In previous posts, I discussed the virtues of conducting your business in a socially responsible way, and examples of people all over the world doing so. So, naturally, with all the financial upsides of doing good, it must be easy to reorganize and/or start your own business for social benefit, right? No, of course it’s not. In fact, even though there are tons of people out there trying to contribute to the world, it’s extremely difficult to start a sustainable business that also has a social mission. Why? It’s not because of a lack of ideas or motivation. No, the single biggest obstacle preventing social businesses from getting off the ground is financing.
Social entrepreneurs may have great ideas and great missions, but they often lack the capital to start their business, or to expand their business on a grand scale. A big reason for this is the gray area in which social entrepreneurs operate. All too often these businesses are seen as too business-oriented for donations from large philanthropic organizations, but too charitable for the average investor looking for a 9% return on his or her investment. So, the result is that many of these social business ideas struggle, fail, or never even get off the ground.
Raising capital for a business with a social mission can be incredibly hard. Historically, their has been no shortage of venture capitalists that a startup can tap for easy liquidity. But, if your main focus is not financial, it may be difficult convincing investors why it’s a good idea to invest in your cause. Non-profits and semi-profits have historically had great difficulty rasing money for their objectives. Not only are the fund raising processes very limited in the amount of money they can raise, but they are also incredibly inefficient. How much time and resources are lost when day-in and day-out the head of a non-profit has to criss-cross all over the country seeking donations? Or when a CEO of a for-profit social business has to reassure investors that their money is going to a good cause? Or a new startup needs financing?
Well, at the risk of sounding like an ardent capitalist, there is no place that is more efficient at raising large sums of money than private capital markets. When a company goes public, on a listed stock exchange, they can rapidly raise very large amounts of capital, allowing them to grow and expand.
One really intriguing development in the world of social entrepreneurship is the idea of a social stock exchange. As Sarah discussed in her blog, the first social stock exchange was launched in 2003 in Sao Paulo, Brazil. The ideas, according to its creator, Celso Grecco, is to make a “social profit”. Any business that wants to be included in the social stock exchange submits their ideas to a board of experts, and if approved, it gets included into a portfolio of other like-minded initiatives, and sold to investors. This allows investors to put their money in a stock exchange that supports good causes and also allows these investors to turn a profit. It also provides the much-needed financial capital for social entrepreneurs to launch their businesses. As Sarah noted, more than $5.5 million have been contributed to more than 71 philanthropic enterprises.
Grecco’s idea is spreading. South Africa opened a social stock exchange in 2006. England and Germany are planning to open their versions this year, and more are in the works in India, New Zealand, Portugal, and Thailand.
Connecting social entrepreneurs to investors will be a major step forward in fostering the growth of socially responsible business ventures.
*photo and article from Newsweek. It can be found here.
Pingback: Investing Responsibly « Nick’s Blog