Over the past couple of decades, the social enterprise space has seen a distinct transition from a not-for-profit model to enterprises creating social impact to entrepreneurs looking to serve the bottom-of-the-pyramid purely as a commercial proposition. The non-profits and venture firms are on solid ground because they have a very clear mandate and they know what their objective is. They just need to go about doing their jobs more efficiently. But straddling two boats is not that easy. So, when entrepreneurs try to create a new market where none exists, be it a dearth of credit, toilets or healthcare, they initially rely on funding from foundations or investors willing to accept a lower RoI in return for a social objective being served side by side.
As a social enterprise grows, the need for additional resources takes the entrepreneur to a point where he has to attract mainstream capital, either in the form of venture capital or private equity. These intermediaries, in turn, have a fixed investment tenure and, hence, depend on secondary or trade buyers for an exit. And if the exit is through the public market, all kinds of imperatives begin to take their toll. The quarterly performance, an eagle eye on profitability and return on capital dictate business decisions. At that stage, the social objective that an entrepreneur would have initially begun with clashes with the expectations of a new set of public investors. As a consequence, there is a clear risk of profit being preferred over the larger social good.
But the tide is turning in favour of social enterprises. Previously, while they had to make do with grants or impact funding, they now also have access to funds from the CSR kitty of corporates. The new regulation on mandatory corporate social responsibility is expected to give social enterprises access to a large resource pool. Our cover story this issue looks at some already existing examples of corporate and social enterprise collaboration. Another interesting feature is on regional jewellers who are keen on making a mark outside their stronghold.