The Problem of Funding Early Stage Social Ventures

Suresh Fernando is starting a series of posts examining the systemic issues with funding “social ventures” (which would include peer production projects):

FIRST VIDEO: The Systemic Problem of Old Style Financing Explained

“There exists a systemic problem preventing the flow of capital to early stage projects that deliver social value. This problem has to do with the fact that there is a lot of risk in these projects yet not enough return to warrant the risk that investors take. This contrasts with the case in traditional business environments, where some projects are highly successful, hence venture capitalists and angel investors can still rationally invest in early stage projects.

In this video I aim to explain the systemic problem. In subsequent videos, I will explain how the OpenKollab Ecosystem Pooled Fund aims to solve this problem.

If I am right, the possibility exists to revolutionize the way early stage social ventures are seeded and incubated to success. This will make it possible for the world to suddenly be flooded with projects that are principally focused on delivering social value.”


SECOND VIDEO: On the unsuitability of important old paradigms to the new situations

“Check out:

In this video I make the case that the approach that social financiers take which is to invest only in projects that are highly scalable misses the boat because it is rooted in an old paradigm.

This is the approach that traditional financiers, venture capitalists take in their attempt to maximize financial profit. The approach is rooted in the principles that underlie capitalism; survival of the fittest, self interest, greed, individualism etc.

What social financiers (impact investors) are doing is importing existing models from traditional finance and applying these models in the social finance space.

What they need to be doing is asking themselves what values underlie the notion of social finance in the first place and developing capital allocation models that satisfy those values.

I maintain that the goal of social financiers should be to try to populate the world with as many socially beneficial projects as possible; to try to empower individuals to invest their energy in service of their communities and the world!

This requires developing models that support a much larger number of small projects that, in all likelihood, are not going to be scalable!

This will require that they discard their reliance on traditional finance models and that they start from scratch with some deep reflection on what role they see themselves playing as social financiers!!”

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