Social entrepreneurship is an approach by which organizations develop, fund, and implement solutions to pressing social, cultural, or environmental issues. Social entrepreneurship is an appealing construct because it offers an immense amount of promise to deliver systemic benefit while also delivering financial benefit (Note - this is a primary difference between Social Entrepreneurship and Nonprofit / Not-for-Profit).
Social change entrepreneurs are often passionate and deeply committed to their cause. They combine their entrepreneurial skills and business acumen with a deep understanding of the social and environmental challenges they seek to address. They leverage their creativity, expertise, and networks to develop innovative solutions that have the potential to create meaningful impact and transform communities. Social change entrepreneurs are individuals who create and lead innovative organizations or businesses with the goal of addressing social, cultural, or environmental problems. They are driven by a strong desire to create positive change in society and to challenge the status quo.
Social entrepreneurs aim to create impact by creating a self-sustaining business model operates differently than one that is just focused on profit or than just impact, in that it ensures a values based delivery of a good or service for as long as possible or as needed, despite the time it takes to deliver the desired level of profit or impact. In their book Getting Beyond Better, Roger L. Martin (Skoll Foundation President) and Sally R. Osberg (Skoll Foundation CEO) describe how “social entrepreneurs target systems that exist in a stable but unjust equilibrium and transform them into entirely new, superior, and sustainable equilibria”. Said more simply, they seek to break the status quo by creating a new, self-sustaining system that delivers better results for everyone involved.
In order to implement their ideas and succeed in their causes, social entrepreneurs need a different type of financial support than a nonprofit or a SAAS startup. They need the special support that can be offered by innovative financing solutions that come from patient capital and serious impact investors. Patient capital is unique because it had the strategic intent and financial model that allow for the investor to consider the company over a more realistic and appropriate timeline. Traditional venture capital investors are often bound by rigid expectations of a certain level of return over a specific brief timeline, usually less than 10 years. This structure can often lead to VCs pressuring entrepreneurs to achieve rapid, possibly damaging growth rates that can change the trajectory and the focus (and sometimes the leadership) of a company. Impact Investing is unique in that it does not solely focus on the financial returns of the investment, but rather takes in other considerations of the positive benefit that the company delivers in its accounting and/or assessment of the company’s performance. The Impact Investing approach seeks to generate both financial returns and positive social or environmental impact, such as providing fair, living wages, safer work environments, stronger equity provisions for workers, or environmental preservation or restoration. The social entrepreneur looks at business through a more nuanced lens - one in which the “externalities” of business are instead included in the calculations of cost, impact and value in a way that significantly changes the game. This begets a different approach to investing and measuring results. What is surprising to many traditional investors, is learning how many social entrepreneurs deliver equivalent or better financial returns than their traditional counterparts.
For this movement to reach its potential, social entrepreneurs first need to do a better job at communicating their impact theses and business value propositions to investors. They need to help investors understand that supporting social enterprise does not mean that investors have to take weaker financial returns. While investors have been warming to social entrepreneurs, they have a long way to mature in this sector as well. Investors and social entrepreneurs can mutually benefit from learning from one another and learning together about how to solve the world’s big, hairy challenges and ultimately this can lead to both the impact and financial returns that in the areas they care about.
One aspect that social change entrepreneurs and impact investors have in common is the important role they play in driving innovation and creating new markets. Social change entrepreneurs are often focused on addressing unmet needs or solving problems that traditional businesses have overlooked. This different point of view of the social entrepreneur showcases the value of diversity in thinking about problems and opportunities. It can also lead to the creation of entirely new products, services, or business models. For example, social change entrepreneurs in the healthcare sector are developing new technologies and approaches to address gaps in access and affordability like the great work Patientory is doing in Web 3 and healthtech . At the same time, social entrepreneurs in the education sector are creating new models for delivering education to underserved communities like Boddle Learning in the edutech. These innovations not only create value for society, but they also have the potential to generate attractive financial returns for impact investors.
The impact investing approach requires careful consideration of the social or environmental impact of an investment, as well as its financial return potential. Impact investors may choose from a number of metrics and approaches to measure the impact of their investments. Some leading approaches include Social Return on Investment (SROI), UNSDG’s, IRIS+ and other social and environmental performance indicators. By quantitatively and qualitatively measuring their results, social change entrepreneurs and impact investors can better understand the effectiveness of their interventions and make data-driven decisions about how to improve and scale their impact.
Skeptics of impact investing and social entrepreneurship often claim that such approaches are “nice to have” but don’t offer substantive financial (or non-financial) benefits to the organizations that pursue them. Sadly, nothing could be further than the truth. A study 20## by Morgan Stanley showed that social impact funds on average had lower volatility than comparable non-impact funds, similarly, the 2022 impact report from Kapor Capital showed significantly higher returns for its social entrepreneurship focused portfolio than the majority of firms in the venture capital industry. Impact investing can be risky at times, as high social impact is not always related to high rate of return; but if you invest with knowledge, your personal values and the ability to generate profit don’t have to be mutually exclusive.
Our futures as retail investors/impact investors and social entrepreneurs are interdependent. The collaboration between investors and social entrepreneurs can make a massive impact in the betterment of our society as a whole. Investing in ventures that create a healthier society allows you to drive social change, achieve personal goals as an investor and entrepreneur, and make a measurable impact for future generations by putting capital and expertise to work. By directly investing in social change companies, you can support them financially and share your knowledge, contributing to their social impact on multiple fronts.
Overall, social change entrepreneurs and impact investors play a vital role in driving innovation, creating new markets, and addressing pressing social and environmental challenges. Through collaboration, network building, and a focus on impact measurement, they can help create a more sustainable and equitable future for all.
Pyrium is an educational platform and marketplace for individuals who are interested in directly investing in companies that align with their personal values. If you’re interested in learning more about direct investing or equity crowdfunding, join our Investor Community–a place where you can talk about investment opportunities in various start-ups in a casual and culture-forward manner with other individuals.
Further Readings:
https://www.sec.gov/files/esg-risk-alert.pdf
https://www.nytimes.com/2020/08/28/your-money/impact-investing-coronavirus.html
https://www.rockpa.org/guide/impact-investing-introduction/
https://thegiin.org/impact-investing/need-to-know/
Original Pyrium mission and origin story Link
https://ssir.org/articles/entry/social_entrepreneurship_the_case_for_definition
