Monday, May 21, 2007

Social Sweat Equity: Monetisation of Social Capital

We have recently had a wonderful and lively discussion on the topic of social entrepreneurship. A lot has been said about building a sustainable organisation using the standard tools of business, so I will focus this discussion on just this issue of sustainability.

It is not clear to me how one would build in sustainability without periodic infusion of capital. Is an NGO that is built on periodic grants a sustainable entity? Or, does sustainability imply a steady revenue stream which is higher than the expenditure of an organisation? Or, is there something else that provides sustainability?

This is especially hard for those organisations that do not fit into a classical mould of a business where the consumer or customer ma not be a paying customer. Capital infusion could be grant-based, or it could be through the venture capital route. While traditional philanthropies and foundations have often provided grants to NGOs or non-profits, the average VC does not understand social entrepreneurship. While the VC understands financial metrics that are easily measurable, an NGO cannot easily provide metrics for social impact.

So we need to find a new abstraction to help in the monetisation of social impact. We need a new ontology, a new vocabulary, that will convey the meaning of this abstraction in traditional economic terms. We need an abstraction that will allow us to put an economic value on social impact. For the moment, let us call this abstraction "Social Capital" or "Social Sweat Equity". An analogy of "sweat equity" might be in order here.

The concept of "sweat equity" came up when VCs started funding entrepreneurs. This abstraction allowed the entrepreneur to put an economic value on his/her prior work in getting an idea off the ground and claim a significant share in a venture where cash infusion was provided by the VC. Wouldn't it be nice if we could use the abstraction of "Social Capital" or "Social Sweat Equity" to attract potential funders into investing into a social venture just as sweat equity is valued by a VC in a traditional venture?

We need to get some economic thinkers and financial gurus to think about this concept and provide a theoretical foundation which may then benefit the field of social entrepreneurship in the long run. "Social Capital" or "Social Sweat Equity" could clearly be defined in a way that would measure social impact which could then be monetised. Hence it is very important to create this abstraction.

Any ideas? ?


Digital Vision Program at Stanford University
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