Entrepreneurs are continually in search of capital investment to launch their enterprises forward. Venture Capital firms and traditional capital markets were designed around the concept of earning quick and really high yields on their investments.

Social entrepreneurs, too, are in continual search of capital to launch their enterprises forward. The difference, however, is that quick and high-yield profits are not part of the equation. The social sector requires “patient capital” with an added interest in “Social Return on Investment” (SROI).

The panel discussion, “Showcasing the Social Capital Spectrum” featured multiple representatives of the “social capital” investment funds. There is a movement to mobilize “social capital” to really have a dramatic global impact on development (both economic and social). There are several major impediments, however, to bringing the social capital markets to the mainstream:

Need to Educate People on Role of Capital in Poverty

There are two flawed assumption of the poor:

1.)  That they lack purchasing power

2.)  That they lack the power of choice

These misconceptions really shape people’s understanding of how “social capital” and bottom-of-the-pyramid (BOP) markets work. What they do for investors is add a level of perceived risk that prevents the social sector from accessing investment from traditional models.

Metrics and Language

It’s really critical for social enterprises to be able to communicate their pitch to investors in a universally understood and accepted language with standardized metrics. Social entrepreneurs need to be able present that their models are accountable, producing measurable change, and fully transparent.

Investors need to be involved in the process of redesigning the metrics and tools that they use to analyze their risk. The current economic crisis in the US is case and point. Their metrics need to be able to better capture “total costs”, as well as incorporate social impact.

A phrase used I liked was “Sustainability Quotients” – this notion that we all have varying degrees of acceptability when it comes social metrics. For example, how green is green enough?

Fighting Mainstream Traditional Models

Those of us in the social capital movement are placed in a position to combat a traditional worldview of social investment.  There is a desire to stick with the models that are perceived to work (eg. Giving/Philanthropy), rather than adopt new “riskier” models like “investment.”