Yes, it is a difficult time to raise financing for your startup.  It’s well reported that venture capitalists and angel investment levels have dropped off and that many investors are fortifying existing portfolio companies or sitting on the sidelines.  So what is an entrepreneur to do?

There is no magic bullet as needs vary from company to company and team to team.  But there are things to be learned from aspiring entrepreneurs doing things to not only make it but who are actually using the economic downturn as a catalyst to position themselves for success later on.

One such venture is Dream Village (company website), a start-up that uses picture books and the web to teach kids about global issues, and its CEO, Suneet Bhatt who we recently spoke with.   Dream Village recently won Advanta’s IdeaBlob contest and was also a finalist in NYC Entrepreneur Week’s - NYCENT - business plan competition.  Dream Village is a social venture that is aiming to give a meaningful portion of profits to associated causes and nonprofit organizations around the world.

While Suneet and his team are an excellent example of adaptability, his strategies and lessons are not just for social entrepreneurs/enterprises but will be useful to any entrepreneur with a big audacious idea.  Below is the transcript of our conversation with Suneet.  Suneet is passionate about social entrepreneurship and enterprise.  He’d previously written a blog post on ChubbyBrain entitled Why Defining Social Entrepreneur is a Waste of Time.  (ChubbyBrain team note: Suneet offers some very real wisdom and ideas in this interview so read this).

Suneet, let’s start with an overview of what Dream Village is.

Dream Village is a place where kids learn about important issues and have the power to get involved and make a difference. The experience starts with a picture book that takes actual case studies and experiences and tells them in a way that children in elementary school can understand. After reading the book, our readers are invited to visit the website where they can explore and learn more about the issues discussed in the book through video, photos, additional stories, and soon, interactive games. The experience concludes with children casting their vote for the cause of their choice and getting additional opportunities to “Learn More” (awareness), “Do More” (volunteer), and “Give More” (fundraising and donations).

We donate 50% of our profits to the nonprofits we feature based on the votes cast by our readers. Our first book, “Saved by the Well” talks about the global water crisis from the perspective of children in Mozambique, and features the work of the nonprofit organization PlayPumps International.

We think Dream Village inspires kids to stay involved even after they’re done with the Dream Village experience. For example, two of the classrooms that participated in our beta launch in March were actually so moved and inspired by the experience that they threw fundraisers for PlayPumps International and raised a few hundred dollars each.

It’s important for me to mention that Dream Village is a very sound “we”. We’re made up of a team of friends who saw a tremendous opportunity and are now trying to give that idea legs/wings

Why set up DV as a for-profit social enterprise?

We get asked this question time and time again. You can reference my guest blog post if you are interested in learning more about my perspective on why and how we define ourselves as a social enterprise. (see the blog post here)  With respect to why we decided to pursue a for-profit model (vs. a nonprofit model), it comes down to cash flow and sources of income/revenue. Every business entity has to bring money in the door to survive. Some will generate income via grants. Others will emphasize donations and fundraising. And of course, more and more are blending a variety of tactics (including earned-income strategies) to accomplish their objectives. At a basic level, Dream Village is anchored around products. We want to focus our energy on developing and selling the best products possible-not on fundraising to support our activities, and not on securing grant funds to sustain our organization. We want to sell stuff, and we think we can.

But that’s not the only reason. I think entrepreneurs, and specifically social entrepreneurs, are idealists (Ami Dar was onto something when he started Idealist years and years ago). Our idealism is rooted in a firm belief that we can produce great products that are competitive. Products that children will eventually choose and prefer over other products on the market.  Dream Village was founded because we saw this opportunity and we heard a demand for these types of products. We want to sell stuff, we think we can sell stuff, and we know people are asking for this stuff.

Finally-my dream has always been to start the “perfect company”. One that makes the world a better place directly, but also, through some sort of multiplier effect (one book can be read by so many children). One that inspires its employees to do great things and is capable of rewarding them intrinsically and extrinsically when they do so. And finally, one that provides its investors with a sound return, financially and socially. It can be done.

With the economy as it is now, what are the challenges you’re facing that you might have not expected or which are more significant than you expected?

We are a startup in the purest form. Everyone working on Dream Village has a full-time job. Some of us, because of Dream Village, now have two. It’s tough to manage competing priorities and it’s tough to keep people engaged and focused when there are so many competing priorities.

I think it’s also difficult to explain to people that we are a for-profit. There have been some interesting articles recently about how the world divides work into those who work for good money and those who work for a good cause.  Dan Pallotta’s blog post of Harvard Business Publishing from last week discusses this.  The historical assumption is that such environments are mutually exclusive. Because we are trying to balance the two, we have a model that’s difficult to explain, and an even smaller universe of potential funders.

Do you think any of the challenges are compounded/lessened by the fact that you have a social element to Dream Village?

All entrepreneurs share issues and challenges. In addition, there are challenges and issues that are unique to the sector, unique to the enterprise, and unique to the team. As I focus on the social sector, I think the fact that social entrepreneurs are doing something positive and focused on making a difference may make it difficult to get critical feedback. For example, I have not spoken to a single individual who said “I don’t get it”, or “Why would you try that?” I actually would have hoped for more criticism, but I think social entrepreneurs face a unique struggle in this sense. The idea is inherently positive. We are trying to do something that has a direct positive social impact. And so you are rarely going to hear negative feedback because of the ultimate goal.

If we were selling bacon flavored lip balm, people would be much more open with their feedback. In our sector, it’s even more critical to actively seek the right type of advisors and feedback because to the general public the idea is fascinating because it’s a “feel good” story. It’s possible that I may be misreading this altogether, but that’s something I have felt.

Talk about your operational strategies or how you’ve modified your approach to overcome these current challenges?

Dream Village went from an idea to a company after we won Ideablob, a small business plan competition sponsored by credit card issuer, Advanta. We had a clear idea about how we were going to get to market, and it focused on developing a sound business plan and pursuing funding.

Interestingly enough, a few strategic Craig’s List posts later, we started realizing that the then recent string of layoffs had flooded the market with talented people, some of who were not eager to jump back into the market right away. We started finding talented people who were willing to work for Dream Village pro-bono, either because they believed in the cause or, because they wanted to build out their own portfolio and resume. Either way, we capitalized on these opportunities and built a fairly vast network of partners because of it.

In today’s market, there are more people looking for work, but we are seeing a tightening of the pro-bono market for the kind of help we need. The people who we are looking for have either been unemployed for too long, or recognize that competition is stiffening and therefore, they need to spend all of their time working on finding new work. As entrepreneurs, it is our job to be opportunistic and responsive. Since mid-April we have shifted our focus and are now pursuing funding in waves.

On a more personal note, I think you get what you pay for, and there are a variety of stages where it’s important to balance what you really need with what you can afford. Pro-bono resources make sense, for a while. They really made all of what we are today, possible. Equity-based resources make sense, for a while. But we are now at a point where the accountability we require isn’t there at the level we need it to be. We need to formalize our business relationships if we expect to scale and grow.

How have you altered your fundraising needs?  What were they before and what are they now?

This recession has had the same effect on entrepreneurs that it has on everyone else: it has forced us to become more disciplined, efficient, and creative. More than ever, it’s about learning to do more with less. One of the greatest opportunities we had was to speak at DEMO 2009. The panel before us was a conversation with a series of VC’s and one of the messages we heard loud and clear was “bootstrap”. Find ways to get what you need to get done while spending as little money as possible. So we focused on bootstrapping.

Then, during the NYC ENT business plan competition, we got some great feedback on next steps. We kept hearing emphasis on getting traction. Regardless of product, regardless of industry, regardless of mission-when you’re approaching potential investors at a more formal level (beyond friends and family), it’s important that you’ve demonstrated a need for or a demand for your offering. There’s no number for this. It’s not 1,000 users, or $100,000 in sales. It’s about proving that people outside of your friends and family want and need what you are going to provide. So we shifted our focus away from what we needed to be sustainable for a year, and toward what we needed to drive sales and demonstrate traction over the short-term. We ended up scaling our seed funding request back by about 80%. The funding request now covers a much shorter period of time, but has much clearer focus: gaining traction.

How have you modified your marketing strategies?

I think marketing strategies for start-ups are continuously evolving. One of the problems with being so open and flexible is that you can lose focus. We were lucky to make it to the final round of the NYC ENT business plan competition, and though we didn’t win, we opened ourselves up for some amazing feedback. One such session afforded us a sit-down with the organizers (members from Solidea/Acquis Consulting and ConnectorsGroup). Their feedback to us? Get focused. Stop running after things that are new and shiny. Focus on one thing and do it really well. We have taken that to heart and scaled back on a variety of channels and decided to focus completely on selling one product: our books. The sign of a good idea is the feeling that opportunities are infinite. The sign of a successful idea is the ability to filter through that noise and identify the best opportunity to go-to-market. We know we have a good idea. We’ll find out soon enough if we have a successful one.

With all of these modifications, where do you expect to be from a traction perspective and in how long?

We expect to sell 100,000 books in the next 4 days and make millions for PlayPumps International, Friends of the World Food Program, and Camfed. Next question.

And if you achieve that traction, what would be next?  How much would you look to raise and where would that take DV?

Seriously though, we will have three titles on the market by November of this year. We define traction and success as having sold 5,000 books within 12 months of a title being released. We anticipate a majority of those sales taking place from September - December. By year-end, we need to have sold 9-10,000 books total.

Our summer will be dedicated to getting the traction necessary to justify further investment. We have approached friends and family for our seed funding and, at this point, are $15,000 away from our target. If we are able to demonstrate traction by September (selling 1,000 books), we hope to formalize our Series A round and bring in the funds necessary to take us out another 12 months (and through 3 more titles, bringing our total to 6).

We’re actually very close to completing our second title, “The World’s Greatest Pillowfight”. It is actually in direct response to some of the feedback we received from our beta which clearly indicated that kids (and the grownups in their lives) wanted Dream Village to provide them with more things to do. This chronicles a group of kids as they plan a fundraiser (a pillowfight) and serves as a roadmap for kids around the world who have an idea and want to bring it to life. We’re really excited about the potential for Book 2 and we’re in the process of locking down three fantastic nonprofit partners.

Do you think traditional VCs or angel investors are willing to invest in a social venture like DV?  What has been the reception/comments you’ve received?

I don’t think traditional VC’s are willing to invest in a social venture like DV, period. I also don’t think we’re looking for a traditional VC. One of the best things I learned in business school, in a fantastic research class taught by John Lynch, one of the best professors I’ve ever had, was the concept of “firing your customer”.

The truth of the matter is there are some customers a company has who are a greater drain on resources than their patronage supports. I think a similar model applies to investors and start-ups. We do not want to receive funding from a VC who is looking for 10x returns and a 3-year exit. Though such numbers are possible, we do not want to be handcuffed by such forms of measurement. We do have a social mission, and it’s one that we need to wholeheartedly pursue or at the least, accommodate and achieve. So as much as a traditional VC would not be interested in investing in DV, we are not interested in pursuing funding from a traditional VC. It’s like a vegetarian at a steakhouse-in the end, neither side really wants anything to do with the other, and that’s ok.

Angel investors are a slightly different ballgame though some Angel Networks are starting to look and feel a bit like VC’s. The opportunity is slightly greater with Angels, but it’s something that only time will tell. Ultimately, both answers depend upon our success over the next few months. If we can demonstrate interest in Dream Village and our products, we’re on to something special and all bets are off. But if we can’t demonstrate an ounce of traction, our family and friends may not even return our calls.

To preview Dream Village’s first book, please click here.  To learn more about Dream Village, view their ChubbyBrain startup profile here.