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Increasing Valuation: How Can We Increase Social Enterprise’s Appeal to Mainstream Investors?
Do startups that call themselves ‘social enterprises’ sell themselves short while fundraising?
My startup, Obatech, has a strong social component – we help low and middle class Indonesian consumers access affordable drugs, and improve their medical adherence. However, we also have a strong business model, that doesn’t compromise financial return on investment to create social good. So we’re constantly told to advertise ourselves as a startup, not a social enterprise, when speaking with investors.
Social enterprise still embodies a weird tension – it treats the idea of tying together the creation of social good and financial wealth as an innovation, and more important, as compromise. Prior to the social enterprise movement, to credibly do social good, an organization had to eschew profit. Similarly, businesses making decisions based on social rather than financial values were thought to be weak – social and financial processes were separate. Although social enterprise practitioners were able to craft theoretical reasons why the social and financial need not be separate, the practical success stories that do exist are not enough to convince most investors. So startups with social elements have to be cautious of how they present themselves, or risk being labeled as a non-profit.
My team and I wanted to use the term social enterprise as a filter – to help us find investors that are as passionate about improving healthcare as we are. But it turns out that investors also use the term as a filter: when they hear it, they think a team is not focused on making money and growing their business. If good investors – who give us the right valuation, have strong expertise in healthcare or emerging markets, and have an amazing network – self select not to fund us because we call ourselves a social enterprise, then should we just let go of the title? What’s in a name, after all?
I actually find it quite surprising that the idea of social enterprise hasn’t caught on in the tech sector – tech startups are after all, also driven by finding profitable solutions to problems. This is the same ethos that inspires social enterprise – in both worlds founders develop or have an existing deep domain expertise of a particular problem, which they then use to find a profitable or sustainable solution. If the problem an entrepreneur chooses to solve has a social component, then they are in fact a social enterprise. And it’s not a dirty word.
In fact, perhaps social enterprise terminology could help direct tech entrepreneurs’ resources and energy to solving problems of the marginalized. Though this is ever so slightly starting to change, a popular critique of tech has been its focus on solving the problems of the privileged. For every online service helping the unbanked, there are another ten services trying to pitch investors a slightly altered version of Facebook, Yelp, or Instagram. Perhaps this happens because would-be entrepreneurs and investors don’t yet have a narrative helping them see the financial potential involved in addressing the needs of the underserved. Or maybe it’s because the marginalized seem like an inaccessible target for a tech startup.
At Obatech, we see the potential in serving the healthcare ecosystem in Indonesia. And because we’re involved with healthcare, I feel that it’s important for the company to have a well-defined identity as a social value creator – that way, even if we exit, our company will continue to take its responsibility to patients and healthcare actors as seriously as every company takes its responsibility to its shareholders. Terminology is important for asserting and maintaining this identity – it gives our company’s personality a name and an ideal. But ‘social enterprise’ certainly doesn’t hold back Obatech for pursuing or making profit. And we hope investors can see that our social and financial mission are in alignment rather than contention, and can support us in both.
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