“I mean really, whatever you woke up worrying about this morning, get over it. How important in the greater scheme of things can it possibly be? Make your peace and move on.”
Ken Robinson

The Element

A Great Divide – VC & Philanthropy


SweetClarity has me thinking about and acting to raise money required to support the project. SweetClarity aims to facilitate a new day-to-day meeting between art, artists and society – it has a manifest (which came before it’s executive summary). SweetClarity is also developing a business infrastructure to ensure its future independence and to achieve one of its strategic objectives – paying artists revenues for having their work presented. So far I have encountered two potential funding avenues: venture capital (with it’s varying flavors) and philanthropy.

Before some people get offended because of the the thoughts I am about to share let me say that I believe that there are exceptions to the dynamics I will describe. They are exceptional and hard to find. I have encountered some and it has given me great comfort and hope.

The Money

My impression of venture capital (based on my very limited experience) is that it is all about money – this is the bottom line. I cannot really relate to this because it does not align with my outlook on the world, on life and on business. The dynamics of Venture Capital are about risk-taking – but where does the risk fall? The investors (the people who’s money goes into the funding – whether directly or indirectly) have money to invest and are probably doing so wisely. Though many investments probably fall through, those that do make up for all the losses. How can you tell? Easy, they are still playing the game – big time. The VC managers are paid a good salary (if to judge by their offices, clothing, cars, etc.) regardless of actual performance. Additional bonuses based on earnings are payed to them when assets are liquidated. So where is the actual risk? You guessed it – it’s with the entrepreneurs and their ideas. They are the ones actually carrying the risk – they are the ones paying the price. Most entrepreneurs and ideas don’t succeed – they will disappear. They will pay the price of the risk taken.

Philanthropy has a different and almost opposing outlook. It can afford not to care about financial performance – it is focused on objectives that are described (and often not even measured) in social achievements. Most of the philanthropic organizations I have encountered are actually systemically safe-guarded against any financial achievement – because they will only fund non-profit organizations.

Both venture capital and philanthropy are generally trapped by fashion. Venture Capital will focus on the fashionable high-return industries (eg: CleanTech & Medical Devices). Philanthropy is very much into feeding and educating the underprivileged. Both need to be very creative to break out of fashionable tendencies. But, typical of many organizations, creativity is not fostered and therefor not available for most. In the end I believe that for both types of investors it comes down to the people behind the wheel. It is good and interesting people that have drawn me to both Venture Capital investors and to Philanthropical organizations.

Brutalized Entrepreneurship

As a software design consultant I grew tired of entrepreneurs. I saw so many companies fiddling with useless technologies (that was of course always ahead of it’s time). I can respect those that are in it for the money – that’s honest. I resent those that claim these technologies will make the world a better place. There is a really amusing dynamic I have encountered. A question that is typically asked by investors and is expected to be answered in a good business plan is “what problem does your service or product solve?”. This is a ‘critical’ question since the answer leads directly into an understanding of the market and from there the financial potential of that market. The problem is that often – there is no real problem to solve. So the entrepreneurs are driven to invent one (another symptom of dancing to the tune of the money-men). A good ‘problem to solve’ will point at a large market – and therefor be a world-changing invention. A good ‘problem to solve’ will also make it’s way into all the documents & presentations and eventually be become a sales pitch – explaining to potential customers about problems they never had (and will probably never encounter unless they actually use the innovative product or service). Had I not seen this so many times – I might actually be able to laugh it off. Just for the record – this is in no way an indicator of the financial potential – I have witnessed companies that do nothing useful for anyone get purchased by other companies (who are usually in a similar status). This is a brutalization of entrepreneurship and I am glad to get it out of the way.

Quality Entrepreneurship

I believe that there are many entrepreneurs who actually have great, important and meaningful ideas. Some of these ideas can seem very far fetched (I would guess that the better they are the more far-fetched they will seem). These entrepreneurs are dedicated to what they do not because of any promised financial returns but because they really believe in what they are doing and doing what they believe needs to be done. Anyone who has encountered such an entrepreneur knows how much power and inspiration these people carry with the (hint: have a look at the motivations of people involved in promoting and developing open-source products).

I have a feeling that most entrepreneurs encounter Venture Capital. This is the fashion of our times. VC has greater visibility. It has developed strategic interfaces with the entrepreneurial community because it feeds on it. VC is hungry for money and is therefor proactive in making it. Philanthropy organizations think they can afford to have strict application rules, deadlines for submission of proposals and other such mechanisms that inhibit entreprenerus from approaching them.

When these entrepreneurs meet Venture Capital they are consumed by them. Venture Capital does not leave any space for ojectives that are not directly aligned with their short-term money making agenda. Social contribution and change is OK (lets not get carried away) – as long as it can be clearly (and, ironically, with minimum risk) be translated into profits and fast. The problem is that social change is a huge unknown. It will probably take much longer then most VC’s can imagine and accomodate (as business organizations – VC’s are young and most are short lived). Ironically it will probably also lead to great profits. But the road will be shaky, challenging and always much longer then expected.

Quality entrepreurship and Venture Capital are in a systemic conflict of interest. When they meet (collid?) it is most likely that the VC will survive and that the entrepreneurial idea will be destroyed. I think this is what Robert Pirsig and his Metaphysics of Quality (from which I draw much inspiration) would have called a lower pattern of evolution (social-financial systems) feeding on a higher form of evolution (ideas) – making it (VC) an immoral activity.

Lucky entrepreneurs will find long-term support in a philanthropic organization that is highly aligned with their social agenda. What if something could be done to take the luck out of this equation?

Social Investing

When I set out to write this post I tried to track down some research numbers to support a claim I’ve heard that the overall financial performance of Venture Capital is actually not as great as we are led to believe. I couldn’t find anything to support this. Instead I found that ‘my innovative solution’ to the great divide already exists. It is called Social Investing.

Social investing as I see it combines financial and social performance considerations in an investment opportunity. When I read some more about it I encountered an additional perspective that I overlooked. It suggests that social investing is based in a theory that “single-minded focus upon financial outcomes overlooks negative social performance that eventually will impact financial performance”. Two important ideas here: (1) financial success can lead to negative social impact and (2) that negative social impact can impact financial performance. I am a simple person – to me this suggests that doing the right social thing is also doing the right financial thing. Obvious isn’t it?

I believe that social investing is a potential meeting place for qualities of venture capital and philanthropy. Philanthropy brings experience in social investment, a long-term perspective on investments and the freedom to choose their agenda and mechanism of operation. Venture Capital brings the professional skills, experience and commitment that is required to translate ideas into a reality that reaches and touches many peoples lives. I think that it is up to philanthropy to make the first move. Philanthropy has a freedom to choose that Venture Capital does not have within its economical bonds. Philanthropy will need to reach out both to passionate entrepreneurs and to business professionals to create new avenues of collaboration.

Feels good to me! What say you?

This entry was posted in AltEco, Business, Coming Through, Expanding, Featured, inside, outside, What If. You are welcome to add your comment

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