Social Entrepreneurship and Venture Capital

2516 Words Feb 23rd, 2007 11 Pages
Research Paper on Social Entrepreneurship and Venture Capital/Start-Up Funding

Nothing can be nobler than wanting to improve the conditions of the world both on an environmental and sociological level. Those individuals and businesses that choose to take on society 's problems are a special breed and they face an uphill battle not only in performing their work, but finding the financial resources to grow the business so that it can fulfill its mission. This paper will examine the industry of social entrepreneurship and how venture capital funding is playing a role in improving life for all.

First, to define what a social entrepreneur is. According to one widely accepted definition, social entrepreneurs "adopt a mission to create
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This is not the case with most social enterprises where the profits are reinvested back into the business and not distributed to owners or shareholders. Thus, non-surprisingly, the venture capital market is much smaller for this industry, but it does exist and it is robust.

In 2003, the Rise Initiative on Social Entrepreneurship (RISE) completed a comprehensive study on the venture capital market for social funding. The researchers sought answers to two main questions:

• "Are there sources of equity capital that will make it more likely for a company with both financial and social or environmental objectives to succeed?
• How much capital is available from these sources and what are their own objectives for success?" (Clark, Gaillard)

The RISE study provides the most in-depth picture on the venture capital (VC) funding for social causes. The study found that there is over $1.9 billion of total capital available for investing, and the wealth is spread over many specific interests such as healthcare, education, the environment, the arts and international development. This diversity led the researchers to classify the VC market into four funding types: VCs with a conscience; VCs with an industry change focus; VCs with a focus on leadership or development and the nonprofit social investment VC fund. Please see appendix A for a detailed

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