The importance of flexible seed funding Unlike typical start-ups operating in mature markets, entrepreneurs that seek or receive Echoing Green funding largely need subsidized financial runway to innovate, learn, and de-risk new business models that try to address institutionalized social problems largely deemed intractable. Particularly for social enterprises, a longer timeline to, or lack of, potential robust financial returns to investors makes them a difficult sell to angel networks, venture capitalists, and other traditional sources of early investment.
In the current impact investing market, seed-stage social enterprises are largely seen as too risky by institutional investors, which responded in a 2015 report by JP Morgan and the Global Impact Investing Network (GIIN) that only 9 percent of their impact investment is committed to seed- or venture-stage companies.
There is valid concern among the impact investing community that grant capital and other forms of subsidy can crowd out investment. As Big Society Capital wrote in 2015, “Subsidy is both catalytic and potentially catastrophic in developing any new financial asset class where market failures exist.…[However,] without subsidy, who will pay for the innovation or risk the uncertainty of developing and proving new models?
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