Feature – Turning the tables?
As the European VP market reaches $1bn, investors need to readjust to the scarcity of social innovation
By Felix Oldenburg, Europe leader and director Germany, Ashoka
The pioneering EVPA survey published in June puts the collective investments of European venture philanthropy at $1bn. This is an impressive achievement for such a young sector, and it should be celebrated at our Dublin meeting. However, if the sector wants to continue to grow – remember the Monitor Institute promises a global impact investing market at $500bn in a few years – we have to acknowledge the challenges today.
Social investors feel they sit at the end of an oil pipeline with very few deals gushing out. Many admit their portfolios include fewer fast-growth social innovations and more traditional green-tech or social housing investments than they would like. Walking up the pipeline and spending more time and philanthropic funds to make social entrepreneurs “investable” is not only more costly than many fund models allow, it also reveals that venture philanthropy has to figure out how to compete for – or, better yet, work with – the much larger field of other funders of social innovation in Europe.
Social entrepreneurs, in contrast, feel the sand shifting beneath their feet. The acceleration of venture philanthropy has not only created a preference for customer-based, self-financing social businesses, but is slowly changing the terms on which other funders engage even early-stage social innovation. In Europe, this trend hurts social investors and investees alike. It narrows the spectrum unnecessarily. As argued in Forbes, recent breakthroughs at CERN, the European organisation for nuclear research, could inspire us to see social entrepreneurs as the research and development arm of our societies, requiring open-minded, collaborative and patient funding from an entire landscape of funders.
In another Forbes article, I compared the current funding landscape to a “planet walk” – hiking trails that start with Mercury and Venus, about the size of golf balls, go on to Earth and Mars about the size of melons, and so on. The different funders of social innovation are like planets – worlds apart and with separate ecosystems. Foundation planet has no expectation of returns but can be highly restrictive. Government planet is Jupiter-sized but both tricky to land on and to survive its gravitation. And there are more planets. Impact investing planet is tiny. Today, social innovations seek funding from all these planets independently, with huge costs and severe consequences for successful growth.
We are beginning to recognise that the scarce resource in this universe is not funding but great social innovation in the hands of an entrepreneur.
In the same productive way that venture philanthropists challenge social entrepreneurs to rethink their business and monetise their impact, perhaps it is time for social entrepreneurs to challenge social investors to compete and collaborate with each other to provide the best funding for a given idea. If our European venture philanthropy community could help turn the tables in this way, we could go beyond the unproductive power imbalances.
EVPA members are already pioneers – look at the celebrated Social Impact Bond – in rewiring the world of social finance to revolve around the needs of social entrepreneurs. Our sector will change quickly, not least with the entry of governments – Big Society Capital and the German KfW only the first, while the European Union earmarked €90m from 2014. While it is great to learn from others, our challenge is to develop a specifically European approach that connects philanthropic grants, public funding and impact investing (see the fresh approach in this Harvard Business Review article).
Follow Felix on: @foldenburg