At the beginning was an idea, but then a huge hole appeared: the funding gap. Every founder knows this problem. This applies all the more to socially oriented organisations, which are all too often overlooked by traditional investors. This allows large corporates to step in – to their own advantage.
At the start of the cycle was poverty. The founders of Coffee Circle were no longer prepared to accept that the whole world loved coffee while Ethiopia, the motherland of the coffee bean, remained one of the poorest countries in the world. So Moritz Waldstein-Wartenberg, Robert Rudnick and Martin Elwert searched cooperative after cooperative for the best beans and then sold these premium-quality beans online. The target audience is the ever-growing group of “foodies”, who are tired of drinking black dishwater and are on the lookout for exquisite quality. What is special here is that for each kilo of coffee sold, one euro is given to the farmers in the form of newly built schools, wells or solar plants. The coffee buyer can choose online which project they wish to support. With their idea, the three young entrepreneurs were able to persuade a prominent investor to support them. Tengelmann Ventures, a fully owned subsidiary of the eponymous German retail group, joined the coffee startup in 2011. It was the first time that the venture capitalist – otherwise more interested in e-commerce models such as Zalando – invested in a socially oriented company. The combination of an auspicious approach to the fiercely competitive coffee market and the unique social aspect won over Tengelmann, which itself first started out as a seller of roasted coffee beans.
In the USA it has been common for years for large firms to invest in startups that combine economic and social approaches. Also in the German network of Ashoka, a non-profit organisation that promotes social entrepreneurs worldwide, one now finds the names of DAX concerns such as SAP, BMW and Siemens. Awareness of the business opportunities offered by social entrepreneurship is growing. For example, improved educational opportunities for underprivileged children can pre-emptively overcome the shortage of skilled labour – even when that is not the primary goal of a social entrepreneur. The Swiss pharmaceutical concern Novartis achieved a comparable effect through its social-venture programme “Arogya Parivar”. In remote Indian villages, Novartis train locals as health advisors who later independently advise community members on health issues. Together with doctors, they organise mobile clinics in which medication and treatment is made available to the population. After nearly two years the model began to yield profits. Novartis received extensive recognition for its contribution to improving living conditions in these areas and at the same time created the potential for developing new markets.
The children’s centre Kunterbunt also addresses an important topic. They build crèches and day-care centres throughout Germany that offer particularly long and flexible opening hours. The venture capital came from BonVenture, an investment trust with a special focus on socially, ecologically and societally relevant enterprises. It is quite possible that Kunterbunt will be able to generate long-term returns from the huge demand for childcare. However, BonVenture also finances projects that would never fully get by without donations. Projects include Hand In, a youth welfare service that offers a new perspective to young offenders through a combination of boxing training, work experience and social support. The portfolio mix minimises the risk for investors, who are not looking for a financial return but who want to preserve their capital. “Companies are sometimes worried about the suspicion of profiting from a good cause when they invest in NGOs”, says Angela Lawaldt, investment manager at BonVenture. This is an unfounded concern, because through investments social enterprises become less dependent on donations – an unreliable funding source. In addition, at the end of a successful investment the investors’ capital can flow into new projects. At BonVenture, investors are predominately wealthy private individuals. They are however also open to cooperating with companies, for example as co-investors in individual projects.
In Switzerland, the situation is slightly different. There are few countries with a similar concentration of philanthropy capital as well as of social investment funds. For example, the Zurich based responsAbility Social Investment AG currently manages around 1.4 billion dollar that are invested in microfinance institutions around the globe. Nevertheless, an investment fund with a hybrid model – such as above mentioned BonVenture in Munich – that packages philanthropic and commercial funds in a way that allows to invest in socially driven organisations in Switzerland does not exist as of today.