When entrepreneurs start a social venture, they are immediately in conflict: A social venture develops social connectedness, intellectual resources and skills, creative expression, personal health, a safer and cleaner environment.
But most equity investors measure their own success by financial returns, thus the social enterprise must also meet financial expectations. When setting course, social entrepreneurs may be immediately caught between a rock and a hard place.
Microfinance has emerged as a solution by providing debt, which changes the expectation of risk, thus of returns. Microfinance manages risk through its small scale and other methods. Yet social enterprises, particularly in developed countries, often require an investment scale that microfinance can't address.
But a hybrid is possible.
An example of such hybridizing is what Marc Dangeard is building with the Entrepreneur Commons, which is explained on his blog as follows:
Interestingly enough this hybrid model may also help angels and other investors improve their return on capital: Marc relays that a study of over 1,300 VC and PE firms worldwide shows that the returns they bring on average is 3% below the S&P 500 (after fees; 3% above, before fees). So market rates are actually competitive returns, and investors receive steady revenue stream of debt repayments for the lifetime of Entrepreneur Commons, instead of the feast-or-famine of funding rounds and exits.
So this model is an insightful way to solve the problems of
• providing seed capital for social ventures that facilitates non-financial asset building
• providing financially competitive market returns for investors
• providing liquidity for investors.
But most equity investors measure their own success by financial returns, thus the social enterprise must also meet financial expectations. When setting course, social entrepreneurs may be immediately caught between a rock and a hard place.
Microfinance has emerged as a solution by providing debt, which changes the expectation of risk, thus of returns. Microfinance manages risk through its small scale and other methods. Yet social enterprises, particularly in developed countries, often require an investment scale that microfinance can't address.
But a hybrid is possible.
An example of such hybridizing is what Marc Dangeard is building with the Entrepreneur Commons, which is explained on his blog as follows:
"A not-for-profit social network of entrepreneurs providing financing for early stage companies through debt guaranteed by a mutual guarantee fund. The financial risk is mitigated by the mutual guarantee fund. The risk on the 'management' side is mitigated by the social network: loans are by invitation only, so you will have to be approved by your peers to get in. ..."
Interestingly enough this hybrid model may also help angels and other investors improve their return on capital: Marc relays that a study of over 1,300 VC and PE firms worldwide shows that the returns they bring on average is 3% below the S&P 500 (after fees; 3% above, before fees). So market rates are actually competitive returns, and investors receive steady revenue stream of debt repayments for the lifetime of Entrepreneur Commons, instead of the feast-or-famine of funding rounds and exits.
So this model is an insightful way to solve the problems of
• providing seed capital for social ventures that facilitates non-financial asset building
• providing financially competitive market returns for investors
• providing liquidity for investors.
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