Why Do Social Enterprises Fail?

Renata Truzzi and Filip Wadowski support social entrepreneurs in Brazil and Poland in building businesses that can continuously employ people from marginalized communities.

One of the most challenging goals for a company to achieve is the consistent growth of its team and of the number of people that it employs or provides income to. NESsT exclusively invests in these companies because it is through dignified employment that we can achieve long-term poverty alleviation.

As Portfolio Managers, Renata and Filip accompany social enterprises from the due diligence stage and continue to support them during several rounds of funding so that they can continuously grow.

They reflect on the main reasons why social enterprises stall in their development.

1) Lack of Advanced Management Skills

Social entrepreneurs that cultivate their passion for the social problem, but do not invest in building a management team with a diverse skills-set will limit the longevity of their business. As part of our due diligence, we evaluate a company’s potential for social impact as well as NESsT’s ability to create value through incubation. As impact-first investors, we look for the companies that are closest to the communities that are in the greatest need for dignified employment.

If an entrepreneur has made it into our due diligence, it’s because they have the knowledge to develop a product or service that has great demand. However, a founder or inventor is not always a great CEO. Learning to increase supply and demand for a product or service, while sustaining the impact and implementing the infrastructure of a larger company does not happen overnight.

A Solution

Renata Truzzi speaks at the British Council’s launch of their report,    Activist to entrepreneur: the role of social enterprise in supporting women’s empowerment     ,     published in collaboration with NESsT as a research partner in Brazil.

Renata Truzzi speaks at the British Council’s launch of their report, Activist to entrepreneur: the role of social enterprise in supporting women’s empowerment, published in collaboration with NESsT as a research partner in Brazil.

To find the balance between meeting social and business
objectives, measure the performance of the social enterprise regularly in a few key areas: finances, operations, social and environmental impact. You don’t achieve what you don’t measure.
— Renata Truzzi

2) Lack of Access to Tailored Patient Capital

The type of capital available for social entrepreneurs is not ideal in most countries, including Brazil and Poland. Usually, impact investors seek more advanced businesses, deeming early-stage social enterprises as too risky. As a result, early-stage entrepreneurs resort to capital that becomes very expensive over time and that can stifle their ability to draw future investment. NESsT fills this market gap by structuring its investments to social enterprises using blended capital.

A Solution

When assessing different funding opportunities, think about how the terms of the investment could shape future opportunities. If you are unable to conduct this assessment on your own, reach out to experienced professionals that you trust and engage them as advisors. Dedicate time to researching and educating yourself about the different types of funding out there. Impact investing is evolving and growing rapidly.

3) Mismatched Financial Goals and Skill Set

Social entrepreneurs are optimistic about achieving their ambitious, and very legitimate, social objectives. Unfortunately, this optimism can lead them to create unrealistic financial forecasts and to become attached to them. Social enterprise CEOs should not be 100% focused on achieving their social impact. CEOs must create space to think about designing a sustainable business model and implementing it. This is where NESsT comes with its support.

A Solution

Filip Wadowski during the Women in IT Career Day hosted by CodersTrust Polska/Future Collars and Fundacja Mamo Pracuj! He speaks with Joanna Pruszynska-Witkowska about NESsT’s decision to invest in these social enterprises in Poland.  Watch the video (Polish).

Filip Wadowski during the Women in IT Career Day hosted by CodersTrust Polska/Future Collars and Fundacja Mamo Pracuj! He speaks with Joanna Pruszynska-Witkowska about NESsT’s decision to invest in these social enterprises in Poland. Watch the video (Polish).

Creating a social enterprise takes passion! If you let this passion guide your business planning and do not invest in developing your financial skills, you risk creating overoptimistic financial forecasts. Learn to separate what you hope to achieve from what you are in a position to achieve.
— Filip Wadowski

Interested in joining the NESsT portfolio?

NESsT is hosting an open call for social enterprises in Peru and Colombia seeking debt capital.