Tuesday, 16 October 2012

Venture Philanthropy in for-profits

Social businesses go searching for grant funding (ET article)

My take:

With both free economy (however distorted) and many problems to address - it is open for both investors and (social) entrepreneurs to define their mission and use of money.
Anyways the tag of social entrepreneur is more notional than based on strict criteria.
Thought not all, some social enterprise still make case for vertical scale, hence investments.

  •  Danger of distorted economics (low prices and high salaries, facilitated by grants)

Notes from Article

"For start-ups serving the poor, grant money is absolutely necessary to innovate, incubate and create new ideas for overall sustainability of this sector," says Sadeesh Raghavan an individual philanthropist who funds social enterprises.

Exploring ways to use grant money for R&D and pilots because these are one-time investments for innovation and should be supported by grants.

A recent research report by Monitor and Acumen Fund, titled 'From Blueprint to Scale', refers to the early stage of developing a new business when access to capital is missing as the 'pioneer gap'. Here, grant money represents the ultimate 'risk capital' for such businesses because it does not carry the rider of financial return, and can tolerate uncertainty around commercial viability.

"The parent (non-profit) is promoting the cause and the entity (for-profit) is serving that cause. This is a clear conflict of interest." Krishnan adds it also distorts economics, as happened with rural Internet kiosks businesses that were spun off from NGOs around 2003. Low prices and high salaries, facilitated by grants, killed the market.

Monitor's Koh says a combination of restriction, conditionality and reporting requirements can make grants more prescriptive at an operational level than equity or debt.

It seems the more sustainable approach to social progress is partnerships between NGOs, government, corporations and philanthropic organisations. Boundaries are blurring.