Silicon Insider: Social Entrepreneurs

The answer, amazingly enough, is almost all of them.

Parallels in Conception, Funding

It was Bill Drayton, MacArthur genius fellow and head of Ashoka, one of the largest foundations dedicated to supporting social entrepreneurs, who first noticed this correspondence.

The modern social entrepreneur, like his or her commercial counterpart, begins with an idea, for a product or service, and from the start works to build an enterprise with the largest possible impact.

For the social entrepreneur, this means systemic change in society — not a soup kitchen, for example, but a way to build a thousand, self-supporting soup kitchens in 25 countries.

This kind of ambition requires more than just a good heart. It also takes a very astute and forward-looking business plan, a strong startup team, and good business discipline — the same thing investors look for in commercial startups.

Then, in building this social enterprise, the social entrepreneur typically looks for sources of funding. Here, too, the analogy to commercial startups grows stronger by the day as a growing number of foundations have begun to specialize in what might be called seed-round, secondary-round and mezzanine philanthropy.

By this point, its initial vision largely fulfilled, the little social enterprise, now grown large, has become a major force on its surrounding society.

Yet There’s No ’Going Public’ Day

But now we get to the sticking point.

Commercial startups, if successful, eventually reach what is called a "liquidation" event — that is, they are either bought or they go public with an initial offering of stock — through which the founding investors and employees are rewarded for their risk.

By definition, there is no such event in the nonprofit world. And this would seem to be the break point between commercial entrepreneurs and their social counterparts.

And yet, even here, there may be an analogy. "Going public" for social enterprises may indeed be just that: the moment when they transition from being supported by foundations to being supported by donations from the general public.

Intuitively, this seems correct. After all, the biggest nonprofits — the Red Cross, Boy Scouts, the United Way — are largely supported by individuals and the private sector, not foundations. Thus, they are the Fortune 500 of the nonprofit world.

But that too raises more questions than it answers. For example, there is no comparable to the Going Public Day experienced by corporations. There is no stock exchange for nonprofits, where a market is made on its changing perceived value.

In fact, there is no standardized audit available that can accurately measure the real worth of a social enterprise — one that would take into account such intangible assets as societal impact and good will.

Thus the great wave of social entrepreneurship appears to crash against the shoals of valuation. Until the nonprofit world can get past the valuation paradox, it will likely never be able to completely unleash the power of social entrepreneurship.

That brings us to 2004.

Building the Ranks of Social Entrepeneurs

If you are a longtime reader of this column, you may know that each year at this time I visit the Said Business School at Oxford University and put on round tables for students, and bring along Silicon Valley leaders to teach master classes.

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