Funders of (non-profit) social enterprises generally consider their “cause” and the social or environmental benefits that an organization or program will generate toward this cause as the first priority in evaluating funding opportunities.
Funders will also review and assess the financial model to ensure that adequate funding will be available to meet the current and future needs of the social enterprise.
Investors in (for-profit) social-purpose businesses are generally looking for financial returns as their highest priority. They seek market-driven opportunities for a profitable business based on a service or product that solves real problems. Specific to social investors, they are looking for new innovative solutions to complex social and/or environmental issues that can be scaled in a significant way to maximize benefit for society. Investors emerging in this sector have indicated a willingness to take a lower financial return in exchange for their financial investment risk for those opportunities that can create significant social or environmental benefits.
Does the organization have adequate people, processes, technologies and governance structure(s) in place to be successful? They will seek external validation from existing or potential users of products and services as to the benefits that will be provided.
This is a key consideration for investors and also large funders who are seeking significant impact for a particular cause, rather than funders who focus on support of local grassroots community initiatives.
Will the plan achieve significant market share and achieve economic and/or social returns? There are many ideas that will contribute to society in a positive way, but it is those truly paradigm-changing initiatives that funders and investors seek from social ventures.
Can the funder or investor participate in the financing initiative based on their own legal structure? Social entrepreneurs should be aware that funders or investors may turn down good, solid opportunities based on their own legal restrictions in the current emerging social venture environment and the collective experience and networks of a particular organization.
Organizations generally measure benefits for these purposes:
A comprehensive review of practices around the world confirms that there is no industry standard for social impact measurement in use by social enterprises, social-purpose businesses, charities or the funders and investors that support these organizations.
Instead, a broad range of alternatives exist from defining and reporting on specific social outcomes in a venture to sophisticated research and measurement systems.
The authors of the white paper conclude that investors, seeking blended financial and social returns with a financial-first focus will generally use outcome measures that are defined by the social-purpose business, specific to its social mission and the execution plan in reporting to their investors. Their conclusion is based on the fact that investors are generally not willing to have their investee companies spend the time and money on more sophisticated research and outcome measurement, particularly at the early-stage of a business.
|A sample of social impact measure and reporting can be found on the Better World Books website, a for-profit social venture financed by social venture capital firm Good Capital, that has scaled to about ~$20 million in revenues. Better World Books is a global bookstore that harnesses the power of capitalism to bring literacy and opportunity to people around the world, by finding new uses for old books. They measure and report on:
The authors of the white paper also contend that the goal of social impact metrics for early-stage social enterprises (start-ups, innovative programs, experimental approaches, and/or pilot tests) is to demonstrate their model can be more successful than existing alternatives to solving social problems if the social enterprise is adequately supported to develop, grow and/or replicate performance and to improve.
In this phase of the social enterprise, it is also likely that more informal metrics, like the above social outcome measures, would be used by these entities and reported to their funders, who will generally make similar cost/benefit decision as early-stage social investors.
Social enterprises with good early-stage outcomes would then seek to collect more formal metrics as they start to scale. Promising early-stage outcomes sets the stage for additional funding.
Additional funding could include an investment in more sophisticated research to support the quantification of their social outcome benefits.
Interested in learning more about social innovation and social entrepreneurship? Visit the SiG Knowledge Hub.
MaRS Discovery District. Social Entrepreneurship. Metrics in social impact investing: Measuring performance of non-financial goals [white paper].