Giving Compass’ Take:
• The author wants venture capitalists to understand that businesses who have a social cause aligned with their for-profit mission are worth investing in and that those social impact businesses will be successful.
• Are more venture capitalists coming around to the idea of a second bottom line? What makes venture capitalists different from venture philanthropists?
• Read about what happens when venture philanthropy meets organizing.
After networking with Silicon Valley VCs for a decade during the Web 2.0 years when I ran a large social networking site, I felt a lot of push-back when I told them I intended to work exclusively on for-large-profit businesses that also generated a direct social benefit. The response was mostly that they’re novelties or not good VC bets.
But study them closely and you’ll find a very different story. Successful profit from purpose companies are almost always strategic deployments based on first principles, concluding that enough customers reliably prefer quality product at a fair price if it also reflects their personal values.
Yet the traditional response by venture capitalists–and one I still often hear today–is they don’t want their profit de-maximized by a second bottom line. Conversely, impact entrepreneurs are often concerned that their impact will be de-maximized by servicing financial returns first.
But the best for-large-profit-from-purposes find that the purpose is what generates the sustaining financial returns, and it is that profit which throws off lasting impact. For these businesses, the profit and purpose are interlocked and the way to maximize profits is consistently providing the purpose.
They can unlock large markets that existing mercenary businesses didn’t even see in front of them. Then, once established, profit-from-purposes intrinsically create highly defensible moats around themselves. Competitors can’t simply knock them off by matching product, price, and convenience, they have to also match brand message, good governance, customer experience and satisfaction, supply chain excellence, and company values.
I simply want to highlight that the early, seemingly anomalous success of profit-from-purpose businesses are not anomalies, they are the tip of the spear. Younger consumers seek brands that reflect their values.
Read the full article about profit-from-purpose businesses by Ted Rheingold at Fast Company
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