Tuesday, September 21, 2010

Some Thoughts on Venture Gapital

My bleeps know I have been grappling with the idea of Venture Gapital for some time. Moving forward, in addition to covering BOPreneurs in this blog, I will also start to highlight Venture Gapitalists of note. In effect, to try to look at both sides of the table in this evolving dialog to build a healthier ecosystem of human, financial, social and natural capital. As always, bleeps, I'd appreciate your suggestions, nominations, props and criticisms. And I look forward to learning more at SoCap10 in a few weeks.

To kick it off, I'd encourage you to read Jonathan Lewis' remarks from last week, where he shares six operating principles for fighting poverty from a market perspective. More importantly for this post, he concisely unwraps some major differences between functioning financial markets and those in which the poor live. Venture gapitalists should ponder these before taking action.

In functioning markets, a distinction is made between public and private goods, between street cleaners and vacuum cleaners.

• Where the poor live, private investment is often the only investment. The market, quite literally, becomes the sole provider of the common good.


In functioning markets, survival of the economic fittest is a necessary consequence of progress. Some businesses succeed, some fail.

• Where the poor live, the only ethical economic policy is not creative destruction, but creative opportunity.

As we cannot bomb our way to peace and prosperity, we cannot finance our way to economic justice. In the end, the poor must have the power to speak up, speak out and speak for themselves.


No economic theory and no marketplace, whether functioning or failing, can change a basic truth. As individuals, we are each blessed, and burdened, with a moral compass. Free markets mean each one of us has the freedom to make ethical choices.


Is social entrepreneurship about creating a viable asset class to make money in developing markets or about building a social movement for economic justice? Are we advocates for the poor or advisers to the well-off? (emphasis added).

Jacqueline Novogratz, founder of Acumen Fund, was recently interviewed by David Bornstein of Dowser on "Investing to Change the World." Acumen sees a need for "patient capital" that is, I guess, a bit less relentless in seeking returns (their view/my view). I think she does a great job of outlining the challenge of venture gapital:
I said, 'You are very comfortable with charity, seeing a 100% loss, send the money out and you never see it again, and you justify the good it’s doing in the world even if your metrics are fuzzy. Or you’re comfortable seeing 20% returns on your investments with no social impact, and potentially some harm. But you are so uncomfortable in this middle section, where you might get the money back, might not, or you might lose 20%.’ And he said, ‘Yeah, because you’re playing the game of business but you’re not taking it seriously.’
And I said, ‘I never said we were playing the game of business. We’re playing the game of creating change and we are using business as a tool. We are incredibly serious about these businesses succeeding, but we never forget that these businesses are about tackling poverty.' (emphasis added)

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