The State of the For-Profit Social Entrepreneurship Field

Yesterday, new Change.org blogger Nell Edgington urged readers to remember the vital role that nonprofits play in social change, even as they follow the hype and excitement around for-profit, for-good ventures. While I agree with everything she said about the importance of nonprofits, I think her concern about the ascendancy of for profit social entrepreneurship mixes buzz with reality. In my estimation, the field of for profit social ventures is still extremely immature, and something we need to incubate with a more focused attention. So what really is the state of the field of for-profit social entrepreneurship?

The Good

Less Debate About Definitions: I've never had much of a stomach for the debate around whether social entrepreneurship had to be for-profit or nonprofit, and who and what qualified. I understand why funders trying to build the field have to pick and draw those lines somewhere, but in general I think it's not particularly healthy for the field to spend a lot of time defining its own parameters. For that reason, I'm happy to see a growing "spectrum" approach to social enterprise which sees a lot of different blends of financial and social impact.

More Recognition of Bottom of the Pyramid Entrepreneurship As Inherently Social: One of the areas where the difference between "entrepreneurship" and "social entrepreneurship" gets the murkiest is in the developing world, where almost any economic activity and entrepreneurship creates outsized new value for individuals and communities. I think that recognizing the social value of economic activity at the root of entrepreneurship helps us re-calibrate not only what we think social entrepreneurship looks like, but what we expect all entrepreneurship to mean.

More Companies Leaping Beyond Traditional Corporate Responsibility: The conversation about social entrepreneurship combined with the example of small scale (by business standards) niche clothing, food and drink companies who make a social mission key to their brand and activity is putting new pressure on even the biggest companies to totally reevaluate where social good and environmental stewardship fit in their activities. For some companies (Pepsi Refresh may be a good example), this means a move to a new type of more engaged corporate philanthropy. But what I think is most promising is the new openness it creates for major consumer companies to engage the social parts of their brand as more than just a fringe activity.

New Funding Availability: Although it's small, there is slightly more funding available for for-profit social ventures than there was a few years ago. There are more experimental social venture capital firms like Good Capital for growing companies, and the Unreasonable Institute and First Light Ventures are innovating around seed funding. Just as exciting, existing social entrepreneurship funders like Echoing Green are increasingly open to for-profit social ventures.

The Bad

Overall Lack of Funding, Particularly for Seed-Stage Ventures: Despite the good news about funding above, there remains a woeful lack of seed-stage capital for for-profit social ventures. I believe that at this early stage of the market, this lack of funding is dramatically reducing the number of ventures that take the plunge, and pushing many into the nonprofit space, regardless of whether that is the right model for their impact. We have to solve this problem. I think the range we need is money in the $100,000-$1m range.

Overall Immaturity of Market Expectations: One of the most amazing parts of the Life Investment conversation that's been happening for the last few months is how it has raised the challenge social investors are having reconceptualizing their role as investors. The absolutely essential questions that the social venture funding market will be built around are: What are the expectations about the money going in? What does it mean to have social impact or environmental impact? What are the norms around financial return? The field is just young and these things are still being rationalized, but the lack of clarity around what a "good return" means in this new field is a barrier for new folks coming into the market.

Too Few Notable For-profit Social Ventures: The lack of seed funding for for-profit social ventures is a chicken-egg problem. There are still really few great examples of for-profit social ventures. There are specific, more or less self contained sectors including Microfinance, Organic/Fair Trade, and Cleantech where there are better examples of "success." But broadly speaking, there are still very few aspirational models for young social venture founders taking the for-profit route.

The Still-To-Be-Determined

SocEnt Washing: Part of determining the expectations for social entrepreneurship returns will be setting some boundaries around what is considered real, significant impact and what is considered "social entrepreneurship washing." This is hardly an exact science, but as more existing companies join the field, it will be important to help orient them towards the signifcant and away from the superficial.

Photo Credit: Genista