Social Entrepreneurship: 5 Things You Need to Know to Become a High-Impact Entrepreneur

Until a few years ago, foundations, nonprofit organizations and governments were the entities leading the solution of social and environmental problems in Latin America. Today, these challenges are also being tackled through social entrepreneurship, with the development of innovative, technology-based solutions to fight poverty, make education more accessible, protect the environment and promote job inclusion, among other challenges.

In recent years, social entrepreneurship has become more relevant in Latin America. More and more social enterprises and purpose-driven startups are emerging, there is more funding to support them, and an atmosphere of collaboration has developed between entrepreneurs and organizations to accelerate the impact they seek.

It is estimated that there are 170,000 purpose-driven companies in the region, generating around 6% of Ibero-American GDP and employing 10 million people, according to the Ibero-American General Secretariat. Most of these companies are at an early stage, have volunteers and growth expectations, according to the Global Entrepreneurship Monitor (GEM).

Social entrepreneurs are taking on the role of change agents by driving the economic, social and environmental development of the Latin American region with innovation and technology, especially in vulnerable areas, showing interest in this market.

Get ready to start a business

If you also want to contribute to the region’s development with your venture, take note of what you need to know before starting this adventure. It will help you make your venture a success.

1. Purpose-driven companies

The first thing you should know is that, unlike traditional ventures that develop mass-market consumer products, the priority of social ventures is to create an impact on society or the environment, above revenue. Of course the company seeks profitability, but only as a means to be sustainable and not depend on donations.

2. Types of organizations

Social entrepreneurs usually lead these types of organizations:

• Startups: Companies that usually develop technology-based solutions, with fast growth, and seek high impact.
• Social enterprises: Companies that grow more slowly than startups, but whose focus is also to solve social or environmental problems.
• Nonprofit organizations: In general, these organizations focus on activities that create a collective social or environmental good without seeking monetary profit.
• Hybrid companies: There are also benefactor companies that have their own social foundation and also contribute to social and environmental development.

3. Social innovation, a key to success

Social entrepreneurs rely on social innovation to develop solutions that truly add value, accelerate impact and leverage the growth of their company. The Economic Commission for Latin America and the Caribbean (ECLAC) defines social innovation as a new way of managing, administering and executing, as well as implementing new instruments and tools aimed at improving the social and living conditions of the population.

4. Funding for your company

Fortunately there is now more financial support for this type of company, although the right investment mechanism for you will depend on the business model and legal entity you have set up. Among the most common types of support are the following.

• For startups: Investment from venture capital funds.
• For social enterprises: Traditional investment and subsidies.
• For foundations and NGOs: Social investment from philanthropic funds.

If you need philanthropic investment, you should know that philanthropists look for measurable, tangible results to evaluate the impact their investments create. To measure impact they rely on the Theory of Change. It lets you see clearly how the impact will be produced: inputs, activities, outputs, achievements and expected impact.

In the case of philanthropy and impact investing, the aim is to have metrics tied to the impact generated by the solution. The basic metrics are reach and depth, understood as the number of people who use the solution and the type of improvement achieved by using it.

As for impact investing, the global market for this type of financing amounts to 715 billion dollars, and Latin America is the third destination for impact investment, after the United States and Western Europe, according to the Global Impact Investing Network.

5. The return on investment

There are three categories or stages tied to impact and risk in which a social venture can sit, and it can even move from one to another over time. They are the following:

• Validated market: Generates commercial returns, so there are investors who may or may not seek impact.
• Non-validated markets: Where the expected return must be adjusted to the risk. Impact investors operate in this segment.
• Sub-commercial: Where there are risks and the return is not expected to match that of a validated market, but it is offset by the impact achieved. Impact investors operate in this segment.

Without a doubt, Latin America is a region with opportunities for the creation and growth of social ventures, considering the social and environmental challenges the region faces and the support provided by organizations, private investment funds and philanthropists.

We invite you to stay tuned for all the events we will hold soon, and the content we will share so you can become a high-impact social entrepreneur. Take the risk and create change in your community!