For-Profit Social Startup Capital: The Missing Middle?

categories: Funding, Government and Social Entrepreneurship

Published October 28, 2009 @ 03:38PM PT

In a post on the new Huffington Post Impact section, Catchafire founder Rachael Chong laments the lost opportunity of the US Social Innovation Fund to support for-profit social entrepreneurs. The post begs the question of where the "missing middle" of capital for for-profit social entrepreneurs will be found.

Rachael points out the irony that the Social Innovation Fund isn't currently conceived to support for-profit social ventures , considering that a number of the advisers to the fund and the parallel Office of Social Innovation are high profile proponents of the good that business actors can do.

From my understanding, the decision to focus the government's foray into supporting social ventures on the nonprofit sector has a lot to do with what legislator's were comfortable with. It was a compromise made in order to get the necessary support and buy-in to pass the legislation authorizing the Social Innovation Fund.

When I'm honest with myself, I understand why a legislator who feels obligated to his or her home constituency would be worried about committing to direct government investment in for-profit actors. There is a real question of accrual of benefit that remains quietly contentious; should the value of a social innovation be primarily focused on societal or individual gain, and what's the balance?

Still, Rachael's frustration resonates with me. Regardless of whether it's the government's job, there is a dirth of seed stage funding for primarily social startups. There are some in the new crop of social venture firms that deal with them, and groups like Investor's Circle do provide some formal channels, but it's still a very young space.

One of the impacts of this is that young people developing innovative socially-focused organizations tend to be nonprofit-by-default because that's where the seed money is - or at least appears to be. When you're taking a big risk to start something, it's hard to see more than a few steps down the line. I think if there were more for-profit capital for social startups, you'd see more people giving that a running shot.

(Photo: cmpalmer)

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Comments (1)

Interesting, that's precisely the same situation we have in the UK. Social, profit for purpose business effectively excluded from the picture, as I related last week.

http://www.ecademy.com/node.php?id=137411

Ironically the original model of a social innovation fund, channelled to US government not only included the full spectrum of social enterprise typology, but was itself concieved by a "for profit" social enterprise. A UK based organisation with an American founder deploying our profit to advocate for US assistance.

http://en.for-ua.com/analytics/2007/08/09/110003.html

There was no credit crisis at this time in 2006 and government saw no need, one assumes for such intervention. Instead a new USAID foundation was created.

http://www.eef.org.ua/en/148.htm

In the interests of transparency and accountability, the original plan calls for "oversight of an independent board of directors, particularly including representatives from grassroots level Ukraine citizens action groups, networks, and human rights leaders."

Posted by Jeff Mowatt on 10/31/2009 @ 01:55AM PT
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Nathaniel is the founding Director of the Center for Global Engagement at Northwestern University, which works annually with hundreds of students in dozens of countries around the world through curricular programs and student project incubation.