07 Jan Starting up a Social Enterprise
Starting up a social enterprise can be quite a venture. So I am experiencing with Givolicious at this very moment. There’s general fuzziness around social enterprises. So I went on a short investigation into this wondrous world of social enterprising.
Many people ask me if I am setting up a charity. My answer? No. I am not. This legal structure would hinder my entrepreneurial drive & business mind-set. On the other side, I’m not setting up a private entity with the sole purpose of making money. In the contrary, my primary drive is a social one. One that builds on a pronounciated vision on the 21st Century Society. And so all of my profits will be reinvested into that same purpose.
Dutch government (or worldwide for that matter) up to this very moment doesn’t provide a decent legal structure for this ‘hybrid’ form of business. Put frankly, you either become a charity or limited liability company (LLC). So an LLC it is.
Meanwhile, in my search for financing, sponsorships are difficult for an LLC. After all, people expect that this breed of companies is here for the sake of financial profit of its shareholders. So why sponsor a profitable business model while you could just as easily donate to charity with all tax benefits that go along with it? In search for other creative means of financing, private equity investors that are in there for long run social value & change are scarce. Many of the social enterprises I meet face this challenge.
Traditionally, charitable and profitable organisations were clearly distinct. Whereas traditional business would focus on financial profit, the charitable organisation could take care of the social void that was left behind between government and free-markets. But this distinction is fading. Social enterprises are popping up all around and show that societal and financial value perfectly go hand in hand. On the other side, charities will need a fresh impulse in terms of business thinking as governments worldwide are subsidies . Eventually the two will become one. Over the long run, that is. Click on the picture below to enlarge and visualize the spectrum.
Figure 1: Social Purpose Organisations vs Traditional business
Private Equity: not my cup of tea.
So in my quest for creative financing of my undertaking, I have considered private equity investors. Yet private equity firms do not have the best reputation around the world. They buy businesses, split them up, scrape ‘m out and sell with the sole purpose of short-term financial profit. Which is something I do not want to support. I couldn’t see myself operating backed-up by somebody who has a focus on short term financial profit, but you’ve probably understood that already.
Convergence Venture Capitalism (VC) & Philanthropy
Fortunately, the same ideals that drive that’s driving the convergence of profit vs. non-profit is stretching out into VC territory. A new breed of VC is coming to surface. It is called Venture Philanthropy. It takes concepts and the business approach of venture capital finance and combines it with philanthropic ideals. Meaning: there are equity firms out there that operate from ideals, over the long run and take into account both financial return on investment (ROI) as social ROI. Now that’s promising.
The Future of business: into the 21st Century
The game-changing businesses of the future will thrive on a blend of creating societal and financial value. They gradually sweep away the distinction between profit & non-profit.
Businesses that are socially driven, that truly tap into society needs over the long run will continue to flourish. And slowly but steadily the financially oriented companies will fade away. And so does the necessity for charities. After all, who needs charities, if there is no void to fill up? If governments and free-markets leave behind no gap? Wouldn’t that be sweet?
If you are a venture philanthropist, an angel investor with a long-term perspective and an intrinsic drive for social change, I would gladly discuss with you my business plans on how to change the face of business and shape our 21st Century.
And I would kindly, but urgently, like to ask governments if they don’t mind stepping up pace and create legal & tax structures that facilitate rapid growth for these game-changing companies?