Capitalists’ Socialism

In the world of finance, venture capital is among the activities with the highest risk profile. (Trading in derivatives is even riskier, but then that is almost pure gambling.) The risk comes from the fact that the firms are financing startups and entrepreneurs who have excellent ideas, but little in terms of current revenues or profits.

Social venture capital, an offshoot of conventional venture capital activity, takes on even more risk. That is because the social venture capitalists (VCs) back entrepreneurs trying to build businesses that will have a significant social impact. Most of these entrepreneurs (though not all) aim to change things at the very bottom of the pyramid. For them, making money and creating a social impact go hand in hand. And hence, giving money to these entrepreneurs is fraught with more risk than giving money to a guy, say, with a great idea for creating a Web business.

But social venture capital is slowly gathering momentum and gaining some sort of critical mass. Take Vineet Rai whose picture is on our cover this week. When he started his first social venture capital fund — incidentally he dislikes being called a social venture capitalist because he feels the term has been overused and abused lately — he had a lot of trouble trying to raise even the small amount he wanted. Today, launching his fourth fund, he finds that lots of mainstream financiers and VCs are eager to put their money into his bucket.

But social venture capital too is going through some troubles at the moment. A number of social venture capitalists have put money into microfinance institutions — and these institutions are in the midst of a raging controversy. That negative publicity is affecting the social venture funds also, though the latter lend money for sustainable businesses and are quite different in their overall goals. Associate editor Snigdha Sengupta takes a look at the social venture capital industry and how it is growing up.

Meanwhile, BW is starting a new series on doing business in dangerous areas. The idea is to look at people who have succeeded in building some sort of enterprise in trouble-torn areas — whether they are hotbeds of Naxal activity or global hot spots. This issue carries two small cases, one from Bastar and the other from Jharkhand.