Social Entrepreneurship’s Funding Problem
Social entrepreneurship is exciting. It’s the application of business discipline to a real world problem in order to create value that others can use to benefit yet others. (‘Development’ is the legacy version of this approach.) Unfortunately, the funding pipeline is still in its early stages.
Social ventures suffer from limited access to the same capital pool that nonprofits do. This results in a dependence on altruism to get and stay going.
Given the limited access to capital, there’s a bias in the ‘industry’ towards niche initiatives – a water pump in a village, another soup kitchen, etc. While these can provide steady returns, they can’t expand the capital pool in a meaningful way. It’s fundamentally limited.
Niche will only get you so far. You need to be able to make the big, global, industry shattering plays – which is very hard given the funding ladder is broken.
For example, in tech, raising an angel round of $250-$500k can be done with relative ease (assuming you have a quality idea, prototype, network, etc. You can build anything with that kind of money. (Google started with $100k in the bank.) Then, once you’ve got the core workflow in place, worry about scalability with someone else’s $25M investment.
In social entrepreneurship, however, it’s not hard to find grants for between $0-$50k. This is stuff like pencils for teachers. And you can find foundations wanting to zoom successful ventures at the $1M+ range. But, I’d argue there’s a giant hole between $50k and $1M.
That sucks, because opportunity for millions of people slips through that void, every year.
-Shlok
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