The world of social capital is small, but it’s hot. With rising uncertainty about both the moral and economic underpinnings of the traditional financial sector, finance for socially conscious enterprises has become a destination for those looking to put their morals behind their money and those who see good social and environmental stewardship as hallmarks of success in tomorrow’s economy.
At the Presidio School of Management we were lucky to sit down and talk with three leaders in this space: Joe Glorfield of TBL Capital, Esther Park of RSF Social Finance and Deb Parsons of Investors’ Circle. Here are some trends they identified in social venture finance:
Premiums for aligned capital
Increasingly, entrepreneurs are willing to pass up numerically better financing deals for capital which respects and collaborates around their underlying values and mission.
Typically, venture funds can require that a company be sold after a certain amount of time in order to return cash to investors. This can be hard on companies whose social missions may not survive the merger/acquisition process. Social capital with a patient approach makes it easier for entrepreneurs to maintain control of mission-driven companies until buyers can be found who will value and scale companies’ social impacts.
There may be unrealized risks to soulless, computer-driven financial transactions based on ROI alone. That’s why RSF has been experimenting with having borrowers and investors meet face to face to discuss rates. By building a network of long term relationships and direct, personal conversations they hope to develop their own base rate and prime rate that are community-based, rather than based on LIBOR.
Smaller is better
Groups of accredited investors like Investors’ Circle are frequently contacted by small, non-accredited investors who want in. There are opportunities, but legal complications, for investment options which can serve this demographic. Newer, smaller financial instruments in the social space are making this easier while allowing large players to better diversify.
Exiting with a Mission
Right now, even the most patient groups investing in social ventures are looking to make an exit, or sell their investments after a number of years. There is a big need for “evergreen” investors, people who will buy mature, stable social ventures and hold them in perpetuity. These funds don’t exist yet, but they are beginning to come together. When they do, mission-aligned funding will be available from a company’s startup phase through it’s maturity.