Why Startups Focused on Solving Social Problems Are Attracting Investors

Companies genuinely seeking to do good are seen as a sound bet for long-term profitability.

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By Karen Greve Young

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Blackrock put the business world on notice when Chairman and CEO Larry Fink proclaimed, "To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society." People called it a watershed moment on Wall Street. With $6 trillion in assets, Blackrock has the clout to make chief executives listen – and change ideas about what "good business' means. Now, in order to drive significant social impact, they need to lead by example. The world is watching.

First, though, it is important to acknowledge that the concept of businesses "doing good" is open to interpretation. The idea is nebulous. It can be applied to almost anything, and often is in the business world. Startups looking for funding, and especially those pressed for resources, may try to wrap themselves in social impact language to appeal to both investors and customers without living up to their promise.

Such inconsistency between words and actions dilutes the idea that business can be a force for good instead of greed. Making public commitments to social good without action to back them up sets a dangerous precedent. Failing to follow-through diminishes credibility and significantly increases the risk of customer mistrust.

Genuine social impact companies bake doing good into everything they do. Successful social impact ventures balance for-profit work with community-oriented resources. They often have a dedicated executive or team focused on finding connections between core business and social enterprise opportunities. If social impact intrinsically appeals to your company, be sure your planned activity backs up your stated commitment to social good. Here's where to start:

Related: When Should Entrepreneurs Pursue a Social Good?

Work with institutions and platforms that help verify your company's social impact.

Finding investors who value social impact is crucial for companies looking to do good. Toronto-based Social Venture Connection (SVX), an initiative of the MaRS Centre for Impact Investing, works with companies operating across sectors from green technologies to children's education to raise funds from investors. The organization screens companies for their social impact before letting them on the platform. SVX recently partnered with the Toronto Stock Exchange to completely democratize investment opportunities in socially-minded ventures to individuals throughout Canada. Sorenson Impact also has lots of resources that can help entrepreneurs navigate the path between business success and doing good. Ultimately, companies should look to work with organizations that have verifiable social impact success and share a commitment to the values underpinning social impact-focused work.

Related: 5 Ways to Integrate Social Good Into Your Business

Examine your supply chain.

Socially-minded companies think about their entire footprint, not just their product. Companies of all sizes from startups to Unilever that meet high environment, social and governance (ESG) standards can be classified as B Corps, akin to what a Fair Trade certification means to coffee producers. They look at where their product is built, where the raw materials come from and how it is transported.

For instance, Lucky Iron Fish, a social impact venture that makes fish-shaped ingots that provide essential dietary iron, scoured India and Ontario to find two production companies that met exacting standards for environmental responsibility, workers' rights and sustainability. One step further, Ulula's sole focus is helping companies with ethical sourcing, ensuring that far flung factories treat workers right and don't destroy the environment. Responsible companies make an effort every step of the way to do as little harm as possible and partner with organizations committed to the same values.

Related: 3 Ways Millennials Are Leveraging Social Influence for Social Good

Look for like-minded investors.

If you're seeking a "double bottom line" from your business, then look for investment products that support your impact vision and your business' financial growth and sustainability. That means profits and purpose. The MaRS Catalyst Fund seeks out scalable impact businesses that address some of the world's biggest challenges in energy, healthcare and education. In addition, the Fund helps its portfolio achieve best in class sustainability through its GIIRS rating and the B Corp survey. These provide structure for companies and organizations, like The ImPact, to set goals for their environmental, social and governance practices while building their organization.

Chamath Palihapitiya, a Canadian venture capitalist who launched Social Capital, is making waves in the social impact world. Bridges Fund Management, a UK firm established by private equity veteran Roger Cohen, built on its initial success overseas and recently brought its unique business to New York. The management fund, which is 30 percent owned by its philanthropic foundation, donates 10 percent of profits from its investment vehicles to fund projects that fall outside the scope of usual investment activity.

High-octane VCs who want growth at any cost are now at odds with entrepreneurs who are seeking like-minded impact value-based investors to support them through their growth phase. Entrepreneurs today are building companies that solve problems that affect their families, their health and the planet. These entrepreneurs are of a different mindset than those who prioritize narrow short-term or profit-motivated goals over long-term, sustainable outcomes. This difference could create friction on the board between investors who prioritize gains and those who favor social good. If funds like Blackrock truly commit to evaluating societal impact alongside financial returns, the precedent could have far-reaching influence on capital availability for companies mixing profit with purpose.

Related: 4 Ways to Engage Your Customers in Social Good -- And Why It Matters

Social impact takes a village.

Ultimately, everyone at a company has a role to play in realizing the company's social impact objectives. At the same time, people leading these efforts should take a measured approach that allows their companies to optimize impact on selected issues so they deliver outcomes that actually help society. Building corporate social impact initiatives around tested local infrastructure, in connection with compatible organizations with established public trust, is the key to success.

Karen Greve Young

VP, Corporate Development & Partnerships

Karen Greve Young is MaRS’ executive lead responsible for facilitating and managing relationships with its global network of community, government and corporate partners. Karen joined MaRS in June 2011.

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