Social Business Investment - ROI Squared

ROI2 (ROI Squared) - Return on Investment x Return on Impact

Usually, there are two types of investments available: financial and social. The first is investment into high producing corporations for optimum return on financial investment. The second, and less common, is investment into the charity sector for a high social return on that investment; which would be viewed as a donation not to be recouped. Having said that, there is a new trend growing; being powered by a fairly new theory coined social business.

The Trend

A social enterprise is a firm that is self-sustaining, not relying solely on donations, with a definitive goal of creating a social impact on society. A idea brought into popularity by nobel peace prize winner Muhammed Yunnus, Grammean Bank founder, a micro-finance lending institution in Bangladesh. Through his model, the bank lends modest amounts to impoverished entrepreneurs that normal banks would never consider. Thereby, giving them the chance to create income and lift their families out of poverty. Those funds are then recovered and can be used again and again. An income earning company whose main concentrate is social good.

What's most desirable about the idea of social business is the fact that it bridges the gap between traditional businesses and charities, at least in some situations. It opens up a whole new set of business opportunities, as well as investors. Yunus calls it a new capitalism. Social business will appeal not only to individuals and businesses that donate, but also to ones that desire to make a social impact, yet don't want to simply give once and lose their money in a donation.

In a social business the impact of the invested funds will be multiplied.

Consider this, if a person decides to donate $10,000 into a charity the charity will take the funds, put it to great use making a difference, then it is gone. On the other hand, a self-sustaining social business will receive the funds put it to great work in their business, which is making a difference, and recoup the investment back. The investor can then re-invest that $10,000 into the company or choose to use it elsewhere. That is why in social business it is about considering ROI2, return on investment x return on impact.

I want to pose a visionary question; what if investors began partnering with social businesses? Instead of leaving funds in savings yielding 2-3%, investing them into a social business receiving the same near the same rate of return, or better, and were making an incredible social impact. Then those funds could be reused for social impact over, and over and over again.

For more information on this topic please see our iSi Capital page and contact us.

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