Wednesday, June 29, 2005

Interesting conversation starting (I think) on Social Edge - Investors and Entrepreneurs Discuss Breakthroughs in Social Capital. This is a constant topic among social entrepreneurs.

I'll quote my first post:

The mismatch

I think Roger did a good job of tackling these issues. From my standpoint, the real one is the issue of sacrificing return. The people who are promoting social investment successfully have to promise returns to their investors. Either they fix the return and manage the risk to guarantee it, or they only invest in the cream (most lucrative) investments. I don't know how many times I've heard from investors that they want to invest socially, but at no sacrifice to return.

Unfortunately, there are far more needs out there that involve risk. The low-risk-fixed-return social enterprise and the high-risk-high-return social enterprise, represent a small slice of the social enterprise opportunities. And, we do have functioning capital markets that address the needs of this slice.

When social entrepreneurs say that we don't have a functioning capital market, they are talking about capital for the great majority of social enterprises. And, investors tend to steer the conversation right back to the low-risk-fixed-return or the high-risk-high-return enterprises. So, I see us talking past each other.

I run only technology social enterprises: I have better margins than most social enterprises. But, I am starting tech enterprises, so they are medium to high risk. And, if they had high returns, I know a lot of great venture capitalists who would invest. But, they aren't high return opportunities (usually because the market is limited in size), so we fall into this giant capital market gap everybody talks about.

Because our projects and most others are medium to high risk, it's also hard to get traditional foundations and donors to support these enterprises. So, you have to raise unrestricted money or find the narrow slice of donors and foundations who are comfortable with the risk, given the social return.

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