Building “Silicon Valleys of Impact”

June 29, 2016
Stanford Social Innovation Review

Diana Sierra was lost. A lifelong industrial designer, Diana had found a new career path when she built the first prototype of a menstrual pad for young women in low-income countries, using an umbrella and a mosquito net. In the span of a few days, she decided to leave behind a lucrative career and become a social entrepreneur, launching her ventureBeGirl. Living in New York City, she built the product and tested it with some users. However, despite incredible talent and energy, she kept hitting dead ends when it came to business development. “I felt like I was a lunatic!” Diana exclaimed, “People just didn’t understand what it meant when I said I was a social entrepreneur.” Lacking a supportive environment that valued impact, Diana pondered whether her venture could survive.

Diana’s story is similar to that of many of social entrepreneurs around the country. As a product of her ecosystem, she ran into consistent barriers in getting her venture off the ground. She found investors, but not impact investors. She found advisors, but few who understood her model. As Diana puts it, “I needed a community of people who had experience with social entrepreneurs.”

Silicon Valley has become shorthand for innovation, investment, and staggering success, and entrepreneurs with technology startups from around the world migrate to the Valley to successfully build their ventures. But where does someone like Diana go? As US cities build out strategies to attract and develop innovation and technology, we see a tremendous opportunity for forward-thinking leaders to fill this market gap and build “Silicon Valleys of impact.”

The potential inherent in social enterprises to address social problems in innovative new ways, sustainably, and at scale, is as boundless as the potential wealth creation from the next tech unicorn. Successful social enterprise, however, requires substantially greater cross-sector cooperation, and willingness from governments, philanthropists, and nonprofit leaders to learn and try new things. In sum, social entrepreneurs thrive as products of a healthy ecosystem for impact. As citizens increasingly turn to small business for innovation in our community challenges, we need to begin working strategically to shape these enabling environments.

The biggest hang-up? There is a relative dearth of data in the social entrepreneurship space to help us understand the fundamental question: What makes a good ecosystem? And how are cities doing right now?

In partnership with Capital One, we recently surveyed nearly 400 social entrepreneurs around the United States to learn what they needed to grow and scale their ventures in fields as wide ranging as health care, education, food sustainability, and clean energy. Their responses revealed four pillars that comprise a supportive ecosystem for social enterprise:

Funding—including seed funding, grants, and venture capital (representing both public and private sources).
Quality of life—everything from cost of living to the “energy” of a city and social spaces determine an entrepreneur’s experience.
Human capital—finding great people (mentors, team members, employees, and advisors) is the engine of any venture.
Regulation and receptivity—regulations, market receptivity, and even perception and attitudes toward a social enterprise can create an environment that either nurtures or stifles social enterprise.

These pillars give leaders in the social enterprise space a framework for understanding and measuring their ecosystems. We also pulled publically available data to measure the capacity of the nine top-responding cities around each of these pillars. Using all of this data, we identified where certain ecosystems excel and fall short, and developed some practical recommendations for funders and policymakers who want to drive measurable social change.

More investors, accelerators, foundations, and governments need to take advantage of new funding vehicles to provide quicker, more equitable access to capital for those who can demonstrate innovative approaches and measurable results. Major funders such as the Gates Foundation and the Knight Foundation, for example, have been effectively utilizing program-related investments to direct more of their funding toward for-profit ventures focusing on impact.
The survey found that 47 percent of social entrepreneurs founded their venture in a city because of convenience—because they were already living there. For cities, it will become increasingly important to recruit talent before they found. This means increasing cultural offerings, making housing and workspace affordable, and having plenty of transportation options. Austin, which scored the highest on our quality-of-life index, has done a phenomenal job of building an affordable and vibrant city life that has spurred economic growth.
Government can create a regulatory environment supportive of ventures that are creating impact. Allowing businesses to register as benefit corporations that build social benefit into their legal framework is a step in the right direction, and forward-thinking city officials can also tie funding for projects to specific outcomes through mechanisms like social impact bonds (SIBs). Chicago, for example, announced an SIB that aims to provide early childhood education to thousands of public school children in 2014.
We must create more on-ramps for the full diversity of social entrepreneurs. In our experience, this boils down to two things: early investment and diversity among investors. Access to significant funding and support as early as the first-stage “friends and family” round allows for a more-level playing field for social entrepreneurs from different backgrounds. At the Halcyon Incubator, a program we launched in 2014, we’ve seen incredible diversity and success in bridging this early-stage divide—46 percent of the applicants in our last cycle are women. And funds such as Golden Seeds, a women’s angel network based in New York, provide targeted investment to incentivize entrepreneurs of all backgrounds to pursue their vision.

Ultimately, Diana was able to pull in an early female angel investor to support her work as she began building out her venture—a critical vote of confidence to help extend her runway. And while she founded in New York because she had attended graduate school there, she later moved to Washington, DC to find a community who better understood her work. DC provided access to mentors and advisors at the International Finance Corporation and local foundations, as well as to other social entrepreneurs well positioned to support Diana’s venture. And the city now has another success story fueling its innovation economy.

Social entrepreneurs themselves will ultimately be the ones to answer what makes a good social entrepreneurship ecosystem, and where to find it. Cities that want to develop more innovative communities would do well to invest in a supportive environment.