Social Enterprise or Not?

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A social investor spoke to us at out mid year meeting in Hyderabad about his investment philosophy. He said that his firm was looking for high growth companies in the social space and that the key metric of social impact would be something that would be measured by the investor. He mentioned that he did not want to burden the company with this metric.

I found this philosophy quite interesting because often the greatest social impact comes from a company that is not really thinking of social impact. Take for example the growth of the mobile phones in rural India. Saturated urban markets forced companies to go rural and rapidly a huge section of the population is now “connected”.

Does it really matter if your investment is a social enterprise offering an affordable and valuable product or service versus an enterprise that offers an affordable and valuable product or service?

Probably not.

However, there are some risks associated with unburdening a company of it’s social mission. On a day-to-day basis, the pressures of meeting revenue targets and achieving profitability (and therefore sustainability) can often force companies to pursue higher margin market opportunities that may eventually dilute the organization’s social mission.

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2 Responses to “Social Enterprise or Not?”

  1. Premal Says:

    Karthik,

    While I agree with what the investor is saying I wonder how other investors are thinking about this issue?

    Let me pose a hypothetical situation:
    Say there are two companies providing the same products – one started with the mission of eliminating kerosene lamps and one started with tapping into the opportunity that exists of selling solar power lamps – which is more cost effective for the customers. Purely business focused.

    Which company should the investor invest in assuming all other things being equal?

    I feel customers will buy the product not because of the intentions of the founder but because they like the product or see value in it. See the example of mobile phones that you quoted. So why brand a company as a social enterprise vs. the other one as not?

    I would love to hear folks from the investment community to touch upon this.

    Anyways thanks for raising these questions.

    Premal

  2. kjanakiraman Says:

    Thanks Premal for your comment. Yeah, I agree with you that it would be great to see what professional investors have to say…..unfortunately none of them have seen our conversation!

    In the hypothetical scenario that you describe, I will have to invest in the lower cost solar lamp company. The logic is that a lower cost will lead to a lower retail price which will potentially increase the size of the market.

    However, options in real life are not that clear. I think the company with the better business fundamentals (product range, business model, sales channels, management quality) is the one I would invest in.

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