Social venture capital 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 an outsized gain in financial return while delivering social impact to the world. 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 causes for their existence. 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.
Investment criteria
Apart from the traditional venture capitalists focusing on just the financial profit, social venture capitalists believe in achieving financial success through social impact to the world. Beside, those Venture Philanthropy (VP) funds such as Venture Philanthropy Partners initiate investment in a high-performing nonprofit organization, the following criteria that social venture capitalists generally assess on social venture companies for funding:
Strong Social Impact
Financial capacity
Scalability
Best-Practice
Criteria of exclusion
Types of funding and growth support
For-profit
Social venture accelerators
Social venture accelerators is a form of seed accelerators that fixed termed, cohort-based entrepreneurial development programs designed to transform validated idea of the social startups companies to seed funding. Hence, increase the outcomes for sustainability and growth of startup companies that have potential to scale (usually tech-based companies). Such programs allows startup companies to gain exclusive visibility to early- stage investors and other resources such as providing initial investment, technical facilities/development, to office accommodation and under the guidance of experienced mentors, all of which in return of a minor share in the invested startups companies, or under grant funding to support participating companies. Seed accelerator companies will assess based on startup companies' business model and ensure market/customer sector validated, to develop a commercial validity of the social startup companies to investment ready and prepare to scale their impact.
Social incubators
Business incubators usually provide business with facilities and funding with the help of external management team to manage an idea that was developed internally. Given the intense efforts involved, the incubator period usually lasted longer the seed accelerator, and takes up a much larger amount of equity than Seed Accelerator as well.
Social incubator fund
As part of effort of UK Government to support social ventures from a grassroots level to deliver positive social and environment impact, a £10 million Social Incubator Fund, which was launched on 24 July by Minister for Civil Society, Nick Hurd. The fund run by Big Lottery Fund will increase the amount of money available at the early stages of projects where the financial return is too low while Big Society Capital invests social investment intermediaries that carries higher financial risk. However, such funds doesn't indicate free funding, as incubators such as Social Incubators North, a social business incubator provided a repayment interest free loan of £25k to successful applicant. On the other hand, newly launched Non-For-Profit incubator Halcyon Incubator targeting on the social impact that the social ventures deliver, does not require equity in the fellow's venture, but only a commitment to growing ideas to achieve social change.
Non-profit oriented funding and support
Venture philanthropy deploys simple venture capital strategy model to fund non-profits events/social enterprises/activities that deliver high social impact or a strong social causes for its existence. Organization such as Amanter Social Venture provides such services focusing on social principles as main assessment criteria and running programs to help existing social organization/enterprise through capacity building and executive training to deliver a multiplier effect to the next beneficiary organizations. The classic example of Benetech, a non-profit organization, shows that the proceeds gained were being used to create a handful of new social enterprise patterned.