Friday, March 28, 2008

Entrepreneurial investors

It's a common refrain for people in economic development to complain that "if only we had more capital in our region, we'd be able to create more opportunities". Similarly, entrepreneurs complain about the lack of seed capital, that good deals that don't get funded. The refrain from the investor side--and one that I often repeat--is that it's not a question of not enough capital but of not enough good deals. This is particularly well articulated by someone I've recently gotten to know, Paul Hudnut, in a post last year (LINK). In his post Paul talks both about for-profit businesses and about social entrepreneurs who create non-profit businesses. He says that in the past he has played an experiment with people to test the assertion that good deals get passed over, asking them for specific examples. "In close to 10 years, I never got an example."

I think this is sort of true but also misleading.

The reason it's misleading is that angel capital, venture capital and indeed foundation capital for non-profits is far from passive capital. Investors are also entrepreneurs. And as such, they don't just sit passively and wait for the deals to come to them. They make deals happen. Without them as active players, certainly some deals wouldn't happen. I can trace a long line of companies in our local region that I do not think would exist today if it weren't for the efforts of certain investors who helped put the companies together, brought in new management, introduced the company to key customers, and were instrumental in creating the opportunity in partnership with the business entrepreneur.

As I've begun to dip my toe into the water of social entrepreneurship, and in particular opportunities to create market-oriented solutions to poverty, I've started to wonder about the role of investors in this world.

In the VC world, it's become of late a standard refrain to say that venture funds are getting larger, moving further away from early stage, and that even angel investors are moving up market. The broad data bears this out. But the broad data misses the trend of some large funds investing more dollars at earlier stages, especially in green tech. And it also misses some new innovations in "entrepreneurial investing", in particular TechStars (LINK) and Y-Combinator (LINK). Are there opportunities for similar such activity in the social entrepreneurship space? Is there an opportunity to create some sort of BOP-targeted incubator for-profit ventures? Or as a neophyte in this domain, does such activity already occur and I don't know about it?
Post a Comment