Social subsidy for startups?
I like to think of money as fuel and not as a destination. A fuel for supporting people and ideas that basically align with my values and interests.
Alex Danco has argued that most of the seed investment merely results in a transfer of wealth from investors to founders, and more noticeably, only in social bragging rights for the angel investors.
I tend to agree with this realistic view of the early-stage investment market. Besides, I caveat other investors to be particularly attentive to the opportunity costs – both in terms of time and money – required by trying to contribute to improving the world.
Alex also argues that the social aspects of angel investing depend on the density of the network that sustains them:
Once you have that sufficient density of people who care about the social return to angel investing, and you establish a genuine “early stage capital market” that is subsidized in part by the social and emotional job that it’s doing for its angel members, you create something really special. You get the rare conditions where capital is available for founders at high enough valuations, with no strings attached, and by investors who are evaluating them “the right way”, that you actually sustain a scene that produces startups in sufficient numbers to generate those few unlikely mega-winners that replenish angels’ bank accounts and keep the cycle going
I also observe the social network spillover effects identified by Alex but dispute the need for such density to be geographically driven. Increasingly the value of such networks will not be conditioned by where you live, but by whom you know and even more precisely, by its quality. Thus my call to share deal flow among impact investors. This will hopefully not just result in a wealth transfer or ‘innovation subsidy’ in favor of social entrepreneurs, but more critically, will probably contribute to the strengthening of the early-stage capital market system.
The crucial role of the rich in a capitalist economy is… to invest; to provide unencumbered and unbureaucratized cash.George Gilder – American economist