Social Entrepreneurship is Hot, but Finding Funding Still a Challenge

Social entrepreneurship programs are sprouting all over on college campuses right now, appealing to idealistic student entrepreneurs who want to build ventures that make both profit and a social difference.

But students seeking to start socially responsible ventures face a double whammy when they emerge from college and are seeking funding, according to a recent Business Week article.

They face the normal problems with luring outside investors that young adults face — simply that investors tend to want to back entrepreneurs with a track record. But second, it’s hard as it is for socially responsible entrepreneurs, even those with other ventures under their belt, to find investors willing to take a chance on ventures sacrificing some profitability for the social good.

Some angel-investor networks and other investor groups like Investors’ Circle and Good Capital focus solely on investing in ventures with so-called triple bottom lines — those that measure success based on their economic, environmental, and social impact. But these groups get hundreds and hundreds of pitches, selecting few.

To help make these student-led enterprises more successful, some entrepreneurship programs are adding courses to teach students with socially responsible endeavors how to better pitch them to investors, such as conducting interviews and market research to gauge the venture’s social impact.

It seems like there will be more opportunities for socially responsible ventures to raise money, as more socially-responsible angel groups and venture funds emerge – and as consumers increasingly factor goodwill into their purchasing decisions. But there’s still the issue of creating a venture that is profitable enough for investors to want to invest and still creating social value. That seems like a hard balance to strike.

What can student entrepreneurs who want to start socially responsible ventures do to make themselves more appealing to investors? Ever thought about starting one?

A Definition of Entrepreneurship

The concept of entrepreneurship has a wide range of meanings. On the one extreme an entrepreneur is a person of very high aptitude who pioneers change, possessing characteristics found in only a very small fraction of the population. On the other extreme of definitions, anyone who wants to work for himself or herself is considered to be an entrepreneur.

The word entrepreneur originates from the French word, entreprendre, which means "to undertake." In a business context, it means to start a business. The Merriam-Webster Dictionary presents the definition of an entrepreneur as one who organizes, manages, and assumes the risks of a business or enterprise.

Schumpeter's View of Entrepreneurship

Austrian economist Joseph Schumpeter 's definition of entrepreneurship placed an emphasis on innovation, such as:

• new products
• new production methods
• new markets
• new forms of organization

Wealth is created when such innovation results in new demand. From this viewpoint, one can define the function of the entrepreneur as one of combining various input factors in an innovative manner to generate value to the customer with the hope that this value will exceed the cost of the input factors, thus generating superior returns that result in the creation of wealth.

Entrepreneurship vs. Small Business

Many people use the terms "entrepreneur" and "small business owner" synonymously. While they may have much in common, there are significant differences between the entrepreneurial venture and the small business. Entrepreneurial ventures differ from small businesses in these ways:

1. Amount of wealth creation - rather than simply generating an income stream that replaces traditional employment, a successful entrepreneurial venture creates substantial wealth, typically in excess of several million dollars of profit.

2. Speed of wealth creation - while a successful small business can generate several million dollars of profit over a lifetime, entrepreneurial wealth creation often is rapid; for example, within 5 years.

3. Risk - the risk of an entrepreneurial venture must be high; otherwise, with the incentive of sure profits many entrepreneurs would be pursuing the idea and the opportunity no longer would exist.

4. Innovation - entrepreneurship often involves substantial innovation beyond what a small business might exhibit. This innovation gives the venture the competitive advantage that results in wealth creation. The innovation may be in the product or service itself, or in the business processes used to deliver it.