newsnews

Friday, January 18, 2013

Social Impact Investing Will Be the New Venture Capital

Source: HBR Blog Network

 

 

By Sir Ronald Cohen and William A. Sahlman 

During the past century, governments and charitable organizations have mounted massive efforts to address social problems such as poverty, lack of education, and disease. Governments around the world are straining to fund their commitments to solve these problems and are limited by old ways of doing things. Social entrepreneurs are stultified by traditional forms of financing. Donations and grants don't allow them to innovate and grow. They have virtually no access to capital markets and little flexibility to experiment at various stages of growth. The biggest obstacle to scale for the social sector is this lack of effective funding models.

But the problem is not money, per se. Take a look at the social sector in the U.S. There are $700 billion of foundation assets, and 10 million people working for non-profits. These are huge numbers. Yet there are massive inefficiencies in capital allocation. Too often donors starve organizations and entrepreneurs by refusing to cover overhead. This makes it impossible for social organizations to scale. Interviews conducted in 2000 by the Social Investment Task Force in the United Kingdom, revealed what most nonprofit leaders already know: Almost all social sector organizations are small and perennially underfunded, with barely three months' worth of working capital at their disposal. And that hasn't changed in the last 12 years.

For the complete article, click here...
  • Managing Partners

    William Davidson Institute
  • Sponsoring Partner

    Citi Foundation
  • Content Partners

    Ashoka
  • Content Partners

    IADB
  • Content Partners

    MercyCorps

Have an Idea for a Story?Have an Idea for a Story?

Make A Suggestion

Social MediaSocial Media

Facebook Twitter

Story Snapshot

CLOSE