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To coax more finance firms to increase investments that deliver social impact, social entrepreneurs should focus on generating a financial return
Gordon Eichhorst is the head of Resurgo Ventures, a British accelerator programme for social impact start-ups
A common trait social entrepreneurs share is an unselfish commitment to improving society. Running any startup is a high risk activity and by simultaneously focusing on social impact, social entrepreneurs dramatically increase the complexity of doing so.
There are many excellent social enterprises - businesses that aim to do good - that are not profitable or are structured to reinvest all of their profits.
But in order to grow the sector and coax more finance firms to increase funding to investments that deliver social impact, I believe social entrepreneurs should focus on generating a financial return.
The finance industry exists to match those with capital to those needing capital. According to the Credit Suisse Global Wealth Report there is $317 trillion in aggregate global wealth. This is great news if you are a social enterprise with profits to repay financial investors for their capital - there is ample supply of funds.
Unfortunately, the funding opportunities for businesses that do not offer any financial return are significantly diminished. For the financial industry, charity means giving and giving is separate from, and does not qualify as, an investment.
I appreciate that the above comments will anger many people who will decry that “profit driven capitalism is destroying society” or “wealth redistribution and tax policy must be used to eradicate social problems”.
These are valid points of view that deserve discussion and debate, but in the immediate future are unlikely to answer the question: how can we increase the supply of social impact businesses into which we can invest capital?
Is the answer to simply integrate social impact into new for-profit startups? Unfortunately not.
High quality, self-sacrificing entrepreneurs are exceedingly rare and this approach would also require a lot of patience. It usually takes three to five years for a venture to demonstrate viability in my experience and many fail before then.
A final challenge is that startups generally don’t need that much money. Early stage rounds usually raising less than one million pounds ($1.3 million) in my experience, so large-scale deployment of hundreds of millions or billions into social impact start-ups is not a short term solution.
So how do we create the scale of supply needed to meet the exploding interest for social impact investments?
We demand it. We demand that public, for-profit companies truly integrate social impact into their business model.
We demand that asset managers require companies that they invest in to meet minimum standards of social return or to respond by selling the shares.
If social impact startups, with all the headwinds they face, can take on this social challenge, we should be demanding even more of larger organisations.
Senior executives who receive multi-million pound salaries must surely be able to lead their businesses for profit and impact too.
If the public gets impatient with the pace of change, I’m sure that adding the equivalent of Greta Thunberg to some large fund or pension boards would inspire further debate.
The views of the author are not representative of Resurgo Trust, the charity that owns Resurgo Ventures
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