Ratings for Entrepreneurs and Investors

Greg Berry’s post today highlights the need for better metrics in the social finance sector. He cites a recent post by Kevin Jones describing how one social venture fund refused to cooperate with another because it would mess up it’s metrics for the project it was investing in by making it hard to tell what factors were most important. Greg not only agrees with the absurdity of this situation, but also proposes an extremely interesting solution. The solution involves developing better standards for venture metrics, which his group has already at least partially achieved and tested. (Entrepreneurial Standards Forum.)

Good posts and good solutions. My limited experience is very similar: This type of uncooperative blindness is about a) competition for social investment “deal flow” which in turn helps attract more resources to invest, and b) simple self-absorption, sometimes confused with the need for “focus”.

It is interesting to see competition and self-absorption combined with idealism. As idealists, we always hope that … the need to invest in urgent social causes is enough to eliminate these, because the bottom-line is not highest financial return, but highest social return. If two different funds invest in the same project, and if that helps the project succeed, who cares whether fund A’s input created 67% of the success and fund B’s input created 27%? The truth is that the success actually comes from *many* sources other than investment funds, especially from the project’s own committed staff and volunteers. I see that fund contributors want to know which fund they should invest in. Yet, as a contributor I would want to know that the funds I contribute to are picking “winners” and that they are also taking some risks! And that they play well with others, and cooperate rather than obstruct.

Coming up with metric standards is a great solution. One important component of such standards (which ESF may already be working on) has to do with how to measure not only the success and reputations of social ventures, but also the reputations for social venture funds as being genuinely helpful to the ventures they invest in. Any such reputation measure would have to take into consideration the opinions of project staff and volunteers as well as other funds working in the same arena. Establishing a rating system for investment funds could go a long way towards making individual funds less self-absorbed.

Some foundations and other grantmakers and investors are already actively monitoring the value-add of their program managers, in part by asking for feedback and ratings from the funded projects. This seems to be having good effects.

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1 Response to “Ratings for Entrepreneurs and Investors”


  1. 1 Greg Berry April 14, 2008 at 5:40 pm

    Duncan,

    You make a great point about reputation, which is core to my vision for how to make the ESF and The Business Catapult more relevant to our users, members and subscribers.

    I think the biggest challenge is not in the quality of the metrics (that will be duly debated for decades), but rather the visibility of the metrics.

    Have a good monday!


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