Too Good To Scale – Can Social Businesses Attract Investment?
Original article published by Forbes on 16th November 2017.
According to research published by UK innovation agency Nesta, Europe is now home to almost 2000 tech-driven ventures that have set themselves the task of addressing major social challenges,
Depending on whether you happen to be a glass-half-full or a glass-half-empty sort of person, that figure might strike you either as encouraging evidence that tech entrepreneurs are doing their collective bit to solve some of the world’s hitherto intractable problems – or rather a low number in the context of an entire continent.
And while tech4good (or as Nesta puts it, Digital Social Innovation) companies are growing in number across Europe – with the current total almost double that recorded in 2015 – relatively few are succeeding in scaling up. Nesta’s research, carried out under the umbrella of the DSI4EU project, cites lack of finance and a digital skills shortage as limiting factors, along with a lack of joined up thinking that results in DSI entrepreneurs and teams working in relative isolation.
Tech For Good
Cut to this year’s series of discussions, masterclasses and network events that took place under the banner of Silicon Valley Comes to the UK (SVC2UK) in late October and Early November. Taking place annually, SVC2UK brings together entrepreneur and investors from Britain, Europe, and the US, primarily to share information, insights and advice on the challenges of founding, funding and scaling disruptive businesses. Reflecting the growing interest in technology-driven companies that set out ‘make a difference’, this year’s summit included discussions on ‘tech4good’ for the first time – with the balance of purpose and profit a key theme.
What is A Social Business?
Arguably one of the most fundamental issues facing an entrepreneur who seeks to create a scalable, investor-friendly social purpose business lies in defining what that actually means. There is an abundance of terminology. Nesta’s report defines Digital Social Innovation in terms of ventures that address social challenges and foster community engagement. Then there are traditional ‘social enterprise’ companies, founded to deliver benefits to defined communities, typically running on commercial lines but often putting profits back into the business, rather than distributing money to shareholders. Added to that, were increasingly seeing fully commercial social impact business that combine purpose with business models that are suitable for investment.
And as Shiza Shahid -speaker at SVC2UK and CEO of the Malala Fund and mission driven venture fund Now Ventures – argues, the term ‘ tech4good’ can be applied to a diverse range of business models. “Some companies – say in the healthcare sector – have a product that delivers a social impact,” she says. “But in other cases the product is neutral, but there is some aspect of the business that delivers a social good.” As example, she cites Ben & Jerry’s focus on creating a sustainable supply chain and optician Warby Parker’s policy of giving away a pair of glasses to someone in need to match every pair sold.
In that respect, a social business might be one that delivers a social good through its supply chain policies or giving something back to the community. Alternatively, a company might gear its recruitment policies to pursuing diversity.
But Will It Scale?
At this point a potential investor might well exclaim: “Well that’s all admirable and I appreciate what you’re doing, but how can I be sure that you won’t prioritize your objectives over the ability of the company to maximize profits, deliver on its growth plans and provide me with a return?”
Shahid sees no conflict of interest. Quite the opposite, in fact. “I would argue that mission driven companies are a better investment,” she says.
There are, of course, surveys to back up that view. It has become almost conventional wisdom that customers, in theory at least, favour businesses that are associated with a commitment to sustainability. What’s more, the same businesses are thought to have a competitive edge when it comes to recruiting talent. But as Shahid acknowledges that when it comes to investment, these positive values must be wrapped around a sound plan to generate revenues and profits. Sitting alongside the desire to have a social impact, there must be business model.
Business Model First And Foremost
But what does that mean in practice?
Alcove is a UK company that is seeking to disrupt the social care market by enabling chronically ill people to remain living in their own flats and houses, rather than being forced to move into care homes. It’s a technology-driven business which deploys cameras and sensors (some wearable) within the home to monitor the activity of people who might be suffering from conditions such as dementia, autism, diabetes and various kinds of disability. The Internet of Things based system can be used not only as a means of checking that users haven’t fallen or become too ill to function, but also to monitor activity, such as the taking of medicines.
Initial funding came from High Net Worth angels and after three years, the business is profitable and works with local authorities, private companies and a major insurer to deliver services. As founder and SVC2UK attendee, Hellen Bowey explains, Alcove is first and foremost a business. “Our starting point was to build a commercial business. If we’d started as a “safeguarding company,” we wouldn’t have got off the ground.”
It is perhaps a matter of emphasis, given that Alcove is absolutely in the safeguarding business. In a UK care system where much of the money is channeled into care providers’ labor costs, Alcove’s technology is all about delivering effective safeguarding in the home, without the need for constant human attendance. As such there is a real social impact. On the other hand, as someone from a commercial background, Bowey has focused on creating a profitable model based on commercial partnerships. A model that she is already scaling out into the European marketplace. As such, purpose and profit are entirely compatible.
Striking A Balance
It’s up to each business to decide where the balance between commercial imperatives and social purpose lies but Shahid sees no reason why a company with a social purpose should not be investable. “I am driven by the vision that social impact companies can be backed by scalable capitalism,” she says.