The investment process for social entrepreneurs 

For social impact founders, raising investment can feel like a baptism of fire. Everybody tells you how to create a good pitch deck, but not to the point where the seemingly perfect deck meets the uncompromising scrutiny of investor expectations.

The truth is, when investors probe the intricate details of your business, they aren’t looking to “catch you out”, rather to ensure that the partnership is a good fit and you’re truly ready for growth. But the hidden friction points in this process trip up even the most promising entrepreneurs. 

In this piece, we’ll reveal some of the pitfalls and share insider perspectives to help you stay one step ahead.

What investors are really looking for

When you first start engaging investors, stories are a great way to grab their attention. A compelling story will help you stand out, but investors are also examining whether there’s a match across three pillars:

• Alignment: Does the business fit their thesis, stage and focus areas?
• Traction: Are customers validating the solution with adoption, revenue or impact?
• Team credibility: Do the founders have the resilience and expertise to execute?

Then, as you progress through the process, details start to matter more. 

The funnel in action

The journey from pitch to investment follows a funnel that narrows quickly. Here’s how the process typically works:

1. Deal sourcing: This is where the investor identifies potential investments. At this stage, they browse through hundreds of companies either through their own search, referrals, attending pitch days or from direct pitch submissions. It’s often just a quick fit assessment based on your online presence, or a brief review of your deck. Stories can help you stand out here. 
2. Screening: Here, the investor will be screening against their investment thesis or strategy to determine fit for further consideration. At this stage, a pitch deck may be requested and more closely evaluated, with a meeting likely scheduled for a deeper dive into the model, traction and team.
3. Due diligence: This is where a comprehensive investigation of a company happens, including an in-depth analysis of its financials, operations, and market position. You will be required to share a significant amount of information via a “data room”. Investors request access to a number of key documents to verify things like business performance, IP protections, and ownership. 
4. Deal structuring and negotiation: If both parties are satisfied with what they’ve seen so far, this is where the terms are agreed.
5. Legal and documentation: Now the lawyers tackle the finer details. Both sides work to capture every term in precise legal language to prevent surprises later.
6. Closing: The money is transferred, shares are issued, and the investor officially becomes a stakeholder.

The funnel, although somewhat straightforward, doesn’t reveal this sobering fact: out of 100 opportunities screened, only about 20% make it into due diligence, and of those, just 5% secure investment. Alignment and preparation can help you navigate this tricky funnel more effectively.

Why deals fall apart: The top pitfalls

One fatal flaw isn’t the reason founders lose funding opportunities; it’s usually a pattern of friction. The most common are:

• Misalignment: Market or impact focus doesn’t match investor thesis.
• Slow or combative responses: Delays, a lack of openness, or defensiveness can erode trust.
• Unverified claims: Weak traction or promises without evidence are deemed a red flag.
• Competing startups offer better returns: Even solid companies can lose out if other startups feel “more ready” or have more proven impact.

For example, at Acumen, our investments go to startups working to solve poverty across various tracks such as agriculture, education, energy, healthcare, and workforce. We care about both the depth and breadth of impact across our investments, so we consider both of these factors alongside the financial sustainability and scale potential of any investment. We sometimes even commission an impact report to verify impact claims as part of the diligence phase and compare models against the insights we’ve gathered through past investments in the same sector. 

How to flip the odds in your favor

The good news is that these pitfalls are preventable, and here’s how you can shift momentum back to your side.

• Prioritize alignment: Don’t waste time pursuing funders who don’t align with your focus area. 
• Get organized early: Know your numbers and build a well-structured data room before you start outreach.
• Balance story + data: Investors buy into vision, but they invest in numbers, so a smart balance of both is essential.
• Know your ask: Know the difference between pitching a VC, angel or impact investor and be clear on how much you’re raising and for what.
• Be transparent: Your approach to being open about what you’ve learnt and what you’re still learning builds credibility and trust.

Key takeaway: Preparation wins deals

Navigating the investor funnel is smoother when there’s alignment and ample preparation. These are key in swiftly building trust and moving toward a ‘yes’.

Don’t wait for investors to request information. Take control of the process now with these concise resources from Acumen Academy’s Founders Hub:

1. Our tool for Assessing Funder Alignment can help you prioritize the right funders to approach. 
2. The Know Your Numbers reading provides a handy checklist of the financial and impact metrics you should be confident sharing. 
3. Download this Due Diligence Data Room Checklist and prepare your documentation before you begin fundraising.
4. Calculate your social enterprise’s valuation with confidence with our handy quick read and enter negotiations with more confidence.