Private sector and venture capital investors have repeatedly demonstrated that funding innovation can create profound societal change. For more than three decades, venture capital funding for early-stage, innovative startups has helped build some of the most innovative American companies—including Microsoft, Google, eBay, and Amazon. As these companies grew, they changed the US economy and transformed the way people live.
But things are very different in the social sector, which badly needs precious risk capital. While the sector has raised and deployed more than half a trillion venture capital dollars over the last 50 years, it remains starved for investment, particularly early-stage social enterprises. In 2016, investors allocated only 3 percent of impact investments to early-stage organizations.
As in the private sector, the social sector has its “unicorns.” Organizations such as Room to Read, Kiva, One Acre Fund, UpStream, Education Super Highway, and Crisis Text Line all raised extraordinary amounts of early capital that allowed them to scale quickly. But they are the exception.
In his annual letter to business leaders last week, Blackrock CEO Larry Fink wrote: “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate. Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders.”
Similarly, the new book Purpose, Incorporated: Turning Cause into Your Competitive Advantage (written by John Wood, co-author of this article) argues that we can no longer look to government to solve all of society’s issues and that supporting efforts that solve some of these social challenges is actually a competitive advantage for private sector actors. Purpose-driven organizations can build unique bonds with customers at a fundamental level, and thereby win the war for talent, significantly lower rates of attrition, and create a powerful and authentic voice on social media and beyond.
But while many of us have been trying to push corporations to become more purpose-driven for some time, this new call to action from Blackrock—the world’s largest asset manager, with more than $6.3 trillion dollars under management—is a clear sign that the time has come to make private sector support of social enterprises the expectation, not the exception. Early-stage capital not only drives capacity and scale, but also enables deeper leadership development and the ability for social enterprises to create strong partnerships with business in ways that are both creative and mutually beneficial.
VisionSpring and Warby Parker are two well-known examples of purpose-driven organizations that benefit both underserved people and the economy. Both organizations strive to ensure that people everywhere have affordable access to eyeglasses, and have supported each other’s capacity and scale from relatively early stages.
VisionSpring’s distribution of eyeglasses improves the productivity and quality of life for many people in emerging and frontier markets. Beneficiaries include both the customers, whose restored vision enables them to work and live more ably, and the local, trained VisionSpring entrepreneurs, whose services and goods help provide a sustainable and socially beneficial livelihood. Since its inception in 2001, VisionSpring has sold 4.3 million pairs of eyeglasses and estimates its economic impact at $929 million due to the increased productivity. Today, VisionSpring serves approximately 1 million customers annually.
After working as director of VisionSpring for five years and helping build one of its very first programs, Neil Blumenthal co-founded Warby Parker in 2010. Its aim was to provide designer eyewear at an affordable price, while leading the way for socially conscious businesses. Today, for every pair of Warby Parker glasses sold, a pair of glasses goes to someone in need. The company funds the production of eyeglasses for VisionSpring, and provides additional financial and human capital resources to support some of VisionSpring’s strategic growth initiatives.
The Warby Parker/VisionSpring partnership is much more than a corporate social responsibility program. It is central to Warby Parker’s brand identity, and it equips VisionSpring with a predictable, growing source of funding that fuels greater impact. Dr. Jordan Kassalow, founder of VisionSpring says, “Our partnership with Warby Parker has been central to our ability to scale. Its generous financial support is the tip of the iceberg. It provides our team with support in a variety of areas including IT, communications, and marketing.”
The early-stage organization Braven, founded in 2013, also benefits from business and institutional support and investment. Today, only 25 percent of about 1.2 million low-income, first-generation college enrollees will attain a quality first job or go to graduate school. As a result, nearly a million college students every single year are not on a path to reach their potential. Braven partners with colleges, volunteer professionals, and employers to offer the Braven Accelerator—a rigorous and relevant career-readiness course consisting of skills labs and coaching, and followed by robust, campus-based alumni programming. Universities—including San Jose State, Rutgers-Newark, and National Louis’ Harrison Professional Pathways Program—award fellowships that give students access to the accelerator and a professional network. And employers like Prudential partner with Braven to offer employees professional development opportunities, and foster a pipeline of qualified, diverse new recruits. These institutions see their financial and programmatic support of Braven as beneficial to both society and their mission.
Another example of successful private sector support is the skincare startup Tatcha’s work with Room to Read. In 2014, Tatcha’s cofounders Vicky Tsai and Brad Murray wanted to give a portion of its profits to Room to Read’s long-term Girls Education Program in Asia and Africa. They launched the resulting philanthropic partnership—Beautiful Faces, Beautiful Futures—with the idea that every product sold would support girls around the world to succeed both inside and outside the classroom. This was not a short-term promotion, but a permanent part of their business model. On International Woman’s Day 2017, Tatcha announced it had hit the “1 million school days funded” milestone. Since then, it has supported more than 1.5 million days of school and is now aiming for 2 million. Tatcha was still a small company at the time, but the partnership has allowed Room to Read to continue to benefit more children due to the sustainable nature of Tatcha’s investment and, as Tatcha’s business grew, so did the scale of Room to Read’s impact.
Of course, money isn’t the only way large corporations can help startup nonprofits scale. Credit Suisse helps Room to Read in a range of ways: skilled volunteering (its database expert spent two weeks in Nepal helping the Room to Read team with their Salesforce implementation, for example), donation of office space in important fundraising geographies like London and Hong Kong, and frequent flier miles to bring down the cost of travel. And, oh yes, they also write a large check.
Larry Fink has it right. The world badly needs more partnerships and solutions that pair social benefit with the bottom line. Partnering with early-stage social organizations provides private sector companies with the opportunity to leverage both their capital and purpose in a deeper way that more mature organizations can’t provide. Early-stage social enterprises desperately need more capital, as well as private sector capabilities in strategic planning, human resources, recruiting, marketing, and customer acquisition. The big surprise for private sector companies is just how easy and how meaningful these partnerships can be. All you have to do is reach out—and there is no time to waste.