Raising capital can be the hardest, most drawn-out and frustrating experience in creating any venture, perhaps especially so with a social venture.

Established markets and dynamics exist around general technology ventures, where the process becomes one of having the right vision and execution potential. Social ventures, on the other hand, face a continuing battle in convincing current capital markets of the potential returns downstream—and often are simply unable to compare against “market-rate” returns. What does this mean to the social entrepreneur? It means your small, first chunks of capital come from innovative strategies and those passionately connected to your vision: angels or personal connections, alongside organizations such as Echoing Green that recognize the importance of that first, no-strings-attached capital to help create the organization. Much further downstream once you’ve proven the business model and built recognition, brand and market presence—large-scale capital is more accessible, either from vanilla financial institutions or synergistic strategic partners.

So, where does this leave us? The issue we see is the middle-stage—the period between “angel” rounds and the large-scale rounds—often referred to as expansion stage. Social ventures are a new market sector, where businesses have subtly different dynamics, profit maximization is not the singular focus, and social return is embedded into the business model. Traditional expansion capital sources operate in a mature venture market, where dynamics, risks, returns, etc. are generally understood or at least can be gauged against historical and current comparables. In social ventures, everything’s still growing and maturing and traditional sources simply aren’t structured or incentivized to extend capital to that expansion need.

This excess in demand for expansion capital can always be justified. Traditional ventures experience a similar difficulty, the “venture financing gap,” which acts as a quality filter: only organizations that really are top notch secure the capital to survive. However, we believe the ratio of expansion capital available to worthwhile opportunities is far less in the social venture sector than in traditional venture. Social ventures that have considerable potential to create long-lasting social change simply can’t expand, which is crucial to reach sustainability.

What happens at the moment? Mostly the need is fulfilled by those highly-respected and revered individuals, the super social angels, who demonstrate a unique blend of philanthropic vision, investment prowess and capital wealth and recognize the need for new approaches to sustainable social impact. They are leading the development of the social venture sector through expansion financing. However, this in itself is not enough—development and evolution of the traditional capital markets towards funding social ventures is absolutely crucial to achieve the rate of progress necessary. Echoing Green is working to fill this gap by collaborating with leading organizations to create and evolve key initiatives to help pave the way for increased capital availability for social ventures.

We look forward to sharing details of this work in subsequent articles!

Tweet

Photo by de faria