social innovator's dilemma

Raising Capital

The Social Innovator’s Dilemma: Raising Capital

Anne Field | June 30, 2017


There’s a lot of talk these days about impact investing. But ask any social entrepreneur, and they’ll tell you that raising capital is their number one challenge. Impact investors tend to regard these early-stage social enterprises as too risky, even as they complain about a lack of high quality investment opportunities.

Call it the social innovators’ dilemma.

The situation was underscored in a recent report by Echoing Green, a 30-year-old nonprofit that works with emerging leaders in the nonprofit, for-profit and hybrid world, to develop their skills. As more of these leaders have pursued a for-profit model, Echoing Green has also created an impact investing program.

To better understand how it can accelerate capital flow to these entrepreneurs, Echoing Green teamed up with advisory firm Enclude to gather insights and put data behind the anecdotal evidence it was seeing.  The report includes input from 49 of Echoing Green’s fellows from the U.S. and around the world, as well as insights from focus groups.

“There’s a lot of hubbub around mainstreaming capital into impact investing, but we wanted to elevate the voices of entrepreneurs,” says Min Pease, Echoing Green’s director of impact investing. “We found that there are some big funding and market-level challenges.”

Echoing Green
Echoing Green’s Min Pease

The report looked at, among other things, the barriers that profit-seeking entrepreneurs face in accessing capital and the key types of support they need.

The biggest barrier reported by entrepreneurs was “finding a funder willing to take a risk at this stage.”  The problem is, early-stage entrepreneurs appear to lack the financial acumen and capital raising expertise investors expect. That’s creates a vicious cycle: Investors want to see evidence of traction or, at least, financial and managerial experience. But entrepreneurs can’t get those skills or traction without starting and running a successful enterprise.

As for market-level problems, a big problem is fragmentation of investor networks. Impact investors aren’t located in one place, like Silicon Valley, and even when there is a large concentration of them, they don’t generally share the same interests.

“There’s a saying, ‘meet one impact investor and you’ve met one impact investor,’ ” says Min. So there’s a need for new ways for entrepreneurs to tap investor networks.

To bring the data to life, the report cites real-life examples, such as that of EggPlant, a European social enterprise launched in 2013 that reuses wastewater to produce high-performance bioplastics. Eggplant has faced capital-raising roadblocks thanks to “misaligned expectations regarding time to market horizons and EggPlant’s capital-intensive business model,” according to the report.

On one hand, the company needs to test out its business model, an effort that will take time. On the other hand, investors want to see a return on investment in five years or less. Yet EggPlant does not envision reaching break-even within that timeframe.

Plugging the Gaps

Still, some social enterprises manage to get funding. The 49 Echoing Green entrepreneurs surveyed have raised a total of $92.8 million. The entrepreneurs reported that their primary sources of current funding are foundations, incubators/accelerators, and family offices. Over the next two years, they anticipate seeking capital from investment funds and corporations as well. About half of the respondents said they expect to generate market rate returns or close to them.

In March, Echoing Green also convened a meeting for a group of impact investing experts including Andrew Kassoy, a co-founder of B Lab, and Debra Schwartz, managing director of the MacArthur Foundation, to discuss gaps in the early-stage funding ecosystem. They came up with a few broad suggestions, such as encouraging more in-depth tracking and sharing of entrepreneurs’ funding and identifying lenders of last resort.

As for Echoing Green, it’s going to invest in more data tracking, create an Investor Advisory group, and explore programming that provides experiential learning to impact investors and entrepreneurs with more frequent interactions with potential investors, among other steps.

As it happens, a growing number of people recently have started trying to address that problem. For example, a new platform called investorflow lets impact investors post investments they have vetted so that others can co-invest.

Anne Field is a New York-based journalist who writes about social enterprise and impact investing. A version of this article originally appeared on her Not Only For Profit blog on


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