2004 Forum Report: Financing Technologies for the Environment
Open Space Sessions: Capital Development for Social Ventures
Facilitated by Amber Nystrom, Social Fusion
This group charged itself with two topics: 1) how to unlock foundation reserves to open up more investment capital in the clean tech and social venture arena; and 2.) identifying debt mechanisms that might be expanded to open up additional capital channels. The strong interest in these subjects was clear from the outset when the session nearly tripled in size from an initial 12 to over 35 people that actively and passionately engaged in a highly productive dialogue. The discussion quickly extended into a consideration of capital scarcity across the social venture arena, with the clean tech challenge used as one compelling example of a wider problem.
Both structural and psychological challenges to capital availability were identified, such as a lack of consistent metrics to express non-financial costs and benefits, and a fear of heightened risk for changing established investment practices that separate philanthropy and investing. Three primary themes emerged, as outlined below.
Building on the momentum and passion in the room, the session was closed with a request to three participants to host three separate 'salon' dinner follow-up dialogues. This follow-up was proposed in order create the mechanism and environment to promote and build a social venture marketplace. Given that it is still unclear what this marketplace would comprise, the best strategy was seen to be a continued engaging of select entrepreneurs, investors and funders. These groups will explore and commit to building this marketplace organically, step by step.
Principle Themes:
- Capital shortage: there is a scarcity of both capital and capital flow within not just the clean tech space, but the broader social venture arena. The lack of capital sources is due in part to a lack of traditional investor dollars that are being put into social venture enterprises. This is true and particularly troubling for foundations that use 5% of their capital for philanthropic purposes, but retain 95% of their endowment with little or no regard for investing this capital in line with their philanthropic priorities.
The lack of capital flow is due in large part to friction caused by market ineffiencies. There is currently no marketplace mechanism that brings together investors and enterprises in a fluid manner, and there is a lack of metrics that enable accurate assessment of risk and benefit. - Structural Limitations: there is a lack of knowledge about available debt and other financial options, particularly for nonprofit social ventures. There are also many fewer debt options available for these enterprises because their collateral as well as timelines are different from traditional businesses. This problem is particularly pronounced for clean tech ventures whose time horizons are longer than their investors are used to.
- Solution - is a social venture marketplace: addressing the above challenges must involve both a mechanism for linking players (investors, foundations, individuals with resources) and an up front commitment of financial resources that will kick-start a shift in investment parameters. In other words, it was felt that it will not be enough to either secure some additional capital, or create better linkages between investors and social ventures. It will need to be both, though this likely come about in smaller steps that will build on each other.
There are arguably three primary ingredients that will underlie success in building an exchange mechanism and capital resources sufficient to spur a social venture marketplace:
- Buy-in: cross-sector partnerships and commitments that bridge traditional investors, money managers and social venture opportunities.
- A Blueprint for the mechanism to reduce friction and stimulate more fluid capital flows in the social venture space.
- Buzz & Viral momentum that will carry expanding rungs of people and plans forward at a sufficient rate to produce self-propagating, large-scale and visible action with the greatest chance of generating permanent change.
