Venture capitalism is having an ethical renaissance, best exemplified by Social Capital’s $600m committed spend from previous fundraising efforts. However, industry insiders have informed Bloomberg, reporting, that stalling plans have affected their intentions. This shows that while noble, ethical, socially-minded venture capitalism is not as straightforward as suggested.
For investors looking to make a positive social impact as a side benefit of their ventures, there are opportunities to be had. Green tech focused investment has a tangible benefit on reducing poverty and unequal access to resources, for one. What remains to be answered is if socially responsible capitalism will be a big factor throughout the rest of 2018 and onwards.
Addressing income inequality
Income inequality is defined by the Gini index, and the USA has room to improve with an increasing index of 39, according to the OECD. Lack of access to career progression, poor educational standards and low employment rates is key. The issue is that this is bad news for business and investors, as income equality spikes in Rust Belt states and ultimately causes political change and ensuing instability. Venture capitalism is making headway in this area by providing access to low-income investing as part of the business model; furthermore, large VC firms like The Reinvestment Fund use gains made through business to reinvest in disadvantaged communities, pushing $1.2bn into the Mid-Atlantic and generating future markets, according to Bloomberg.
Supporting positive businesses
A large factor in VC firms having a positive impact is their ability to look beyond profit. Profit is, of course, the absolute bottom line in defining a firm as successful, but fund directors have started to analyze the value of businesses having a positive impact. Take, for example, Chicago’s intuitively named The Impact Engine, who Forbes report have invested in businesses in mental health and career development. As a result of their initial $10m investment – spread over 23 businesses – an additional $23.4m in venture capital has been raised. While relatively small scale, the proportionally high uptake from secondary investors demonstrates the value of prioritizing positive social impacts in a business model.
Big institutions making moves
Social VC has, with the exception of social capital, been brought forward by smaller million-dollar firms. This is set to change, however, with the popularization of impact investing. According to the Global Impact Investing Network, the market is set to grow to $25.9bn by the end of 2018. While this doesn’t seem huge, it has attracted the likes of BlackRock, Goldman Sachs and Bain, providing impetus, relevancy and public awareness.
With institutional investors moving onboard with social/impact investing, and lots of great work being done on a city-by-city basis by small firms, the future looks bright. Investors are beginning to realize the benefits of producing positive impacts through their investments, in the short-term but especially longer. It’s one to watch throughout 2019.