Top Trends 2009 #3: Blended Value Investing

by Nathaniel Whittemore

Published December 30, 2008 @ 09:00AM PT

Books that would otherwise crowd a landfill get prepared for re-sale at the Better World Books warehouse. From the New York Times.

Number three on the list of the trends that will shape social entrepreneurship in 2009 is the rise of blended value investors who look for financial and social/environmental returns.

In October, a few weeks after Lehman Brothers had crashed and as the financial crisis was starting to hit home, more than 600 people attended the first annual Social Capital Markets conference.

Social Capital Markets was designed to convene people who were breaking down the barriers between the nonprofit and for-profit world to, as conference founder Kevin Jones put it "increase the flow of capital to good." More specifically, it was designed to bring together people from the different sectors - fair trade, clean technology, housing - in which social enterprise has germinated independently in order to forge cross sector partnerships.

I believe the event was a touchstone in the development of the social entrepreneurship field. It demonstrated a growing recognition that social entrepreneurship is not just about charismatic leaders and grabbing some business strategies for your nonprofit. Instead, it revealed the emerging ecosystem in which different types of actors from a variety of industries are creating a coherent market for doing good and creating change.

There are a number of factors that will continue to fuel the growth of the social capital market space in 2009, including:

Coherence within sectors
To some extent, the silos in which social enterprise has grown have helped create coherence in terms of understanding quality and value within specific industries such as microfinance and fair trade.

Emerging common language
At the same time, thinkers like Jed Emerson have helped develop an emerging common language that transcends individual silos. This posts title refers to "blended value investors," or investors who are looking for both financial and social/environmental returns. "Double-" and "Triple Bottom Line" businesses refer to businesses with financial as well as social and/or environmental missions.

Desire to break silos
Armed with internal coherence and an emerging common language, more actors are ready to break out of the silos of their individual industries. This was the spirit on display at SoCap, as people explored coordination with related industries, such as fair trade groups attempting to figure out which microfinance institutions where making loans in the areas they source from.

Real money on the table
Importantly, new investments mean more case studies and models to draw from for understanding and inspiration. For example, the first two investments made by Good Capital for their Social Enterprise Expansion Fund, Better World Books, each have different things they can teach other entrepreneurs and investors. In order to better connect their financial and social missions, BWB actually gave equity to their major nonprofit partners. In their second investment, in Adina, a fair trade drink company, Good Capital was part of a larger deal with a more traditional venture firm with experience in the drink industry. These types of deals serve as models for the emerging field.

Financial downturn
The economic crisis has provided a new lens through which to look at a market philosophy that only focuses on financial value and profit maximization. Many in the social enterprise space see what's happening as an opportunity to fundamentally change the conversation and bring social value back into the picture in a way far more significant than corporate social responsibility. And businesses that are tackling major social problems are still, in many industries, a good long-term bet. For more, check out this post about how Clean Technology might be the one recession proof industry.

I think the new breed of blended value investor is of particular importance to the health of the social enterprise and entrepreneurship space, and in the next year, I expect a few things:

• More startups than ever will explore for-profit and market-based models for doing good
• There will be more regular information sharing between funders, resulting in more projects being funded
• News media will write stories asking whether responsible investing and social enterprise are to be big pieces of the rebuilding process
• Early successes will help social venture firms become more confident and aggressive on early stage startup bets
• Clean technology firms will continue to lead the pack, with traditional venture firms pumping money into the sector
• "Blended Value" investment firms will put more money into social enterprises in 2009 than they did in 2008