On the other hand, social businesses are just beginning to grow in popularity; they are strangers within the networks of charities and donors; and the banking systems offer no special services for them.
However, once you come in contact with both kinds of businesses and the entrepreneurs behind them, the perception they are vastly different is quickly corrected. Both are often pioneers in their field and they both wish to build something innovative that challenges previously held views in their respective markets. They both think in terms of personal and long-term goals and they are usually positioned in a specific region, knowing their target market very well. In addition, both operate patiently and with much creativity until the self-defined result - and not the stock-market price - is achieved. This makes family and social businesses natural partners
What is a Social business?
According to Bill Drayton, founder of the global association of the world’s leading social entrepreneurs, Ashoka: “There is nothing more powerful than a good idea in the hands of a passionate entrepreneur.” That statement is relevant for both the private and the social sector.
Social businesses are a driving force behind social change. They develop innovative, market-orientated approaches and implement them on their own. Their goal: universal and permanent solutions for social problems in sectors such as education, family, environment, the struggle against poverty, integration and human rights.
Many founders in this field face a dilemma. For a long time they were able to keep their businesses afloat through donations. However, if they are successful, the time comes when it is no longer possible to implement growth plans purely through voluntary donations. At the same time, they do not have adequate creditworthiness, or their business model display too low a financial return to interest banks or other financial investors to support their expansion.
It is this gap that the Social Venture Fund, together with its investors, wishes to plug. Companies engaged in social fields can now obtain mezzanine capital from the fund to expand their business further. This hybrid of credit and shareholder equity is a well-established source of financing among SMEs. The objective: in the long term the companies should become wholly or largely independent of donations.
To achieve this, approximately $10 million is to be invested in a portfolio of 10-12 companies. Before the social businesses receive the money, they have to go through a selection process. This includes presenting a business model that promises success in solving a social problem in an innovative way and can be applied to other regions or countries.
An example of this is the Danish company, Specialisterne, which the founder, Thorkil Sonne, set up after his son was diagnosed with autism. People with this illness often have an extremely high affinity for numbers and excellent powers of concentration. However, interaction with other people poses difficulty, with the consequence that they are often not considered for positions in normal working situations. Sonne refused to accept this. He uses the specialist skills of those with autism and places them with companies such as Microsoft or Cisco Systems, where they check database entries or test software.
This has proven to be successful as the error rate from those who have autism checking endless columns of figures has shown to be far lower with than the general population.
Sonne now generates sales of around $2 million a year and is in a financially stable position.
The Social Venture Fund
is now set to help him establish the business model in other countries with funding of approximately $1 million. Pioneers in the emerging impact investment marketIn addition to Johannes Weber, initiators of the Social Venture fund include Monika Roell, former proprietor of the publisher Hugendubel, and real estate and venture capital business-woman, Sylvie Mutschler. There are also many family entrepreneurs and private financiers such as Thomas Jetter, a former leading partner in the financial investor Permira, and London-based social investor and entrepreneur Stephen Brenninkmeijer.
The Social Venture Fund does not give its money away. Rather it applies the same conditions as a bank. Naturally, the money invested has to be paid back, including compensation for inflation and profit. Maximum returns are not paramount for any of the investors. The Social Venture Fund‘s goal is to preserve and recycle invested capital for future investments. By doing so, the intrinsic power of the capital is mobilised for positive change while the capital itself is preserved. Our primary objective is to achieve an outstanding social return on investment.
An emerging asset class
At this stage initiatives like the Social Venture Fund are dependent on investments and entrepreneurial input from private investors and their family office in order to build and educate the market. The Social Venture Fund will do its Final Closing in July 2011.
JP Morgan and the Rockefeller Foundation have recently conducted a study in this field, estimating the potential market volume will be $1 trillion in the years to come. The study stated: “We believe that impact investing will reveal itself to be one of the most powerful changes within the asset management industry in the years to come.”
There are successful examples of joint entrepreneurial initiative between family and social businesses on four levels: learning, investing, co-operation and in the education of the next generation.
During the Investors Forum of the Social Venture Fund, investors from family and social businesses actively discuss and create solutions for the world’s most pressing societal problems. In particular, representatives of family businesses can bring in their real-life experiences in the field of sustainable growth. If both sides are agreeable, then real co-operations may begin to be formed. An example of this is the powertool producer Hilti.
They are currently working together with social businesses on housing solutions for slums in the Third World.
Another aspect to this is when families rely on social businesses in educating the next generation in entrepreneurship. The Social Venture Fund has developed a “Next Generation Programme” that regularly puts future leaders in contact with outstanding social businesses to educate them, hands-on, on impact investing. The lessons learned in this programme can be a valuable building block for any future entrepreneurial activity.
