Venture Beat asks, “Will social capital be the next big industry to emerge?”
Chris Morrison of Venture Beat wrote an interesing piece exporling the emerging phenomena of blended value business in the context of SoCap08 and Good Capital.
“While most philanthropic ventures still operate solely as non-profits, there’s a growing niche for the new breed. That’s because, as Elizabeth Funk of Unitus put it while speaking at the conference, “greed is one of the fundamental drivers of humanity.” For-profit businesses have a drive that was long ago lost in the sprawling bureaucracies of traditional aid groups.”
Greed as a potential driver of good - agree or disagree?
Tags: Funk, Good Capital, Greed, socap08, venture beat
October 31st, 2008 at 12:27 pm
No question that this is the way to go.
However there is one big issue that has not been resolved yet is what is how to go about it. What are we talking about exactly?
While everybody understand at a high level the concept of blended capital, or what some other people call double or triple bottom line, it is very hard from the investor prospective to figure out what you can expect from it. You know you will get less return, but how much and how do you figure out good deals and bad deals? There is an issue of estimation and measurement of success that still needs to be resolved.
One way to deal with this is what we are doing with Entrepreneur Commons (www.entrepreneurcommons.org), using debt instead of equity. Because equity creates tension between the investor and the entrepreneur, for example by forcing the issue of exit: the investor needs his money back at some point, but who do you sell too, and should you really? (the Ben& Jerry things)
With debt, everything becomes a lot easier: you know exactly when you will get your money back and how much you will get, and you can benchmark this against the market to decide whether you are comfortable with a given rate for a given “mission”.
In addition to clarifying the issue, debt is a good thing because we have historical data on what can be done. Microfinance is for a big part about helping entrepreneurs in developing countries. This is debt to finance small businesses.
And “Social Capital” in the US can be done the same way, with the difference that you need more than a few dollars to help an entrepreneur here. And the good news here is that you do not need huge amounts of money in the US either: according to Inc Magazine, and looking at their Top 5000 fastest growing companies, the average capital to get started for companies in the list is $25K, and if you look at their top 500 it is $75K.
The default rates from Grammen Bank (microfinance) are 1 to 5%, so very manageable, and there is no reason why we could not do as good in developped countries.
So there is an opportunity to make a big impact, and I am convinced that Social Capital is the next big thing because we have no other choice if we want to world to become a better place…