THE BLOG
03/18/2010 05:12 am ET Updated May 25, 2011

Start-up Capital for For-Profit Social Entrepreneurs - Where the heck is it? Part 1.

Last week, Echoing Green President Cheryl Dorsey was named one of US News and World Report's "America's Best Leaders" for her important work breathing life into both nonprofit and for-profit, start-up social entrepreneurs.

Since 1987, Echoing Green has awarded more than $27 million in start-up capital to over 450 social entrepreneurs worldwide. Ashoka, which put social entrepreneurship on the map in 1981, has invested in over 2,000 social entrepreneurs; and since 1992, Investor"s Circle, an angel network of social investors, has facilitated the flow of over $133 million into more than 200 social mission companies.

While impressive, the cumulative amount invested in start-up social entrepreneurs pales in comparison to the $1.6 billion that went into US seed and early stage investments in just the third quarter of this year in this slouched economy. Put another way, about 10 times more money was invested in regular start-ups in just this third quarter than in the 28 years that Ashoka has been funding social entrepreneurs.

With all the recent attention given to social entrepreneurs, when will we actually begin to see an acceptable level of investment directed towards these leaders of social change?

It's old news now, but effecting social change and turning a profit are NOT mutually exclusive. In fact, in many ways, the for-profit structure is better suited to making sure that social impact is achieved most effectively. The pressure to earn a return for your investors results in tough and often good business decisions. Yet, frustratingly, traditional notions of for-profit and not-for-profit are deeply rooted and all too often reflect an unwillingness of key players to embrace new perspectives. A clear example of this was the decision made earlier this year by President Obama's newly established Office of Social Innovation to exclude for-profit social mission companies from federal funding through this Office. It's unclear how the Office can aim to support "social innovation" while estranging some of the most innovative ideas simply because they lack the increasingly antiquated 501c3 non-profit status. The exclusion of for-profits is even more perplexing when you consider that advisors to the Office during its formation included well-known champions of for-profit social enterprise such as Echoing Green's Cheryl Dorsey, Howard Buffett, and Ethos Water co-founder Jonathan Greenblatt (Ethos Water was sold to Starbucks in 2005 for $8 million).

By NOT supporting for-profit social entrepreneurs, the Office of Social Innovation missed an important opportunity to guide funding and support towards the best social enterprises that are measured not by their poorly-defined legal status but rather by the by the impact they make. Prior to the White House Office of Social Innovation's decision that it wasn't ready to fund for-profit social ventures, Harvard Business School professor Clayton M. Christensen and Vanessa Kirsch and Kim Syman of New Profit Inc. forcefully articulated to Huffington Post readers why "breaking down the antiquated assumption that all social innovation is the province of the non-profit sector" is critical. It's painful that the White House Office of Social Innovation passed up the chance to bet on a winning strategy - our socially innovative entrepreneurs - when the government is struggling to rectify our broken economy and failing social systems, namely education and healthcare.

But don't fret, social entrepreneurs are showing us that very little can keep them down. As they work on bettering our world, we need to figure out how to empower these hidden heroes. How does a for-profit social entrepreneur find the start-up capital to turn a potential world-changing idea into reality? And if they still can't find funding, what are some good bootstrapping tips to get through the start-up phase?

For those wondering why social entrepreneurs should be given special treatment over any other entrepreneurs, consider one key point: a social entrepreneur strives to create a positive externality that cannot be quantified in simple dollars and cents. While a traditional entrepreneur looks to create wealth and may or may not change the world in doing so, a social entrepreneur purposefully uses her business as a vehicle for effecting social change. In light of our current economic situation, spiraling fiscal deficits, and overstretched social safety net, there is no better time for social entrepreneurs (and potential social entrepreneurs) to be encouraged and cultivated. Moreover, at a time when the government is struggling to support traditional businesses and industries that have failed, shouldn't we be looking to support innovative and non-traditional ventures?

Let's not allow another missed opportunity. Invest in start-up, for-profit social entrepreneurs! Social entrepreneurs need like-minded social investors that evaluate a company's social mission alongside their prospects for revenue generation. Without more social investors, we are hampering the growth of social ventures that could be the answer to many of our public problems at a time when the government is struggling to provide its own solutions. We need more funds like Echoing Green, Ashoka and Investor's Circle to take notice of a growing and vibrant social enterprise movement. Money needs to be invested in start-up social enterprise not just for the aspiring social entrepreneurs of today, but so that the next generation of social entrepreneurs can thrive. We certainly should not make it easy to get funded simply because someone has an idea to make the world a better place, but it certainly shouldn't be more difficult for a for-profit social mission business to get funded than a traditional one.

In my next post, I will share some resources for start-up social entrepreneurs (both nonprofit and for-profit). Please help me compile this list by emailing me at rachael [at] Catchafire [dot] org or by commenting below.