This week’s Finding Impact Podcast (FIP) features Kevin Starr, managing director at Mulago Foundation and founder of the Rainer Arnhold Fellows Programme. He has been scaling social ventures that provide the best solutions to the biggest problems since 1994. 

FIP is a weekly series where Andy Narracott (@AndyNarracott) has conversations with people moving the needle in social enterprise. Each episode discusses strategy, tactics and practical advice to help you build your own venture.

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In the interview, Starr discusses the three types of funding available to for-profit social ventures – free money, real money and maybe money – and how entrepreneurs can overcome the typical funding obstacles of obtaining real money after accessing free money.

According to Starr, there is about $100bn of free money (or grant money) “sloshing around the world”, with most of it not ending up in ventures that are having a serious impact. Then there is “real money”, which is capital looking for a serious return. There are trillions of dollars of real money available, but investors will only give it to ventures that they believe will generate an appropriate return on investment. And lastly there is maybe money, which is, “Maybe we will get it back” funding.

Starr says too many for-profit social entrepreneurs believe because someone gave them seed capital, they will be able to attract real money further down the line. “But you’ve got to cross a desert to get to that real money… Too many of these for-profit ventures get some seed money, get a little way across the desert, and run out of water before they are in any position to get more.

“And it breaks my heart when these guys sort of shrivel in the desert, when they’ve actually got a pretty good idea that could have a lot of social impact – but no smart investor, expecting a return, would put money into them yet.”

He explains those who want to make it across the desert need a great management team, a track record that inspires confidence, and validation of their business model. “Nothing that’s that different than what firms in the… commercial world need to accomplish. It’s just that [social entrepreneurs] will probably have less resources with which to do it.”

Listen to the full interview through the media player above.