Raising Money
Venture Capital Funds for Social Enterprises
Written by Gautam Patil for Gaebler Ventures
Many new venture capital funds have been set up in the past few years to provide expansion capital to bold and innovative business models which have the potential to alleviate poverty and deliver goods and services at low costs.
Until the late 90's it was unusual to find venture capital for social enterprises.
These enterprises usually provided lower rates of return than those expected from high-tech startups and venture capitalists did not fully understand the business models thereby alienating social entrepreneurs from mainstream capital sources.
However, the experience of the past decade has shown that these enterprises have equally good or bad survival rates and do not provide significantly lower returns either. In addition, investor interest in such enterprises has also helped attract business talent into social venture capital. Though the capital deployed by these funds is significantly lower, these funds have already helped create a lasting impact and have registered impressive growth rates.
Social entrepreneurs no longer need to rely on personal sources like family and friends or credit cards to avail capital. Social venture funds not only provide capital but also bring in business expertise. The scale at which these enterprises are being supported is also encouraging.
For instance, Acumen Fund has invested $2.1 million in an energy enterprise in India under its energy portfolio. Acumen Fund maintains health, energy, water and housing portfolios in India, Pakistan and East and South Africa.
Benetech supports new technology solutions in the area of human rights, literacy and environment.
Philanthropic Ventures Foundation is closely involved with local community initiatives related to education and youth assistance. It has disbursed more than $55 million in grants in the San Francisco Bay Area and worldwide.
Echoing Green Foundation focuses on individuals or partnerships capable of providing innovative solutions to pressing social problems. It provides seed funding to these individuals or partnerships in the form of fellowships. Fellows chosen after a rigorous screening process receive up to $90,000 as seed funding.
Ashoka Foundation is one of the earliest players in this space. As of 2006, its budget stood at $30 million and its approach basically involves support of social entrepreneurs and development of a network for such entrepreneurs.
Similar work is also done by the Schwab Foundation in association with companies and social investors. Social entrepreneurs with bold and unconventional business ideas may find prospective investors there.
Small scale entrepreneurs in third world countries are also being catered to by local microfinance organizations and global networks like Kiva which have mechanisms to identify local entrepreneurs, host their business plan, profile and funding requirements online, channelize funds from social investors and enable recovery.
Calvert Impact Capital also provides socially responsible investment options and screens potential borrowers round the year to make such investments.
There are already interesting ideas afloat in the academia about the establishment of a social exchange which will cater exclusively to such enterprises. While this may take time to materialize, social enterprises could benefit from increasing interest from social investors and exclusive venture capital funds.
Gautam Patil is a recent MBA graduate from the Indian Institute of Management, Bangalore. In addition to serving as a contributing writer for Gaebler.com, he will join the consulting firm Oliver Wyman at their London office.
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