In 2009, Matt and I teamed up to put an end to the water and sanitation crisis. That same year, I won the Skoll Foundation’s award for Social Entrepreneurship. I’ve remained active in that community ever since, which is why I found myself in a room in Oxford, England ten years later—back when people still gathered in one place—participating in the Skoll World Forum on Social Entrepreneurship.
Every year I look forward to these gatherings with fellow social entrepreneurs like Andrew Youn, Ann Cotton, and Raj Panjabi who take on some of the world’s most intractable, complex problems—seeking not to make marginal improvements, but to find innovative ways to solve them at their source.
I have always felt lucky to be at this particular event, among a group of people who had won the prestigious Skoll Award for Social Entrepreneurship. These individuals earn their stripes by creating impactful innovations that deliver big impact across sectors—getting more girls in school, hastening the end of poverty, and improving global health. I am always eager to hear more about my fellow social entrepreneurs’ work.
But sitting in that room that day, it wasn’t our innovations we discussed—it was money. Here were leaders of some of the most promising social enterprises in the world, and every one of them was having great difficulty raising the capital they needed to operate. Even more mystifying was that their well-established, wildly successful ideas—which had proven effective, and were ready to scale even further—were equally struggling to access the capital to grow.
If I’m being honest, it was a gripe session, one I couldn’t shake off. I gave Matt the download and we commiserated with the entire social entrepreneur community—it wasn’t just our work that was choked by lack of funding. We quickly realized we’d stumbled upon a serious global problem: the mechanism for funding ideas that drive transformative social change is fundamentally broken.
Getting to the root of the problem
On the surface, conditions should be perfect for funding social entrepreneurs. The concentration of wealth is at an all-time high. During the global pandemic in 2020, American billionaires alone saw their wealth increase by an estimated $931 billion as of mid-October, according to a report from Americans for Tax Fairness (ATF) and the Institute for Policy Studies (IPS).
And largely thanks to the Giving Pledge—the movement that inspired hundreds of billionaires to pledge to give away at least half of their wealth—high-net-worth individuals have never been more publicly committed to financially propelling social good. This wealth is held primarily by people who have succeeded big-time in business, so you’d expect social entrepreneurial approaches to resonate with them. Yet, as the conversation in Oxford made all too clear, the money simply hasn’t been flowing.
We believe this issue can be boiled down to three big barriers that keep donors from funding social enterprises in the same way that venture capitalists (VCs) fund growing, for-profit businesses:
The value that social enterprises create is difficult to measure. Fundamentally, both entrepreneurs and social entrepreneurs aim to create value—to provide a good or service that solves a problem for people. But for businesses, that value is straightforwardly measured in dollars earned. “Social good” is more difficult to quantify.
Taking significant risk to fund revolutionary ideas is considered unacceptable in a philanthropic portfolio. VCs operate by taking significant risk, understanding that only a few investments will pay off and reap significant rewards. But while courting failure is now viewed as an accepted—even alluring—aspect of entrepreneurship, when it comes to social impact opportunities, it’s typically still viewed as unacceptable.
Social entrepreneurs are considered the “B Team.” Among VCs, there’s a common maxim: An A-level team with a B-level idea is better than a B-level team with an A-level idea. And there is a widespread perception that the bulk of talent goes to the for-profit sector.
And because funders don’t think like VCs, capital for social enterprises is often misallocated. Instead of focusing on efficacy—the value an organization creates—funders focus meticulously on efficiency—how much it spends on overhead—grasping for some metric to prove their investment won’t be wasted. Instead of investing based on an organization’s true potential, funders invest according to their personal preferences, which leaves game-changing ideas unfunded and creates highly unpredictable revenue streams. Instead of paying for broad value creation aimed at solving underlying problems, funders pay for outcomes that can be well-defined in the short-term. Instead of investing in revolutionary models, funders invest in tried-and-true approaches and institutions that maintain the status quo and pursue incremental impact at best.
The result of this misallocation? As successful social entrepreneurial organizations grow, demonstrate impact, and become more “bankable” at higher funding levels, they see fewer funders who are willing to “go big.” They face lengthy and duplicative vetting processes—and the options that do exist focus on funding specific initiatives, rather than providing unrestricted funding to innovate, scale, and generate systems change. In short, organizations poised to make an enormous impact find themselves falling off a funding cliff because the funding continuum is cut short.
Fortunately, there is a solution.
Reviving venture philanthropy
For enterprises that do not have the “social” descriptor in front of them, the funding process is straightforward: ideas with the most potential get the most funding, and the better an idea performs, the more money it gets. The availability of VC funding is what allows good ideas to get their due—and great ideas to transform entire industries.
For social enterprises to fuel incredible human progress, funders must boldly adopt that same VC mindset. Funding should flow to the ideas with the most potential and the greatest need of capital to realize that potential. And a social enterprise’s success should be rewarded with greater funding, allowing ideas to scale to the point where we can really talk about changing the world.
To make that venture philanthropy paradigm a reality, we need to first tackle the three barriers above. Funders must:
Understand that while measuring the value social entrepreneurs create is difficult, there are organizations that do it well. Organizations like the Skoll Foundation, the Schwab Foundation, Echoing Green, and Ashoka have developed the expertise needed to locate, vet, and certify social entrepreneurs who are creating substantial value. Each year they put thousands of candidates through a rigorous analysis to determine which have the greatest potential to scale their ideas and drive systems change. This information is publicly available and focused on the highest performing organizations in the space—those that could immediately absorb millions of dollars a year and use it to deliver enormous impact.
Accept that taking on risk is the price of transformative change. In the business world, we understand that if we want investments to generate moderate returns over the years, we do not need to accept much risk. But if we want them to create transformational value, we need to get comfortable with at least moderate risk. This principle is no different in the social sector. Many organizations have the ability to develop and deploy system-changing impact. They operate under strong, highly refined strategies, have deep professional expertise, and possess strong impact data. Tested over decades, they have been rigorously vetted by multiple funders. Despite this, every funding opportunity presents another rigorous and lengthy vetting process, creating a frustrating and inefficient model. But if funders adjust their risk tolerance upward, and place bigger bets on this cohort of proven social entrepreneurs, they could achieve multiples of previously seen impact.
Give leaders in the social sector a platform to prove themselves. It is time to challenge the conventional wisdom that the for-profit sector has a monopoly on the world’s best entrepreneurial talent. We all agree that the best business entrepreneurs are both determined and mission-driven—to the point that the people selling us our glasses and shoes are now charged with telling us how they are going to change the world. Well, social entrepreneurs are the most purely mission-driven people in the world. And their determination is evident simply by virtue of the fact that they have pressed on despite grappling with so many headwinds—not only managing them but succeeding despite them. Imagine what they could achieve with the wind at their backs.
Moving forward: seizing an opportunity
So, here we have this incredible community of social entrepreneurs who have developed models that are already demonstrating systemic change. They have gone through countless rounds of due diligence. And they are ready to absorb and catalyze billions of dollars of capital. But the philanthropy market is not putting that critical capital into their hands.
This poses a massive missed opportunity to make transformative progress against some of the world’s gravest and most persistent challenges—all at a reasonable cost relative to the amount of capital earmarked for philanthropy. Reversing that trend will literally make a world of difference. The social sector desperately needs funders who place bigger bets, faster, with a greater tolerance for risk to achieve outsized value creation—recognizing that there are highly evolved, established organizations out there with the ability, knowledge, and network to drive systemic change. All they lack is the capital to set it in motion.
Gary White is the CEO and Co-founder of Water.org & WaterEquity
Matt Damon is an Actor and Co-founder of Water.org & WaterEquity