Flocks of Angel… Investors

The social innovation space epitomizes high-risk high-reward, with the additional complication of the reward not being strictly fiscal. Is an influential business that doesn’t have significant returns on the money still worth the risk? Chertok et al. aptly describe the heart of the problem in their 2008 article, The Funding Gap: “one of the reasons social enterprises have trouble raising money is that they do not fit neatly into either the traditional nonprofit or for-profit model.” Social innovation is an exciting and dynamic space is the same reason that it is such a difficult space to develop and flourish in. People are working to solve some of the world’s most challenging and deeply-rooted problems which requires a creativity in thought unparalleled by standard consumer products and services.

Enter the hybrid model.

Rather than allowing the awkward middle stance between commercial and philanthropic to be a stumbling block for enterprise, innovators can draw from both sides and use it to their advantage -- if they play their cards right. Although this requires something of a schizophrenic organization where the social and financial outcomes must remain carefully separate, this is a promising strategy to overcome the awkward-teenage-years equivalent for social enterprise when the promising idea is coming to fruition but doesn’t have proven success to interest governments or late-stage investors.  This can even be done a couple of ways – chronologically, where the philanthropy boosts the enterprise to a level where it can gain interest for more investors, or it can be done simultaneously where distinct branches of the same organization interact symbiotically. Although this sounds incredibly difficult to execute successfully, I love the idea of simultaneously wooing investors and philanthropists to leverage the strengths of both to find growth capital.

Since unconventional model and funding methods are ironically becoming the norm, can a system like crowd funding be a solution to the dangerous stagnant period between early optimism and funded success? Sites like Impact Trader and Fundly may be the way that baby enterprises push through the funding knothole. In a world of tradeoffs and uncertainty, perhaps a little optimism can go a long way. I would be curious to see if money can reliably come from not just anywhere, but everywhere. Although crowd funding is in its infancy from both a financial and policy standpoint, I would like to put in my vote of confidence that it is a viable source of funding that will require some serious creativity to balance the complexity of a hybrid, bipolar business model and bringing value to the masses of investors.

As I read and reflect on the fascinating complexities surrounding every facet, “social innovation” is a term that is more meaningful than I ever knew. The innovation is not just necessary to develop the product brought to market, but also the plans to navigate dynamic markets, policies, and funding strategies for enterprises that don’t fit into any traditional molds. With the burgeoning of global markets, crowdfunding, social media, and mobile and embedded technologies, welcome to the wild west of social enterprise.