Lately there is a lot of buzz in Silicon Valley about social impact investing. Startup executives and venture capitalists with an earnest gleam in their eyes increasingly talk about using hi-tech to make the world a better place for everyone — rather than just vying for the multimillion-dollar exit. It sounds great in principle, but when it comes to social entrepreneurship, how many Silicon Valley investors are actually willing to put their cold hard cash on the line?
When we set out to raise funds to develop the Sesame Enable phone — a completely hands-free smartphone developed for people with spinal cord injuries, ALS, Multiple Sclerosis, and other disabilities that impair the use of hands and arms — we were met with resounding enthusiasm. “What a great idea!” “It’s so useful to so many people,” venture capitalists told us.
But it ended up being a lot of talk and no action. Raising money for products that revolve around special needs isn’t at all easy. Eventually, after months of slaps on the back but no backing, we found angel investors who were earnestly seeking a chance to make a difference. And, along the road, we won $1 million from Verizon and additional funding as winners of Michael Bloomberg’s Genesis Generations Challenge. We were also fortunate to be chosen for the first round of the A3i Accelerator — the only accelerator in the world focused on “ability tech.”
Few social entrepreneurship ventures are so lucky.
While overall entrepreneur funding is at a record high since the Great Recession, and early-stage investments in 2015 are at a multi-year high, social ventures are unceremoniously being left in the dust. If the concept is so popular in principle, why is it so difficult to make it happen in practice?
To be clear, social entrepreneurship is not charity. We are not in the non-profit business. Social ventures work like other startups, but our priorities are different: While we do prioritize profit, we look for the outcome of social good above all else.
A major obstacle is the lack of effective funding models and precedents that would reassure investors and pacify the risk assessors. As the founder and CEO of Pi Slice pointed out in a recent interview with Entrepreneur, “First, equity or VC financing usually expects an exit strategy that does not automatically exist in social ventures that plan on generating impact for the long haul. Second, the risk appetite for investors adjusts with the existence of proof of concept models.”
A key to overcoming these obstacles could lie in changing the way VC investors measure the profitability of social ventures: In assessing their potential, investors should measure the social impact, alongside profitability.
Another problem is that many VCs might salute our work but say that it is out of their “investment scope,” as our product is designed for a niche market. This attitude may be too short-sighted. Any startup setting out to create “the next big thing” faces a risk of failure. But social enterprises often present better odds of success because we know from the start that we’re addressing a concrete and proven need in our niche market as well as another potential need in the wider market. Building around a solid need makes you sustainable as a company and creates the solid platform necessary to innovate further and catch that big break to super profitability.
There is also great potential for spin-offs for the masses. For example, wheelchair ramps — initially developed for the disabled — are now relied upon by tens of millions of parents and caregivers pushing baby strollers. And the hands-free technology we are developing has numerous commercial applications, such as video gaming or as a tool for musicians to flip digital sheet music without lifting their hands from their instrument.
While traditionally, venture capital firms look to recoup 10 times their investment, some are beginning to see that businesses with a social impact stand a good chance for profitability, which I hope means that social startups will increasingly get a closer look.
The traditional model — exemplified by Bill Gates, Mark Zuckerberg, and others — is first making the billion-dollar profit, and only later engaging in wider socially-beneficial activities, such as philanthropy. But why wait when it’s possible to help others while achieving your professional goals and making a profit?
When it comes to investment in social impact investing, the gleaming Silicon Valley — which has changed modern life so spectacularly — has the potential to improve so many lives if it would encourage investing funds and talent in a socially conscious direction.