I was intrigued, excited, yet discouraged after hearing Andy Funk's discussion of social ventures and his experience with funding such ventures. One thing he said really struck me: Andy said that sometimes people will approach him fully committed to their cause, understanding that financial gains in their company were secondary to social impact. However, once those businesses took off and made significant profits, people tended to focus more on profits, and the social impact of their business took a back seat.
This statement made me wonder whether we too will face the same issue. We are all business leaders of the future. Although we have similar passions for making a social impact through business, how will we ensure we stay focused on the social goals we've set for ourselves? How do we keep each other on the right path? Or is the Friedman mentality that "the social responsibility of business is to increase its profits" enough? How do we know that pursuing profits will actually lead to social impact?
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Tiffany those are good questions. I think the answer is that there should be discipline on making a social impact so long as the venture is on track to meet the IRR or ROI target that was set at the beginning. The temptation to capture excess IRR at the expense of the social mission will always be there, but deviating from that mission may be a value destroyer in the longer term.
This focus on maximizing profits (at least in the short term) is actually the wrong one in my opinion -- what matters is value creation for stakeholders and sometimes the social mission of the brand is acknowledged in the market valuation. As we know, Ethos Water was unprofitable at the time it was purchased by Starbucks, but I am sure through its exit it generated an attractive IRR and ROI for its stakeholders while not abandoning its social mission.
The Andy Funk example is a bit of a distraction from the key issue I would say, as he is not really competing with other VCs for limited partner dollars and can more easily tolerate IRR shortfalls among his portfolio companies. The real breakthrough will be when SRI VC firms are able to compete from an IRR standpoint with non-SRI VCs for limited partner funding. Then the model can be scaled up and a larger social impact can be made. Given the valuation premiums that are apparently beginning to be placed on socially responsible ventures this should eventually be possible.
One exciting development is the emergence of SRI funds within already successful and established "traditional" VC firms. An example of this is the $400MM "Green Growth" fund that Al Gore and John Doerr are currently promoting to limited partners under the Kleiner Perkins umbrella (http://www.pewnews.com/story.asp?sectioncode=36&storycode=44384).
This model may prove to be the biggest driver for growth in SRI VC investing.
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