Most startup founders are very familiar with the power and importance of venture capital. Venture capital firms have helped fund countless fledgling startups that have eventually soared to astounding financial success. Although most investments carry a fair amount of risk, venture capital investments are particularly risky given that the money usually goes toward a young, unestablished company with uncertain future prospects. Of course, given that traditional venture capital firms are hoping to earn a handsome return in the long run, they rely on savvy analysts to evaluate the growth potential of a startup before committing to making an investment. In general, the return on investment is the primary concern.
These days, however, a lot of startups want to do more than just earn a ton of money. Many entrepreneurs are passionate about making the world a better place and changing the lives of those most in need. Fortunately, this altruistic spirit extends to those who help fund these endeavors, as evidenced by the growth of social venture capital. For those not quite familiar with this relatively new kind of investor, here is a quick rundown:
Impact Trumps Profits
All investors want to put their money toward businesses that are going to succeed, usually in the financial sense. However, with social venture capital, the main measure of success is not financially focused. Instead, social venture capitalists are interested in funding projects that are designed to improve society in some way. The entrepreneurs and investors involved in this space want to create businesses that will grow and thrive, but that will also solve an existing social problem or transform the lives of the people that the business will chiefly affect.
Poverty and the Environment are Prime Targets
There are a lot of problems in the world right now, in both developed and developing nations. Millions of people still do not have access to clean water, an adequate food supply, a proper education, or decent health care. The poverty that pervades much of the globe is the primary culprit, and thus many social venture capitalists seek to provide communities with improved farming techniques or access to technology to help eliminate some of these problems.
Money Matters in a Different Way
Even though a social venture capitalist is not fixated on the financial return on investment, the way in which the startup money will raise and spend its money does matter. A startup that intends to do something positive for a community has to utilize its resources well to ensure immediate and long-lasting success. As a result, social venture capitalists will still analyze the business plan and budget and only commit capital to businesses that are both financially viable and likely to have the largest impact.