Social Entrepreneurs Lag Behind Impact Investors

By Matt Evans

Aron Jakab runs Fruit of Care, a social enterprise selling high quality design home decor like fruit scented candles produced by people with disabilities employed in workshops across Hungary. Aron is a savvy entrepreneur now, but a few years ago, the talented designer had no knowledge and expertise in business management, finance or market research.

This social enterprise was viable, but too early stage for impact investors like many of those attending the recent SOCAP Europe conference in Amsterdam. Fruit of Care instead tapped into an organization named NESsT, which, along with the Business in Development Network is one of the few organizations offering intensive business development assistance to very early stage social entrepreneurs.   Thanks to this support, Fruit of Care is now profitable, employing more people, expanding to neighboring countries, and already paying back its first loan which NESsT provided as very patient capital.

While interest in the concept of social investment is growing by leaps and bounds, it seemed from SOCAP that there is some danger of the cart coming before the horse. The burgeoning ranks of associations of social investors such as Investor’s Circle and the Global Impact Investors Network show that demand for good social investment opportunities exists and effective networks to aggregate that demand are keeping pace. Additionally, many of those present at SOCAP represent investors who are sitting on the sidelines, but listening to proselytizers of the field as they spread the word to foundations, family offices, and governments that they should take a look at the opportunities in the space.

At the same time, many of the investors at SOCAP Europe, and the SOCAP conference last September in San Francisco, could be heard noting that the supply of investment-ready social businesses is not adequate. It appears that there may be a mismatch between supply and demand, particularly in developing countries where entrepreneurs with great ideas and great companies lack the commercial sophistication, strategic thinking, and organizational systems to handle investments.

Lee Davis, co-Founder of NESsT, believes the space urgently needs more players willing to invest in the early stage development of social enterprises, even if it isn't as profitable. "We need to develop a stronger pipeline of investment-ready social enterprises or the very impact investors we're bringing to the table will walk away disappointed and they won't return," says Davis, adding "some proponents of impact investing are promising the moon."

In the technology space, incubators, angel investors, business schools, and strong peer networks fill the role of preparing entrepreneurs and start-ups for investment. Often, investible companies are led from the beginning by experienced entrepreneurs who already possess the appropriate skills. In the social enterprise space these networks are far more limited and far fewer entrepreneurs have already raised a round of investment or grown a company. As the field of social capital develops, it appears there may be a need for early stage support, particularly for developing country entrepreneurs, to create the pipeline of investible opportunities that the field of social capital seeks. As the field grows, it appears that more attention to this function could help generate the high volume of profitable and impactful outcomes that the cheerleaders of social capital are hoping for.

Matt Evans is the Managing Director of Impact Carbon and can be reached at mevans-at-impactcarbon.org.