Five Years Too Late

March 23, 2009

The Other Social

Filed under: Uncategorized — fiveyearstoolate @ 6:00 pm

We’re happy to have a post from our colleague, Girish Gupta, on social venture.

girish

Hi everyone! Its taken far too long for my first post to this blog, but let me take this chance to digress slightly from the conversation we’ve had running and spend a few moments on a topic that is incredibly important in a different way…

Entrepreneurship at its core is a path that’s paved with hope and opportunity. I use such broad terms because today, more than ever in recent history, new ideas and plans are needed that will create sustainable enterprises that not only seek profits but also further causes for social good.

So what makes a venture social? To me, it means using the principles startups have used for years to combine technology and market opportunity in a way that addresses global challenges such as human rights, poverty, education, and healthcare. Are you providing services to markets previously under-served by established players? Are you finding new ways to build a profit seeking enterprises in places others wouldn’t? Are your products fill a gap made apparent by poor infrastructure? Many entrepreneurs are. Here are some of my favorites:

  • The Khaya Cookie Company – Founded by a former banker who left the Wall Street life to pursue a passion for teaching women in South Africa valuable life skills. Today they have built a great company that not only creates jobs but also some amazing cookies.
  • Frogtek – A fresh approach to business tools that’s leveraging Android to give micro-entrepreneurs in South America the access to accounting and inventory management software without costly IT systems.
  • HumanRightsLive – How would you use the internet to change the way people think about Human Rights? How about giving them a reason to care by simply connecting people from all over the globe.
  • The Factionist – An apparel company who’s using fashion to inspire action.

Despite the common good many would recognize in the ideas above, every social entrepreneur I’ve spoken to is facing one of two problems: 1) finding someone with the vision and the resources to commit serious funding and 2) finding smart, motivated people to help them grow. To address the issue of funding, many believe, including myself, that a venture funding-like process should be more commonly used in the non-profit world. I also think that today represents a unique opportunity for many of the greatest minds in our generation to start focussing on these problems in a seriously entrepreneurial way. Why aren’t people jumping at any opportunity to be a part of what these companies are building?

Lets take a look at these challenges. In my opinion, I have seen far too many bright minds chasing an opportunity to be “the next (insert_startup_with_high_valuation_here)” all the while missing the chance to meet markets starving for attention with innovative solutions. Our previous post on Hard vs Easy business models is entirely applicable to this conversation. Fundamentally, these are “easy way” opportunities. The challenge is finding the right people to support your vision, or at least communicating it in a way that resonates with institutional investors. Our job as VCs is to be good stewards of the capital our limited partners entrust to us. So with that in mind it’s hard to swallow a corporate mission statement of “We will eradicate poverty by 2015”. It’s not what we do.

What we do is analyze markets and opportunities and look for innovative solutions that address unmet needs in a novel way. If you’re an entrepreneur in this age and you’ve never once considered B.O.P. opportunity, I’m disappointed. No one is suggesting reaching those markets will be easy, but that has never been a reason for entrepreneurs to avoid them in the past. Seasoned entrepreneurs have a knack for diving head first into market segments where people previously saw little opportunity to create new value and through a confluence of execution and timing, great companies get built.

What would happen if you brought together entrepreneurs and and non-profits — you’d get interesting solutions with big markets like the ones above. What would happen if you mashed a VC firm into a grant-writing foundation — you’d get operationally demanding, performance focussed results like those sought by the Gates foundation. Sources of funding like this are are starting to grow, but performance-based funding is still not common practice in the non-profit world.

RRE is certainly no stranger to these concepts. Like us, many firms have taken on the this mantle through investments in green tech, a great example of a market where social good and profit motives are not mutually exclusive, but rather aligned. RRE also takes it a step further in inspiring social innovation in a new generation of entrepreneurs through its partnership with Youth Venture, helping young social venturers build with skills and resources available to our portfolio companies.

So I think its time for all of us to play a more active role in social ventures, both entrepreneurs and funders to use what we know and employ in our day-to-day operations to help those who are creating new products and services that address global problems. I don’t mean to say that we should all forget the web and flock to impoverished nations, but our resources and skills will surely go a long way in getting companies and solutions like those I mentioned further in the market.

6 Comments »

  1. I think universities are a good example of an environment that brings together entrepreneurs and non-profits for social causes. Many of my fellow students at Princeton are pursuing social causes through entrepreneurial means.

    For example, HashCache is a novel and efficient caching system for web content built specifically with developing countries without high-speed internet connections in mind. HashCache enables computers like the OLPC to take advantage of relatively cheap hard drive storage to reduce server load and requests. The technology was developed in the lab of Computer Science Professor Vivek Pai. You can learn more about HashCache here: http://www.technologyreview.com/read_article.aspx?ch=specialsections&sc=tr10&id=22119

    This hits your point that these social entrepreneurs are utilizing novel technologies to address unmet needs rather than going for the “hard” solution of pursuing the established commercial caching market. Perhaps universities are a good place to start with playing a more active role in social ventures.

    Comment by William Peng — March 23, 2009 @ 8:43 pm

  2. Hi Girish,

    Welcome to the blog… and this is a great post and a good challenge to budding entrepreneurs and the venture community.

    I also wanted to point to my firm, Echoing Green, as an example of a “venture philanthropy” model. We’re a public charity based here in New York, and were started by a private equity firm. Our open application for our startup grants (the Echoing green Fellowship) is analogous to a highly selective business plan competition (we usually fund less than 2% of applicants). Our goal is provide seed capital that can take great ideas to proof of concept (and on to more sustainable funding sources like large foundations, government grants, or earned income).

    And, by the way, our selection process requires the help of more than 200 volunteer readers and judges (many who work in venture capital or private equity)… so let me know if you’d any interest in connecting 😉

    Finally, the Acumen Fund (also New York based), is doing some amazing work at funding base of the pyramid ventures.

    Cheers,
    Anthony

    Comment by Anthony Showalter — March 24, 2009 @ 9:39 am

  3. Will and Anthony,

    Great comments. University-level involvement is certainly key in this process. in NYC both NYU and Columbia have budding social entrepreneurship programs that are producing fresh ideas from a new generation of startups. Very exciting indeed.

    I’ve certainly heard about Echoing Green as well and have spoken with the team there on a number of topics. I’d love to hear about whats going on lately.

    If you guys, or anyone out there for that matter, would like to connect directly to see what we can do to keep this going feel free to contact me directly:
    email – girish@rre.com
    twitter – @girishg

    Comment by Girish — March 24, 2009 @ 10:20 am

  4. Thanks for the writeup Girish!

    Unfortunately (and maybe its just NYU), a lot of university students have had a certain lifestyle taught to them that discourages social entrepreneurship in two ways:

    1) Choice is discouraged. Go to college, graduate with honors, go to work at an I-Bank. It’s safe, it’s worked in the past, it’ll work for you. Maybe after you’ve made some money you’ll go screw around in an entrepreneurial venture, but not until you’re 30 or 40 (and often that’s the point where they’ve lost the youthful drive/risk-taking, so they end up just staying in their job)

    2) To be a “social” entrepreneur means “to make less money.” Unfortunately, this just is NOT true! Profit and good, like you said, are not mutually exclusive but in fact ALIGNED! Look at Ben and Jerrys, Ethos Water – you can make boatloads of money doing something you LOVE as something you HATE (paraphrasing gary v).

    We need entrepreneurship and risk-taking embedded in curricula, not just as “extra” programs. It’s a mindset and lifestyle currently too discouraged, in my opinion.

    Comment by The Factionist — March 24, 2009 @ 5:28 pm

  5. Great post, Girish! Having worked in Africa for the past 6 months, I’ve seen first hand this “social entrepreneurship” you mention, and have wondered why we don’t see as much of that in North America.

    The Factionist mentioned a few of the reasons – we’ve become quite comfortable with the safer path-of-least-resistence route in North America, where entrepreneurs are perhaps thinking less about the opportunity of these social ventures, and more about their opportunity cost. Another reason could also be that these ventures are launched to tackle some of these integral global challenges you mentioned, which in their very nature usually require taking a ‘social lens’ when addressing them.

    Companies like FrontlineSMS and Ushahidi spring to mind as social ventures leveraging basic technologies to solve major challenges in their markets, and who have also been able to create a viable business model out of it.

    Unfortunately though, as you mentioned Girish, many of these ventures still fall outside the realm of typical VC-funding given the ultimate responsibility to the LPs. I have been hearing a lot more about ‘social funding’ these days and conferences like SoCAP held last year should hopefully provide more meaningful momentum. I believe RRE has taken some commendable leadership on this front, and it’ll be interesting to see how investments like Flipswap are able to prove that social entrepreneurship can still be profitable.

    Comment by Prahar Shah — March 25, 2009 @ 5:22 pm

  6. Great article Girish. For aspiring/budding social entrepreneurs like myself, its always valuable to understand where industry stakeholders are coming from, i.e. “eradicating poverty by 2015, is not what we do.” To propel this trend of social entrepreneurship forward, building strategic partnerships are key. As it is these partnerships which will incubate innovative solutions while protecting the interests of both parties – growing capital, while eradicating poverty. That is beauty of social entrepreneurship, its a fine balance between idealism and pragmatism. Exciting to hear that RRE is moving in that direction.

    Great point Prahar! I read an interesting interview with one of the organizers of SoCAP, who said that registration increased by over 40% after that September weekend, when the markets came to a crash and burn. Our old business models are no longer the yellow brick road, they’ve retired, and its time to seek out new ones and ways, which may just lie in the vision of social entrepreneurship.

    Comment by Hima Batavia — March 25, 2009 @ 10:01 pm


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