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Compassionate Venture Capitalists

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Can you do well by doing good? A growing number of New Radical Entrepreneurs think so, and are starting ventures whose core mission is to make a difference. Often called "social entrepreneurs", some are offering world-changing goods and services, others are incorporating social responsibility into their operations, and a number are doing both.

In the last few weeks, I've been writing about what emerging New Radicals need to do to make the transition to their new role (for more on New Radicals, see archived articles). For New Radical Entrepreneurs, the challenges are similar to those faced by other start-ups, except when it comes to financing. Too often, venture capitalists hear "social investment", think "philanthropy", and quickly lose interest.

That's changing, and fast. According to Venture Capital Journal, social venture investment funds are appearing in record numbers, and those that already exist are ramping up. VCJ reports that, in the U.S., "seven new and follow-on funds billed as mission-driven investment vehicles are on track to raise $750 million this year."

Here are some examples of funds from three different countries, to show the range that's out there. (And if you're an emerging New Radical Entrepreneur who's just starting to do your homework, several websites make good starting points, including skollfoundation.org, schwabfound.org, ashoka.org, changemakers.net, ssireview.org, and thirdsector.co.uk. Or google "social venture funds." Some funds are for the non-profit sector only, while others invest in for-profit ventures.)

In the U.S., RSF Social Finance partners with investors, donors, and borrowers to create positive social change and environmental sustainability. RSF provides socially responsible lending in sectors including education, arts and culture, fair trade, sustainable food systems, organic agriculture, green building, and renewable energy -- more than $100 million in loans to date. In 2003, for instance, RSF provided Organic Bouquet with a working capital loan, investing in the company's critical early stage development. Organic Bouquet has bloomed, and, in a nice twist, recently announced that it will donate 10% of each purchase back to RSF.

Echoing Green invests in social entrepreneurs who are "developing new solutions to society's most difficult problems." Echoing Green acts as an angel investor in the non-profit sector, providing seed funding, as well as leadership, professional training, and technical assistance to help organizations develop a strong foundation. In just over 20 years, they've invested $27 million in seed funding to more than 450 social entrepreneurs and their innovative organizations.

In Canada, Social Capital Partners is a prime example of outside-the-envelope funding. They invest in enterprises that generate profits and create jobs for the hard-to-employ in Canada (such as street kids, aboriginal Canadians, and the homeless). "Hybrid companies -- those that try to generate both financial and social returns -- are a different and unique way to try and address some of our situational and social challenges," founder Bill Young says. "We're trying to make these hybrid organizations part of the mainstream." SCP is investing in organizations such as TurnAround Couriers, which hires troubled youth as bike couriers. "I wanted to prove that you can help people by running a profitable business, without calling yourself a charity, and without asking for grants," says founder Richard Derham.

In the United Kingdom, the brand-new Catalyst Social Venture Fund is attracting attention. Barclays recently announced it will invest [25 million pounds] in the social investment fund managed by Catalyst Fund Management and Research. The fund will focus on the burgeoning "ethical consumerism sector", as well as on education, health, alternative energy, and the environment.

Catalyst believes that its fund is the logical next step in an emerging market segment. "By proving that you can make great returns in these sectors," Rod Schwartz, Catalyst's founder told me, "We will be attracting further investment from mainstream investors into an area where investor success and social returns go hand-in-hand. Anita Roddick proved this was possible at The Body Shop -- now we need to find the next few examples."

Although the numbers -- of both funds and dollars invested -- are still small when compared to the rest of the private equity sector, things are definitely moving in the right direction. And let me go out on a New Radical limb here and say that I believe that social investment will take off in just as spectacular a way as private equity did. David Chen, founder of the American fund, Equilibrium Capital, told Venture Capital Journal that since he began fundraising last fall, he's seen a marked increase in interest from investors. Already, roughly $2.71 trillion -- or 11% of assets under professional management in the United States -- is held in social investments. Can widespread investment in social venture funds be far off?

What's your experience? Have you seen evidence of compassionate capitalism? Have you been able to fund your new venture? Do you think that hybrid ventures are the way of the future? What kinds of support (financial and otherwise) do you need in order to make your New Radical Entrepreneur dream come true? Are you a potential investor, and do you see these funds as a wise addition to your portfolio?

(Already thinking about how you'll catch the wave? You might want to check out a brilliant new book, The Back of a Napkin, by Dan Roam. He says that the best pitches and plans require nothing more than one page or picture to explain them.)

New Radical Entrepreneurs -- and the financial partners who believe in them -- are breaking important ground. I'll leave the final word to New York Times columnist Nicholas Kristof. "As we follow the presidential campaign, let's not forget that the winner isn't the only one who will shape the world. Only one person can become president of the United States, but there's no limit to the number of social entrepreneurs who can make this planet a better place."

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