This past weekend, I had the privilege to attend the StartingBloc Institute for Social Innovation conference in New York as a StartingBloc Fellow for 2010. The conference will continue on March 27th and conclude on the 28th, but already it’s been hugely insightful for me as someone interested in the intersection of social entrepreneurship and venture capital. Thanks to Adriana, Taryn, and Sarah for putting this on!
I have not only met others passionate about this intersection (shoutouts to @MESSexpress and @DaveRiess) but also gained additional understanding into the challenges facing the organization of funding for-profit social enterprises, thanks especially to Nathaniel Whittemore, one of the leading voices of social entrepreneurship who blogs at Change.org. Check out his two most recent blog posts: “The State of For-Profit Social Entrepreneurship” and “5 Ideas for Social Venture Angel Groups.”
During his StartingBloc talk, Whittemore briefly mentioned the current funding gap challenges for for-profit social enterprises, and I followed up with him afterwards to ask about more details. As Whittemore sees it, there are a few key challenges for social venture capital, the investment in for-profit social enterprises, two of which are due diligence and dealflow.
Due diligence as a challenge relates primarily to the question, “How do you identify promising social venture capital investments?” Given that this area is still quite new, there isn’t much aggregate knowledge or experience in terms of evaluating successful investments. Furthermore, how do you even define “successful”? What kind of metrics are we looking at, both financially or socially? How is return measured? And what even qualifies as a “social enterprise”? There is definitely much work to be done!
The dealflow hurdle refers to the fact that there simply aren’t that many for-profit social enterprises out there. Whittemore elaborates on this issue in “The State of For-Profit Social Entrepreneurship.” To some extent, it’s a chicken-and-egg problem. Without an abundant for-profit social entrepreneurial community (pool of potential investments), it would be difficult to start a social VC fund that would be sustainable. On the other hand, without an existing robust ecosystem to fill in the funding gap for social enterprises, many founders may decide to go the non-profit route, or even abandon the social enterprise format entirely, and that would be a great shame. That’s why I believe that building an infrastructure for the funding of for-profit social enterprises, whether it’s in the form of VC funds, angel networks, or something else entirely, is so important.
I have spoken with some others about the issues facing the burgeoning social VC industry this week as well, including Kevin Doyle of Good Capital and Josh Cohen of City Light Capital, so thank you for your insight! For those of you reading this, I would love to hear your thoughts as well. Please comment or contact me, and also subscribe!
