Do we really need more money?

Ask any entrepreneur, social or otherwise, and the answer is always an emphatic “yes”.

As CEO of ClearlySo, an early stage social business, I am among those lining up with my hand eternally outstretched—in search of funding.  We are all keen to get our hands on more capital, convinced this will solve all our problems.

We seek it everywhere and demand governments “do more” for the sector.  When Barack Obama recently requested $50 million for a Social Innovation Fund, I queried the amount, suggesting it was trivial.  After all, in Britain the government has invested hundreds of millions of pounds into social enterprise and is currently considering at least another £300 million to support a Social Investment Wholesale Bank.

But the question arises—is all this government money a good thing? In a recent blog post, I challenged that notion and pointed out that the social business sector, especially in the UK, was in danger of being flooded by too much government funding.  Does this not crowd out private investment?  Are the criteria for decision-making apolitical, or are they heavily influenced by partisan calculations or “cronyism”?  In such times of burgeoning fiscal debt and individual hardship is such government largesse appropriate?

There is a more fundamental question.  Are we focusing too much attention on the supply of investment to the sector?  Funds for investment can be organised quickly—overnight if you’re Bill Gates.  But to build a successful business can take at least 5 to 10 years.  By focusing excessively on the investment side are we not missing an opportunity to invest more into building great businesses?  Won’t this imbalance harm the earliest investors, who will realise poor financial returns as too much capital will be chasing too few good deals?  Won’t the longer term future of Impact Investment suffer as a consequence?

I understand the importance of bringing more capital into the sector.  But we must ask ourselves what is the best use of incremental funding at this time—more investment or building more great businesses?  The companies need professional non-executives, sound financial control, well-conceived marketing and sales strategies, etc.  Demands for more funding have become an act of faith for practitioners in the sector.  Is this serving our long-term interests?

First published in The Social Edge in August 2009.