A Useful Funding Tool for Less Segregated and Diverse Communities


Communities with a mixed ethnic background and more diversity are likely to come up with new ideas. According to a study by the Yale School of Management, having people in a community with different backgrounds is beneficial for Venture Capital (VC) firms as it leads to economic development and innovation.

In various countries around the globe, communities, universities, and businesses are pursuing diversification. Apart from the immediate benefit of getting fairness, having multiple points of view and diversity of experience is very useful for the overall performance of these sectors.


Effect of VC on Integrated Communities

The study also revealed that VC investment is more beneficial for ethnically integrated communities as compared to segregated communities. The effect of VC on the integrated communities was 30 percent higher as compared to segregated ones, especially in terms of creating more wealth, jobs, entrepreneurship opportunities, and facilitating innovative activities. The startup businesses create more value and job opportunities that eventually lead to economic growth.

In a diverse community, you get to interact with people having diverse backgrounds, which leads to getting access to more resources and information as compared to segregated communities. In the past, studies have shown that economic vitality is enhanced as a result of social interaction within a community.


Implications of Social Interaction for Venture Capital

The purpose of the study in question was to identify whether a social structure is vital for economic development or not. The VC was the focus of this study, given the fact that it is a useful financial tool for high growth businesses.

It was revealed that such relationships have significant implications when it comes to VC investments. VC investors put their money in new businesses that are in the close vicinity. They tend to rely on professional relationships and friendships for leads and information that cannot be received via cold calls or internet search.

VC investments were compared to aggregate income, employment, new businesses, and a number of patents. It was found that VC performed much better in less segregated and diverse areas, resulting in more patents, more jobs, and created more value.

Social interaction has benefited various communities. One of the many factors that led to high level of innovation in the United States is the increasing number of immigrants that bring diverse culture. When they interact with one another, it creates room for transferring valuable information and ideas, which leads to better economic outcomes. Besides, when people from different ethnic backgrounds live close to one another, it brings about healthy relationships and effective interactions that is favorable for the wider economy.


Diversity Leads to Innovative Thinking

Diversity is also very useful to promote innovative thinking that leads to success in the venture capital market. Any sector that does not have diversity or mixed race is very limited in innovative mindset and thought process. This results in similar thinking with not many innovative ideas. In addition to that, there is gender bias in the VC sector that restricts the overall growth prospects. It is a widely known fact that female founders represent the rapidly growing entrepreneurial group in the United States and their firm’s experience growth 1.5 times faster than the average growth rate in the market.


Providing Solution to Promote Innovative Decision Making

Despite the lack of diversity, it is quite likely that change is taking place gradually. An increasing number of entrepreneurs with diverse background are entering into the market. They are focused on providing a solution to the problem and make a profit in the process.

It has become really important to promote diversity in the communities and in societies at large so as to promote economic development and prosperity. Not only will it be beneficial for the venture capital industry, but it is also going to help the masses in getting equal opportunities in every sector.


The venture capital market has also derived benefits from diverse communities in terms of innovative thinking and plethora of useful information. To continue moving in the right direction, countries around the globe should embrace diversity in order to have successful businesses and create more job opportunities that will eventually bring economic prosperity in the long run.

What do Social Investors Want?


Funding is a lifeblood of any startup. It is a crucial element for the survival of any business.

For social entrepreneurs, it is important to take steps in the right direction if they wish to secure funds. This is the reason why they have to learn what social investors really want and what their expectations are. Having a thorough understanding of your businesses increases the likelihood of attracting the right investor. Therefore, the vision of your business must be clear and well-focused.

Below are four main guiding principles every social entrepreneur must bear in mind in order to secure reasonable funds to keep their businesses running.


Financial and Social Objectives Must Be Well-Integrated

Social entrepreneurs have to be convincing in order to succeed in winning the trust of an investor. They not only should have a persuasive social mission, but also present a strong business case. If both these elements are properly aligned, they create a strong case that can make an appealing financial outcome to widen your impact. A great example of that can be Taxi-Electric that runs the cars on electricity and charge a fair price for providing taxi services. In addition to that, they also provide job opportunities to people who experience long term unemployment or are students. Both of these core elements have enabled them to sell as many taxi rides as possible.

Another well-known example is Tony’s Chocolonely that produce and sell chocolates. Moreover, it opposes child labor and slavery at the same time by partnering up with trade firms in Ghana and Ivory Coast to purchase cocoa beans at a fair price directly from farmers. These organizations are making an effort to spread a positive message while growing their revenues and returns.

Investors usually look for such businesses that offer a combination of both. It is quite likely that angel investors would invest in visionary ideas and would try to improve the business side of these social startups, whereas, investment funds tend to focus on the business side in order to assist them in aligning their social goals. Investors normally expect social entrepreneurs to have a deep understanding of their financial as well as social goals along with having an integrated approach and clear vision. It is important to optimize your plan through discussion with your investor.


A Well-Balanced and Strong Management Team

It is important to have a well-balanced team of professionals.

Investors always stress the importance of having a solid team that has its goals aligned with the goals of a business. Having a group of professionals who are motivated to invest their time and expertise in a social enterprise is considered quite healthy for a business as it is an indicator of good future prospects. Financial institutions and venture capital firms specifically look for companies with strong teams while taking investment decisions. Therefore, it is recommended to add a diverse group of people in your team at an early stage, because having more than one person behind an idea shows its strength and persuasiveness.


Measure Your Impact

It is not easy for social firms to measure their impact or quantify its outcome and they blame the lack of resources for not being able to do so. Investors, however, consider the impact measurement a strong requirement before they invest in a business. Although, they understand that it is difficult to measure the social impact, yet, they emphasize that it can prove to be very helpful for social entrepreneurs to maintain focus on their operations and identify clearly what their goals are.

The question remains how to get it done. The key is to start small, for example, measure the number of people employed by a social enterprise and the positive feedback it receives. There is no doubt that every method comes with its limitations, but one cannot deny that you can, at least, measure your progress with it. Taking the question “why” is it you want to measure the impact can play a vital role in integrating your financial and social goals.


Avoid Deviation from Your Core Mission

It is very important to stick to your key mission. The deviation can cost a business a lot in terms of losing their financial wealth and losing their core values. It usually occurs after two to three years into the business, especially when new employees, leaders or investors start showing interest.

For venture capitalists, the shift from a mission is one of the major issues that arises in social enterprises. It happens when they start deviating from their balanced view of pursuing financial and social goals together, and instead, move toward financial returns at the cost of their social mission. If such deviation occurs, it detracts the social entrepreneurs from the original mission they discussed with investors.

It is to be noted that moving away from the original mission is not a bad thing as long as the expectations of the enterprise and investors are aligned. Keeping the investors on the same page, and having their agreement is crucial for the success of any social enterprise.

Social Venture Capital


Starting a business isn’t easy, and getting funds is even harder. But if your business is involved in social or environmental activities, access to funds is even more difficult. One of the things social enterprises repeatedly talk about is a tough time they face finding people who are interested in giving them funds.

Although, there are different types of investors who are interested in investing in these firms, it is not easy to find capital. However, the trends have started to change in the past few years with the rise of social venture capitals.


Social Enterprises

These are organizations that employ commercial strategies to improve the well-being of a society.

They have a revenue generating business set up with two objectives, i.e., to attain social, environmental, and cultural targets and to make profits. On the face of it, many of these firms operate in the similar fashion as traditional businesses. But it’s only when you look more carefully, do you get to see its distinct characteristics, with the social mission being a center point and income generation playing its role as a support system.


Social Venture Capital

Social Venture Capital isn’t the same as traditional Venture Capital, as investors seek to look past the profits and risk/reward figures. Some of the common causes supported by them are to have a clean environment, elimination of poverty, and social justice. Instead of keeping their focus on investment returns, they tend to look for ventures that show profitable prospects along with the mission to bring positive change through their product or services.


Social VC – Changing the Name of the Game

Normally, traditional VC firms prefer to invest in those emerging businesses that show great potential to grow in monetary terms. So, when the business takes off, it’s a win-win situation for venture capitalists as they retain a portion of profits. Social VC follow the same pattern. They look for startups, assess their product and potential to grow in future. By investing their money, they become entitled to receive an equity share in a business.

According to the Global Impact Investing Network (GIIN), there are more than 300 VC firms that seek double bottom line businesses (companies with both profit and social impact). In a survey conducted by GIIN of 125 funds, it was found out that 25 to 50 percent of them follow the VC model or a private equity model.


So What Triggered the Social Wave?

Brian Griffiths and Kim Tan said that the social venture capital has partly been triggered by a shift in the role of business in developing countries that have a history of misusing the resources and poverty-stricken members of society. Another reason was the failure of massive aid to bring significant change.

This is why well-off venture capitalists expressed their desire to apply high tech style innovation to their altruism. Chairman of the Big Society Capital, Sir Ronald Cohen, said that impact-investing can balance the course of crime, poverty, and homelessness for green energy, education and a lot more.


Traditional VCs Shifting their Focus?

With the emergence of social VCs, a growing interest has been observed in traditional VCs as well. A former Wall Street Journal writer, David Bank, said that institutional funds that have given rise to social VC are looking at markets like sustainable timber, agriculture and green real estate. An eyeglass maker, Warby Parker, donates glasses to these businesses so they can sell it in emerging markets. They managed to secure around $100 million venture capital from Tiger Global Management, Spark Capital, General Catalyst and a lot of other firms.

There are many venture capitalists who are making small investments, for example, an outdoor gear firm, Cotopaxi, attracted $3 million from New Enterprise Associates and several other investors. Overall, it has secured around $9.5 million, showing that Silicon Valley can see the potential to generate returns in these businesses.

Venture capitalists actually get attracted to the fast-paced growth of these businesses, which is gaining popularity with more-than-ever-before socially aware consumers. Social VC is not generating high profits as of now, but it was the same for venture capital funds when they first appeared.