Social Enterprise: Are You In An Ecosystem With Motivated Social Investors?

July 23, 2016
Forbes

With so many businesses defining themselves as social enterprises, or defining a social responsibility practice, it is important to find investors that share your values. A recent study interviewed hundreds of social entrepreneurs and evaluated a large selection of cities based on four pillars of importance:

  • Funding

  • Quality of Life

  • Human Capital

  • Regulation & Receptivity

 

With the social entrepreneur in mind, I will highlight some of the leading cities and areas of importance related to funding that the study uncovered. It is likely that any entrepreneur, not simply a social entrepreneur, who places value on one of the above pillars, will glean insight from the study.

400 social entrepreneurs helped build a dynamic snapshot of supportive ecosystems

Halcyon Incubator is a Washington, D.C.-based group specifically focused on social entrepreneurship. In conjunction with a variety of other sponsors, including Capital One, Deloitteand The Case Foundation, Halcyon recently did a study of social entrepreneurs.

As they define the term, a social entrepreneur is ‘an entrepreneur seeking intentional social impact, measuring and transparently reporting outcomes towards this goal.’ (Boy, that ‘transparently reporting outcomes’ part probably scared off a few hundred people just now.)

The study, titled, ‘From The Ground Up: Defining Social Enterprise Ecosystems in the U.S.’ is available as an interactive summary or a detailed downloadable asset here. The interactive functionality on the website enables entrepreneurs to weight the importance or emphasis they place on the four pillars in order to find the cities most in alignment with their goals.

So let’s find which cities are best in terms of funding.

Scenario 1: You want it all—including funding!

You want a city that cares about funding you, but not one that compromises on the other core pillars. To determine the best cities in this regard, we entered a value of 10 (most important) for all four variables. And these are the top 5 cities that came up:

  1. Washington, D.C.

  2. San Francisco, CA CA +0.16%

  3. Austin, TX

  4. Boston, MA

  5. Seattle, WA

Scenario 2: Funding is all that matters! The rest is a bonus.

Quality of Life, human capital, and regulation and receptivity may come with the ecosystem, but they are not the primary reason you are selecting this city to grow your social enterprise. To determine the best city where funding is your primary priority as a social enterprise, we entered a value of 10 (most important) for funding and 1 (least important) for the other factors.

The top 5 cities that come up on this search are:

  1. New York, NY

  2. Boston MA

  3. Los Angeles, CA

  4. San Francisco, CA

  5. Seattle, WA

The following 5 cities likely win the day because they:

  • Contain sufficiently mature and diverse investment communities that they include a significant selection of people interested in social enterprise, or

  • The peoplethe businesses, investors, citizens & customersof the area place a high premium on social enterprise and thus investors here are more accepting and focused on your type of business.

What did the surveyed entrepreneurs say about funding?

According to the study, funding is the number one challenge facing social entrepreneurs with 45% stating this is a challenge. Interestingly, seasoned entrepreneurs with over 5 years experience in their enterprise are more pessimistic about whether investors in their market understand social enterprise.

In the study, women in social enterprise were 12% less likely than men to agree that funding is available. This trend maps overall to women seeking capital in for profit and not for profit (or socially-motivated) enterprises.

According to Sheila Herring, the Senior Vice President for Social Innovation for The Case Foundation, ‘Diversifying the profile of funders and finders—more women, more people of color, more people who have lived experience with the entrenched social issues these innovators are trying to solve—could dramatically tip more capital into this space.’

 

No matter where you seek funding, that idea of ‘lived experience’ is always a major motivator in the investment community. What is close to home or close to your heart influences what you do with your wallet.

Time is always of the essence, and moves much slower in the government & non-profit sectors

One of the other significant challenges pointed out by the study is coping ‘with the slow decision making process and deployment of capital from both government and non-profit funders.’

Entrepreneurs need to move fast. Increasingly, due to crowdfunding and fundraising platforms, for-profit entrepreneurs may find and complete a funding round in 2 weeks or 2 months. Not so for the entrepreneur tied into the non-profit or government space. The consideration window for grants or non-profit collectives who invest can easily take more than a year to deliver funds.

Although the speed of funding wasn’t listed as the number one challenge, it can’t be understated how important being nimble and entrepreneurial in the funding phase is to the success of all entrepreneurs. Given the proximity of the Washington, D.C. ecosystem to the Halcyon Incubator, perhaps they can work inside the beltway to grease the skids for social entrepreneur finance.

When reviewing the cities whose ‘local governments’ were supportive of social entrepreneurship, Boston ranked the highest with 78% of entrepreneurs surveyed feeling that local government gets it. Surprisingly, the lowest-ranked local government was San Francisco with only 42% of social entrepreneurs feeling their local government supports social enterprise.

Perhaps this data point for San Francisco is due to the importance the area places on high tech, unicorns and exponentially for-profit ventures. That is merely an assumption; I do not have data to support that suggestion.

Although San Francisco ranked the lowest in local government support according to entrepreneurs, it still earned the second highest composite score for supportive ecosystems, second only to Washington, D.C. Composite rankings can be found on page 30 of thedownloadable PDF.

How does your local ecosystem match up?

I’m always disappointed to review any study of leading cities where Atlanta doesn’t feature prominently.

Last year, 800 social entrepreneurs gathered in Atlanta to share problem-solving ideas as a part of nonprofit Plywood People’s ‘Plywood Presents’ event.

My own experience in Atlanta is one of tremendous richness in entrepreneurial spirit and ecosystem. It is true we are not a bastion of social enterprise but as a hub of the civil rights movement, and one very anchored in doing good.

Here’s hoping in years to come that the people doing good, get more access to fast capital. Here’s hoping they have access to the mentors that can help them build sustainable models for their businesses, which greatly increases the interests of investors. And let’s hope that (my bias), Atlanta rates where it should among the great cities in this country ushering in change, progress and growth—as it always has.

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