Social Good Ecosystem Incubator

Supporting Pre-Proof of Concept Social Ventures by

Rethinking the Resource Allocation Paradigm

What Is The Opportunity?

Develop a prototype for a solution that will solve a systemic problem!... To totally change the game… to make a difference at a global level…

Ramp up capacity for the movement for change in our local area

The Paradigm Shift

1. Systemic View of Resource Allocation… from funding one project at a time to funding one ecosystem at a time!

2. Combining two resource allocation concepts into oneEarly stage seed funding… cash

Incubators… in-kind

Different forms of

value

What We Will Cover

Social Finance concepts and articulation of the systemic problem

Present concept for prototype of the Social Good Ecosystem Incubator

Present initial sketch of Social Good Ecosystem Pooled Fund

Scalability: how we can make the model go viral!

What is a Social Venture?

There are many definitions. I am offering the following…

‘Projects, the objective of which is to bring about positive social change’

Note that, there is no reference to said projects necessarily having to make money in this definition

Why this definition?

I will start with the following assumptions… The world needs fixing We need more social innovators We must provide social innovators maximum

flexibility to innovate

Hence, we cannot allow the requirement to make money to be a constraint on the development of innovative models.

First... A rough picture of the current Funding landscape

returns

NOTHING!!

Charities/

Not For

Profits

For Profit

Companies

-100% rate of

return

Traditional

market rate NOTHING!!

Socially

Motivated

Financially

MotivatedNOTHING!!

So what is needed is...

Charities/

Not For

Profits

For Profit

Companies

-100% rate of

return

Traditional

market rate

returns

Social Ventures-for profit-not for profit

Socially

Motivated

Financially

Motivated

Social Investors

looking for Social

AND Financial Returns

Socially and Financially

Motivated

What is the Problem Being Solved?

Lack of resources (cash and in-kind) for pre-proof of concept social innovators… which is a systemic problem

… why is this a systemic problem?

The Systemic Problem

Seed stage social innovation projects (as defined) carry very high risk and very little financial return potential (by definition)

This is to be contrasted with financial innovation which behaves like…

‘Financial Driven’ Angel Investments… return distributions

Socially motivated investments don’t have this return

potential

Seed stage Social investments have

high risk and moderate return

potential

All seed stage projects are risky but some that are profit motivated do really well!... This compensates for all those that do poorly…

Guess where the bottleneck is?

Pre Proof of Concept

Proof of Concept

Mid Stage

Late

Stage

No $

Small $

Volume of Ventures

Some $

Huge $!Enterprise Centric Model

Where is the money going?

High Financial Return/Low Social Return

- traditional investments… served by existing capital markets infrastructure

High Financial/High Social Return

- traditional ‘social ventures’… served by current social financiers… at least to some extent

Low Financial Return/Low Social Return

- badly designed projects… deserve no external capital

Low Financial Return/High Social Return

-No financial support from social investors!

Taking a System Approach… from One To MANY!

Traditional Funding Mindset… scale one project

Scalability: support the one project that has the highest probability of doing extraordinarily well.

Problem… Ignores 9/10 projects Reinforces survival of the fittest

Underlying Perspective Competition versus cooperation

Social Change and Cultural Change… proliferating social entrepreneurship

The Problem with the One Project Scalability model…

Is it better to fund 1 * $200,000 into a great project that will scale… or 10 * $20,000 into smaller unproven projects?

Not clear from a financial perspective

A definite NO from a cultural change perspective

The Cultural Mix

Is it better to have?...

HighlyScalable Projects

ModeratelyScalable Projects

From the perspective of the system... The world!... How do

we scale the entire system?

How Can We Solve the Problem of Lack of Resources?

In principle there are three ways1. Convince social innovators to focus on making

money2. Convince investors to assume reduced financial

return3. Structure transactions to mitigate financial risk4. Structure the relationship between projects

(and the community) to flow non-financial value to the project … think in terms of ecosystems… and provide resources to the entire system

What is an Incubator?

Co-location space Provide support services…

• Infrastructure

• Advisory

Connect projects to mentoring support For profit: equity stake in projects

What is a Social Good Incubator?

Internal Ecosystem located in a Co-location space

Provide in-kind support services… • Infrastructure

• Advisory

Connect projects to mentoring support Offsets financial cost

How Can An Incubator Mitigate Financial Risk?

What is the primary financial obligation for projects situated in an incubator?... Lease payments (and other costs of being in incubator)

So, the question is…

How Can You Reduce the Burden of Lease Payments for Seed Projects?

View the Incubator As An Ecosystem!

Hmm… what does this mean?

Distribution of Lease Payments (costs)… sufficient in aggregate

Organization Type Lease Payment Capacity

For Profit Service Profit Service Providers

Strong cash flow… and ability to cover lease payments

Established Social Business Service Providers

Reasonable cash flow… and ability to cover lease payments

Early Stage (post proof of concept) Service providers

Some cash flow… can manage reduced lease payments

Pre Proof of Concept Service Providers

No cash flow… no ability to cover lease payments

Hypothetical Project Mix

SERVICE TYPE

For Profit Social Venture

Not-for-Profit

Technology Technology infrastructure/web development

Strategy Business/strategic planning

Media Film, video, content development

Crowdfunding Anti Pipeline Activists

Why would sustainable organizations ‘cover’ lease payments for early stage projects?

Be a good community citizen Provide in-kind support for social

enterprises Receive in kind-support from other

organizations in ‘ecosystem’ Receive financing from Ecosystem

Pooled Fund

Hypothetical Financial ModelREVENUE

For Profit $9,000

Social Venture (cash positive) $1,000

Not-for-Profit $300

COSTS

Lease $10,000

Internet $100

Insurance $200

But Projects Need More Than Their Costs Being Reduced…

So extend the ecosystem beyond the boundaries of the Social Good Incubator…

… and build a Value Exchange mechanism within the ecosystem… a Social Good Currency

Social Change Ecosystem

SOCIAL GOOD INCUBATOR

Social Change Ecosystem

Ecosystems

Some technology/ open architecture concepts

What is an Ecosystem?

“An ecosystem is a community of living organisms…”

“…ecosystems are defined by the network of interactions among organisms, and between organisms and their environment…”

“While the resource inputs are generally controlled by external processes like climate and parent material, the availability of these resources within the ecosystem is controlled by internal factors…”

Why Ecosystems Now?... The connectivity network

Internet connectivity penetration rates are increasing

Bandwith limitations are being reduced

The cost of communication is dropping (thank you Skype!)

Interoperability protocols, applications etc. are evolving

Social networking platforms (Facebook...) are changing the culture of communication

Processing power is being pushed to the edge of the network (Smartphones etc.)

The real time infrastructure is evolving (Twitter)

We are connected like at no other time in history!

The Collaborative Context

Information flows freely across organizational boundaries

Geographic constraints are less meaningful

Structural limitations on information management don’t constrain participation (thousands of people can work on projects!)

Meetings can be run virtually

Projects can be managed asynchronously

Projects can be scaled to involve many people with minimal incremental cost

Your communications infrastructure can be scaled to include many people with minimal incremental cost

Collaboration makes sense!

Build a Technology Layer Across the Ecosystem of Projects

Social Change Ecosystem

SGEI

Why?

Emergence, Presence, Visibility and the Fluidity of Early Stage Projects

Early stage projects are… Basically concepts… … residing in the head of one or two people … lacking in resources … lacking moral support … they can go in many directions … depending on people… money… opportunity…

If only we, as social entrepreneurs, had a sense of the bigger picture (the Ecosystem)… and others that were working on similar things!

Build a shared virtual space!

Systemic Visibility… an example

Systemic Visibility… an example

Early stage projects are fluid… what if we could see what others were doing

and where they wanted to go?

Governance and Scalability

OK… but how does this model scale?

What do we mean by scale?... Remember the goal is to proliferate the world with more social entrepreneurs!

To Scale we need to…1. Ramp up the number of federated

Social Good Incubators2. Ramp up Ecosystem Pooled Fund

What about Governance?... Cooperative

Operate as a cooperative Democratically governed One vote per member organization Membership classes can be defined,

however if necessary

A Few Principles and Processes To Drive Scalability of Model

Develop and document Prototype Develop Open Source platform to

disseminate prototype Develop Federated Open Collaboration

Platform to connaect incubators Develop an emotionally compelling story Utilize video Utilize social media channels

Federating the Social Good Incubators with Open Architecture

SG Incubator

SG Incubator SG Incubator

SG IncubatorSG Incubator

Open Source Best Practice Repository and Communication System

(Embrace P2P/Sharing Economy Principles)

SG Incubator

In Principle an ‘incubator’ is just an ecosystem with a physical footprint

SG Incubator 1

SG ‘Incubator’ Ecovillage 2

Social Housing Complex

Ecovillage 1

Open Source Best Practice Repository and Communication System

(Embrace P2P/Sharing Economy Principles)

SG ‘Incubator’

The Social Good Ecosystem Pooled Fund

Developing Ecosystem Focused Funding

Structures

But Projects Need Real Hard Cash As Well!... Introducing the

Ecosystem Pooled Fund Capital Distribution Models!

The Paradigm Shift

Construct the funding structures in a manner that is targeted at the unique features of the SGI Model, in particular…

1. The SGI is based in a physical location

2. The SGI provides capital to high risk projects

Traditional Pooled Financial Capital Distribution Models

Manager

Company Company Company Company Company

Financial Capital Pool

Investor Investor Investor Investor

Ecosystem Pooled Fund Capital Distribution Models

Project Project Project Project Project

Social Good Ecosystem Pooled Fund

Investor Investor Investor Investor

Cooperative

Crowdfunded Creative Structures Targeted at Financing Ecosystem

Social Good Ecosystem Incubator

Zero Coupon Principle Guaranteed Social Good Bond… an example

Raise $1,000,000 via Social Good Bond Invest $930,700 in a 5 year zero coupon

bond guaranteeing investors their principle back

Invest $69,300 in ….. A project… a pool that can invest in other projects…

Traditional Bond Payments

Ecosystem Pooled Fund

$1,000,000 – Principle Guaranteed!

Ecosystem of Projects

Investor Investor Investor Investor Investor

Fund Entire Ecosystem Governed As A Cooperative

Targeted at High Net

Worth Individuals … that are

socially conscious

Targets Another Problem: how do we unlock private sector capital?