Society desperately needs new answers to its most challenging problems. Despite significant huge technological and scientific advances of recent decades, too few have found their way to the people and issues most in need. With the perspective of our venture capital legacy, we believe early-stage investments in social entrepreneurs are essential to creating profound and lasting change.
As Clay Christiansen and his colleagues wrote in their 2006 Harvard Business Review article, we see early-stage social enterprises as “catalytic innovators” that produce disruptive innovations primarily because they come from outside the ranks of the established players. But too little capital in the social sector is directed to these young efforts, with resources often flowing instead to more mature entities and supporting existing solutions, delivery models, and recipients. These legacy organizations often do great work in their targeted areas. But more innovation is needed—and needed now.
What is it about these early-stage investments that allow them to create profound change? For one, they are free from existing constraints, expectations, and structures. By definition, they start by asking themselves “what’s possible”—a very different approach from the execution focus of more mature organizations, which are used to working within the constraints of the existing system. These investments tend to be more risk-tolerant—some say risk-attracted—and are certainly more able to iterate quickly, because they are unburdened by concerns of redeploying existing resources or resetting stakeholders’ expectations.
Funders often see early-stage investments as too risky or too “high touch,” or feel their outcomes are too uncertain and hard to predict. While our experience suggests that the first two are often true, we have learned that the third is less of an issue. Both in and out of our portfolio, we have seen numerous examples of how early-stage organizations create long-term, system-changing impact, not just by their success, but by their failures too. Impact from those whose early success leads to large-scale adoption is obvious. Less obvious are the derivative benefits from startup organizations whose initial insights have persisted even when the original vision of the organization has not. In other cases, early-stage organizations can demonstrate what is possible to populations who have lost hope, or governments that lack the investment capital or risk tolerance to pilot a solution.
In our own portfolio, Living Goods utilized an Avon-like business model to create a network of community health workers who deliver life-saving products door to door. This model brought a new delivery mechanism to the market and, as a result, Living Goods and its partner BRAC reduced child mortality in Uganda by 27 percent for less than $2 a year and proved it could be sustainable at a regional level. Equally important, the adoption of this delivery system into the market—and the resulting increase in consumer demand—put pressure on the pre-existing pricing of drugs. This caused prices to fall by more than 17 percent at nearby clinics and resulted in drugs becoming newly affordable to thousands of people. Living Goods’ model has now been adopted by a number of nongovernmental organizations, funders, and governments across the globe, including Population Services International and CARE International. This is just one example of the system-wide impact it has created.
Domestically, our grantee Crisis Text Line’s use of texts to supplement 1-800 help lines for those in need of help has provided a lifeline for millions of people in crisis. The innovation was not only technological, but also behavioral; people in crisis trust media they use all the time. And like Living Goods, there is a larger insight, namely the use of data that can localize the frequency, time, and location of these texts to correlate the incidents to possible causation determinants. Crisis Text Line has now processed 47 million messages and helped thousands in imminent danger of harm. By creating this additional pathway—leveraging and building on existing technology as an open solution—the organization has been able to scale at a speed and cost unimaginable at its inception.
An organization outside our portfolio, Health Leads, meanwhile found that patients at doctor’s offices and emergency rooms were often there not simply because they had health issues, but because they could not access critical basic resources such as healthy food, electricity, or safe housing to help prevent those medical issues in the first place. Health Leads was the first scaled model for connecting patients to services and resources as part of their regular doctor’s visits. Now, more than 20 years later, the organization has generated best practices for mobilizing resources to address the social determinants of health. This has lead to the development of a variety of widely adopted best practices for integrating social needs into care delivery. Health Leads’ evolution from a direct service provider to an “enabler” that provides tools, data, and expertise for health systems across the United States was an important evolution that significantly expanded its impact and exponentially increased the number of health systems partners. Its long-term impact is increasingly clear: This year, the federal Centers for Medicare and Medicaid Service’s Innovation allocated $157 million for a pilot project to test whether screening patients for and addressing social needs could reduce costs and improve health.
Year Up is another example. The nonprofit helps high-potential youth held back by a lack of opportunity move into better jobs by providing six months of technical and professional skills training, followed by a six-month internship at companies like Google, Salesforce, Facebook, and Tesla. These corporate partners invest in Year Up for each intern they host, with the funds covering the majority of Year Up’s operating costs. In return, companies gain access to a pipeline of skilled, motivated, and diverse talent that has proven to increase retention rates and work engagement. Students also earn up to 31 college credits throughout the year and are encouraged to complete their degrees, and 90 percent of Year Up graduates are either employed or attending college full-time within four months of graduating from the program. Launched in Boston in 2000, Year Up now serves more than 3,600 students every year in more than 21 cities, including Chicago, Baltimore, New York, and Seattle.
Living Goods, Crisis Text Line, Health Leads, and Year Up all started as early-stage organizations—under resourced and underfunded, but with strong instincts about what might be possible. Along their journeys, they changed and are changing assumptions in the ecosystems where they operate, providing new delivery mechanisms to solve persistent problem in their community.
Among the 115 investments we’ve made since 2002, we’ve seen many examples of early-stage social organizations becoming the building blocks for profound and lasting change. Even when these organizations fail to scale or achieve their desired impact, their failures and lessons learned can have a profound impact on the sector. They may be institutionalized in larger organizations or governments that can adopt elements of a successful model using a fraction of the resources they otherwise would have expended to pilot such innovations themselves. Too often social sector funders—even those who know it well—dismiss the idea that failure, as well as success, can lead to impact. Early-stage organizations can shine a light on inefficiencies or gaps that larger and more mature organizations often miss.
This is the essential value in supporting an early-stage social entrepreneur.
Over the coming months, we will lay out the case for investing in early-stage social entrepreneurs and showcase the impact these investments can contribute to creating social good across sectors and geographies. You’ll hear from voices inside and outside our portfolio, and learn about the struggles and challenges front-line organizations face in making a difference. You’ll also hear how funders view change and why they see early-stage investments as critical.
Our message is simple: There’s no time to waste. The urgency to fund early-stage social entrepreneurs has never been greater.