The first year of a social venture is almost always funded by enthusiasm: friends who donated, a foundation that believed in the pilot, volunteers who gave their time. The hard question comes later: what will fund the venture in its third year, when the first donation has run out and the activity has grown?
The business model is what answers that question. In this article we explain what a business model is, what is special about the model of a social venture, which sources of income are available, and how to combine them so the venture lasts over time.
What is a business model?
A business model is the short answer to the question of how the venture creates value and how it funds itself. It describes who you help, what you give them, how much it costs and who pays for it.
A business model is not a business plan. The plan is a full document with the team, the budget and milestones. The model is its heart, and you can put it on a single page. We wrote about the full document in our article A business plan for a social venture.
What is special about the business model of a social venture?
In an ordinary business, the customer who uses the product is also the one who pays for it. A social venture usually has two separate audiences: the people who benefit from the service, and the people who fund it. A teenager who receives mentoring does not pay for it. The one who pays is a donor, a foundation, a government ministry or a local authority.
This means you need to create value for both audiences. For participants: a good service that meets a real need. For funders: proof that their money creates change, orderly reporting, and sometimes a personal connection to the venture and the people in it.
How do you write a business model on one page?
Before you choose funding sources, it is worth answering six questions in writing. If the answers are short and clear, you have a model. If some of them are missing, that is exactly where to put in the work:
- Who do you help? A defined audience that you can describe.
- What do you give them? The service or product, in one sentence.
- What changes for them? The outcome you expect.
- How much does it cost? Per year, and per participant.
- Who pays? Each of your funders, and what each of them gets in return.
- What happens if one source disappears? Will the venture carry on, and what will replace it?
Show this page to a mentor or a partner before every meeting with a major funder. The questions they ask are usually the questions the funder will ask.
Where does the money come from? The five sources of income
1. Donations from individuals
The first source for almost every venture. Donations come at first from your close circle, and later from people who have come across the venture. The advantage: flexible money that can be used for any need. The challenge: you have to go back to your donors every year. One tool that helps you reach a wide audience is crowdfunding.
2. Philanthropic foundations
Foundations give larger amounts, usually for a defined program and a defined period. They expect a clear plan, metrics and reporting. It is important to know that many of them support a particular stage of a venture rather than staying for years, so you need to plan what will come after them. We go into this in more depth in our article Philanthropic foundations.
3. Government ministries and local authorities
The state supports public institutions according to published support criteria, and issues calls for proposals that invite institutions to apply. Government ministries put the support criteria into effect every year according to the budget allocated to them, so even a source that looks stable has to be renewed every year. Local authorities can be important partners, especially when the venture serves their residents. We wrote about how to apply in our article Calls for proposals.
4. Earned income
Selling a service, a product, a workshop or a training program. Sometimes participants pay a symbolic amount, and sometimes another organization buys the service for its own audience. Earned income gives you independence, but not every venture can build it, and there is no reason to force it on a venture whose audience cannot pay.
5. Partnerships with companies
Companies can donate money, but also knowledge, space, equipment and employee volunteering. A good partnership is built when the venture fits the company's values or field, and when both sides have a reason to keep going.
What does a healthy income mix look like?
There is no single formula, but a few principles come up again and again in almost every venture that has managed to last over time:
- Do not rely on a single source. When one donor or one foundation funds most of the venture, their departure can bring everything to a halt.
- Combine flexible money with restricted money. Private donations fund what foundations do not like to fund, such as management and infrastructure.
- Plan at least three years ahead. Know what will replace each source that may come to an end.
- Know what one participant costs. This is the number that lets you explain to every funder what they are getting.
- Look after your existing donors. It is harder to find a new donor than to keep one who already knows you.
What does this look like in the field? Examples from the ventures
Several of the ventures operating at Alumot illustrate different funding models:
- TovTech lists on its venture page an employment incubator program funded by the Ministries of Health and Welfare, a data and AI course funded by the Ministry of Economy, and donations from Check Point over the past two years. This is a combination of government funding and corporate giving.
- Boomerang works together with local authorities, and its partners include the Tel Aviv and Petah Tikva municipalities, alongside companies and foundations.
- Marva Center runs its spaces with the support of the National Insurance Institute, and its partners also include a crowdfunding campaign on JGIVE.
- ADUP is building a model that does not depend on financial donors: an app in which users earn money by watching marketing videos and donate it to social organizations.
What happens after the first year?
The second and third years are the real test of the model. The first donations have already been used, the foundation that supported the pilot wants to see results, and the activity demands more. What helps you get through this period:
- Document results from the start, so you have something to show the next funder.
- Start approaching foundations and calls for proposals early, because the road from application to money in the bank takes time.
- Report to donors even when you are not asking them for money. A donor who knows what happened with their donation tends to come back.
- Review the mix every year: which sources grew, which weakened, and what needs to be added.
It also helps to think about the venture in stages. In the pilot stage, most of the money comes from donations and a first foundation. In the expansion stage, more foundations, partnerships and sometimes a local authority come in. In the stability stage, you look for sources that renew themselves, such as regular donors, earned income or a long-term contract with a public body. Not every venture will reach the last stage, but it is worth knowing what you are aiming for.
Three common mistakes in the business model of a social venture
- Assuming the first year's money will come again. A foundation that supported the pilot will not necessarily fund the expansion.
- Forgetting overhead. Bookkeeping, insurance and management cost money, and it is hard to raise funds for them separately.
- Chasing every source of money. A call for proposals that does not fit the venture's goal can pull it in a direction you never planned.
How does Alumot fit in?
At Alumot we help entrepreneurs whose ventures are already up and running to raise resources, develop their business model and build partnerships. Every venture receives a strategic consulting session and a resource development mapping once a year, advice on cross-sector collaboration, and introductions to foundations and funders.
The venture is set up inside Alumot, so it can receive tax-deductible donations in Israel (Section 46), in the US (PEF) and in other countries (JGIVE), and run crowdfunding campaigns through JGIVE or Headstart, directly to the nonprofit. Most ventures choose to stay at Alumot, because the shared framework keeps overhead low. To be precise: Alumot is not a pass-through for donations and does not lend out its Section 46 status. Each venture is part of the nonprofit's activity and runs as a closed budgetary unit. The details are on the I Have a Venture page.
Frequently asked questions
What is a business model, in simple terms?
The explanation of how the venture creates value and where the money that funds it will come from. Who you help, what you give, how much it costs and who pays.
Does a social venture have to have earned income?
No. Many ventures operate for years on donations, foundation grants and government support. Earned income can strengthen stability, but it only fits when there is someone who can pay for the service.
How many sources of income do you need?
There is no fixed number. The rule is that no single source should carry most of the venture on its own, so that if it disappears, the activity can continue.
When is it worth applying to calls for proposals?
When the venture is already operating and can show experience and first results. Follow the announcements early, because submission windows are short and the eligibility requirements change.
Can the business model change?
Yes, and that is healthy. A venture learns what works, and funding sources change. It is worth reviewing the model at least once a year.
Want to build a model that keeps your venture going over time? Tell us about your venture.