Tuesday, September 08, 2009

Definitions and Metrics (yawn)

SoCap09 had many sessions, blogs and tweets on metrics and ratings. And the "social entrepreneurship" field seems to have a fascination with definitions. Dare I say it is a morbid one? (I do.)

Today, Ashoka x-posted Adrienne Villani's blog on the question: "can you be a social entrepreneur if you aren't the head honcho?" Why do we care so much who gets to wear this coveted badge? Does it actually make a difference where it counts- solving the issues of poverty, environment and health in the BOP? I'm skeptical.

So, why do I think this fascination with definitions and metrics is "morbid"? Because this field is full of people who like to watch, comment and tweet. Social entrepreneurship, and for that matter, plain old entrepreneurship (irony intended) are not spectator sports. This well meaning crew (I am giving them the benefit of the doubt) of spectators is, at best, a distraction. More likely, it is a negative effect, in that it is making entrepreneurs spend time on spreadsheets, conference calls, conferences and reports, instead of getting stuff done. And if the spectators spent their conference fees on ventures, I'd bet the world would be better off. Take the money to attend the next "unconference," and start a fund which actually has to make decisions and investments. Not just discuss stuff.

Will ratings and metrics help? Well, reports from both Skoll Foundation and the Center for Effective Philanthropy help illustrate the quandry. Because these entrepreneurs build value that cannot be measured with financial tools alone, investors/donors have resorted to a plethora of self-set goals. Perhaps workable for measuring effectiveness of an individual venture, but hard to compare across a portfolio. Unlike those VC's (which most of our spectators seem to envy) who supposedly have terrific, easy to use metrics (e.g., 10x or 30+% IRR). So our spectators get all a-"twitter" on how the field needs transformational radical new metrics. Then they fall all over each other with competing methods. So the new venture looking for funding now has to run spreadsheets using IRIS, GIIRS, SROI, and WTF.* That is sure to add value, right?

Can standardized, improved metrics help bring new capital to the field and fertilze more and better ventures? That is the underlying assumption. But as I have written before,** I suspect this capital shortage in this field is only the market being relentless. It isn't a financial capital shortage if the market is not providing funding to those ventures that don't deserve it (and I have had my fair share of these). It may be a human capital shortage. Does financial capital drive more human capital into a new field, or does experience point to the converse being true? My opinion is that finance follows after the innovators; the trail needs to be pretty packed before those carrying money bags come along. And the early innovators aren't motivated by money, or swish conferences. They are motivated to fix what sucks.

Two years ago I challenged this sector to "give me a specific example of a good team with a good idea that didn't get funding." Maybe I don't get around enough, but no one has given me that example. Sure not every venture gets what it tries to raise, but the good ones are still going. Yes, the market is a nasty and brutish place, compared to the loving embrace of a feel-good conference. Progress can seem slow to the spectators, but on the field, the entrepreneurs are working hard, learning and doing. Often without standardized metrics and rigorous evaluation techniques. But making progress on addressing what sucks. Doing something about it.

Don't get me wrong. I think there are definitely some unserved needs for financing these new ventures. New instruments and new incentives could be very useful. But enough on definitions and metrics. Time for less talk and more action- if you have a theory on metrics, go raise a fund (e.g, Acumen) and make some real investments. A few decent sized seed and A rounds have happened.*** A few more are in the works. All good stuff. But I think that there is too much academic/consulting/foundation DNA in the room. Not listening enough to the entrepreneurs and experienced investors. Having investable deals will drive investment in worthy ventures, not better definitions or metrics.
*OK, I admit it, I made the last one up.
** See here and here, if you are so inclined.
*** d.light and Vidagas come to mind.

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