Capitalization and Impact Assessment for Social Innovation

Social enterprises can either be created by non-profit organizations or for profit organizations, who are both trying to create social change. When these organizations begin these ventures they know that they are not likely to make a large profit on their venture or will severely cut the price of their product to allow for people of a lower income to purchase them. This means that these groups must look for help from other profitable or charitable organizations to raise funds for their product. Due to the 2008 economic crisis, many financial organizations are now weary to donate money to social ventures that do not produce a product or make enough of a profit for it to be equitable for financers to continue funding these projects.

It is difficult for investors to know the risk of a venture but this risk doubles when it comes to a social venture. At Harvard Business School, they are developing a method to determine whether or not a social venture is worth the risk. With this system in place and the different ways investors can protect themselves from failed ventures and losing a large amount of money, social ventures can begin to flourish again.

Investors have come up with a few different mechanisms to protect themselves that either rely on other private investors or the government to put up some funds. In one type of financing, the government will sell a bond to an investor who will only receive a payout if the venture is successful. In this type of system, the investor is at risk and therefore must ensure that the project is done well and correctly.

Over the summer I worked at a non-profit that relied heavily on private investors to fund our work. The primary goal of the non-profit was to lobby for environmental issues and laws and ensure that the Massachusetts state representative followed through with the peoples vote. I found that most of the donations came from private investors who had donated before and had received an invitation for an event. A lot of our work revolved around media output and spreading the word about the issue. This is interesting to compare towards a social venture that is required to make some money for the service they are providing while the non-profit I worked for the output would not necessarily be seen for several months or even several years.

Social ventures I feel have a difficult time attracting investors even when they have good intentions for people. An important part to creating a social venture, I feel, is being able to find several investors to share the cost instead of relying on one financer.