Social venture capital (SVC) aims at investing in a socially responsible manner in companies, which are looking to provide real social change. SVC is a form of investment funding that is usually funded by a group of social venture capitalists or an impact investor to provide seed-funding investment, usually in a for-profit social enterprise, in return to achieve a reasonable gain in financial return while delivering social impact to the world. Governmental organizations, non-governmental organizations, and charities used to be the major players in the battle against some of the biggest social and environmental issues. It deviates from the traditional venture capital model, which focuses on simple risk and reward. SVC focuses on companies that want to solve environmental and social issues, such as alleviating poverty. Nonetheless, social investments are on the rise in the developed world as well and attract significant amounts of funding.
Venture capitalists have the power to influence major decisions of the companies they are investing in as it is their money at stake. A social venture or social enterprise is a business venture that prioritizes a social good along with business success. However, there are various organizations, such as Venture Philanthropy (VP) companies and nonprofit organizations, that deploy a simple venture capital strategy model to fund nonprofit events, social enterprises, or activities that deliver a high social impact or a strong social cause for their existence. It is a highly philanthropic form of investing, as the focus is on finding companies with a strong social conscience. Venture capital is typically allocated to small companies with exceptional growth potential, or to companies that have grown quickly and appear poised to continue to expand. However, due to the interconnected nature of our modern societies, together with the improved technology, entrepreneurs are also looking to solve social issues. There are also regionally focused organizations (both for-profit and nonprofit) that target a specific region of the world, to help build and support the local community in a social cause. It should be noted that social venture capital investors often have different ways to define “socially responsible”.
Socially responsible investing and entrepreneurship have led to the emergence of social investment funds and businesses. SVC is provided by specialist social venture capital firms, funds, and impact investors. The focus of social venture capital firms is often on the developing world. The investments are directed to developing countries and companies operating in these countries. Social venture capital’s successes in providing healthy returns for investors have accelerated the setting up of different funds and firms.
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