Bill Drayton, founder and CEO of Ashoka, the leading organization investing in social entrepreneurs, has recognized a conundrum. On the one hand the citizen sector has been growing at a rate of two and a half times greater than the rest of society; on the other, the financial model has not kept apace.
The trouble is what I call "the whim of altruism." The kindness of strangers (and, okay, a few of your closest friends) only gets you so far, then the resources run out or the donors move on. Your organization grows too big for the initial year start-up investments many foundations or governments like. Foundations change their focus -- often a seemingly whimsical exercise in itself -- as their newly developed strategies become narrower and narrower. Or your organization's success breeds complacency, there is little risk-taking or new ideas. I once had a foundation officer tell me that my large, international organization was "Very good at raising money from individuals and corporations, so you don't need our money." It seems like a heck of a way to exist, doesn't it?
"Business," argues Drayton, "could not have succeeded as it has without the highly responsive, creative, diverse financial institutions that serve it." Whether so-called "angel investors," a concept that has not yet been around for two decades, venture capitalists, investment bankers, commercial lenders, advisers, brokers, what have you, institutions have evolved to meet the rapidly changing needs of the business sector.
Why isn't this the case with social ventures? Drayton posits that "the resulting gap, which is growing wider as accelerating change on the operating side outpaces innovations in social investment, is probably the single biggest threat to the successful maturation of the citizen sector."
(The citizen sector or civil society, is another way of saying "non-profit," which has always struck me as odd: why define ourselves by what we are not? And further, why not make a profit? A mentor of mine coined a new term, the "public benefit corporation," which I prefer because of its business acumen implications, but it has not really caught on.)
To address this dilemma, Drayton suggests the formation of a new financial services industry, one that serves the growing needs of the sector and its entrepreneurs just as similar models serve other businesses.
His concept: provide a range of investors to support new ideas, provide "medium- to long-term investments to test and refine the idea, learn how to market it, and build an institution and movement," as well as ensure its long-term viability. This, according to Drayton, will keep social entrepreneurs from "spending most of their time chasing many small, short-term, partial grants" that may in fact force them to pursue "often conflicting goals and visions."
The Social Venture Partners model, now happening in 22 cities across the U.S., is a start, as it links leading social finance entrepreneurs. But what may also be needed is to bring leading for-profit financial institutions into the mix.
I'm curious what any of you think of this concept of "social investing" and what the potential market may be in support of social entrepreneurs.