What is Social Venture Capital?

Social venture capital is a type of investment capital that is used to fund the start-up and continued operation of companies that are believed to be environmentally and socially responsible. Businesses that receive social venture capital typically operate using a production process that avoids the creation of a great deal of waste, recycles what waste is generated, often makes use of existing materials to make new products, and in general attempts to leave as little of a footprint on the environment as possible.

As with any type of venture capital investment, social venture capital is often provided because investors believe that the company has a viable model and a product line that is likely to capture the attention of consumers, resulting in a steadily increasing volume of sales and generation of profits. Here, the idea is to provide growth funding to the company so that it can produce and market those goods and services to the general public. Assuming the effort is successful, the venture capitalist eventually recoups all of his or her capital investment, plus earns some additional profit in the form of interest or shares of stock.

Along with the idea of investing in an environmentally responsible company as a way to make money, investors often contribute social venture capital to businesses based on what the company can do to protect the environment. For example, an investor who is concerned about the consumption of fossil fuels for energy may choose to invest in a start-up company that is developing a new type of electric powered vehicle, or some sort of enhanced solar energy system that can be used to replace more traditional methods of heating or cooling residential or commercial spaces. Here, the focus is not just on earning a profit, but supporting something that over time will help people be more energy efficient and prevent further damage to the ecology of the planet.

As part of the exchange for the social venture capital, investors often receive interest on the amount loaned for start up and development of a new venture. In some cases, the terms and conditions associated with the capital agreement also make it possible to receive shares of stock in the company, once it grows to the point of being able to issue those shares. Some deals will call for repaying the original investment in cash but providing investors with stock holdings in lieu of interest. Depending on the structure of the deal, the soundness of the business model, and the ability of the company to manufacture products that consumers embrace, the investment of social venture capital can be a good thing for everyone involved.