a certain level of financial acumen, then they need to go out there and look for an expert.”
It's important to ask critical questions when venturing into mission-aligned capital and understanding the intent behind patient capital.
[4:56] How Fast Do You Want to Grow?
The patient capital is not suitable if you are building a solution that requires fast growth. It is best for businesses that require a slower growth solution and aren't planning to exit soon.
“...you may not want to exit fast, and your business needs a slower growth solution, then, you want a funder who supports your slower growth plan — and patient capital may be suitable for you.”
[5:39] What Kind of Capital Do You Need?
Venture capital is an excellent option if you don't mind giving a portion of your business ownership. Otherwise, debt financing is the way to go. Aside from these traditional options, there is also the concept of integrated capital.
Integrated capital is a financing model that coordinates different forms of financial capital and non-financial resources. It supports a business that solves complex social and environmental problems.
“After you figure out what kind of capital you need, then you also need to assess if your organization is ready to receive parole.”
[6:38] Is Your Business Ready to Receive Patient Capital?
On top of defining a clear mission, you need to understand your strengths and shortcomings. Hire other talented people to fill in specific business gaps. Knowing that you can survive any challenges in growing a sustainable business provides a sense of comfort for funders.
“When you don't hesitate to hire the right expert to fill the gap, it actually provides a sense of comfort for your funders that you can survive any challenges in growing a sustainable business.”
Additionally, it's ideal to have a clear understanding of the financial activities within the organization. Remember: there is no business without profit, and there will be no profit without having a robust financial system in place. Your business will not survive in the long run if you don't have your finances under control.
“There is no business without profit, and there is no profit if you don't have a system in place to track revenue expenses, gross margin, and cash flow.”
[8:13] Does Your Funder Have a Clear Understanding of Your Social Impact Mission?
It's also a good idea to ask your funders about their mission — just like they'll ask about yours. Conduct your due diligence — ask detailed questions on how they operate, make decisions, and treat their employees.
Plus, make sure to know how they support their borrowers during tough times. The right funder will stand by their portfolio companies even during hard times.
“The right funders stand by their portfolio companies during tough times. They care more about the potential loss of the positive social impact of the companies they have supported versus the loss on return of investment in the short term.”
[9:19] Do You Need Growth Capital?
Ask yourself if the business is working in all other aspects. After the assessment, determine whether you need growth capital for your business. If not, you'd have to first fix key issues before raising capital. Otherwise, the process can create more trouble and stress on top of other existing problems.
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