Can social capital markets move from niche to core?

The 700+ participants in this week’s first of its kind Social Capital Markets conference think so. Session summaries are available here. Social Capital Markets tend to denote markets and economic transactions where not only financial but also social and environmental aspects are of concern.

Right now there are three significant factors impacting the development of social capital markets:

First, the current failure of traditional capital markets models. We are in a moment of refashioning the global economy and the values and principles of social capital markets are being demanded: accountability, transparency, sustainability and governance. Social capital markets companies have a great opportunity to step in and help build the new world economic order.

Second, a broad social consciousness has developed. It started with Al Gore, Paul Hawken and others. Like all human behavior, economics is another area where deep awareness about the social and environmental impact of actions is necessary and increasingly available. Further, there is the idea of using the principles of business and economics as a tool for change; getting developing world populations actively involved as entrepreneurs receiving microloans has been vastly more successful in alleviating poverty than 30 years of foreign aid programs.

Third, the tools are now in place for realizing social capital markets. Web-based marketplace platforms and offerings are available for all manner of social economic transactions including investing (SRI public equity, social venture capital, debt, loans, microfinance, real estate and prediction markets), philanthropy (from donations to mission-related investments), purchasing (goods and services marketplaces) and income generating (jobs, projects and ideas marketplaces). Granular attribute selection can be used to allocate capital which makes transactions more empowering for all participating parties.

In summary, the three factors driving the next stage of Social Capital Markets, new models for rebuilding traditional capital markets, the development of a broad social consciousness in support of green markets and the tools to execute and monitor these transactions, could help the area evolve from niche to core.

The true moment of progress could come when Social Capital Markets are no longer distinct from traditional capital markets but are rather merely a feature or attribute of all capital markets.

Future of entrepreneurialism

The traditional definition of entrepreneurship is expanding to include more creative ways of approaching business, applying business disciplines to social problems and establishing a wider range of success metrics. Four key trends are coming together to facilitate this new era of entrepreneurship: a shift in social consciousness, the democratization of capital, innovative responses to traditional financial systems and the low cost of starting a startup in the globalized world.

Shift in social consciousness
There is a great attitude shift underway towards sustainability and social responsibility. Al Gore, Paul Hawken and others have helped to put global warming, carbon neutrality, poverty and equity firmly on the international agenda. Part of the new social consciousness is also about effectiveness and accountability. Cycling the bottom of the pyramid out of poverty requires getting target populations actively involved. Loans are better than aid.

Democratization of capital
The ability to have more granular attribute knowledge about all economic transactions has triggered the demand to direct capital and consumption based on these affinity attributes. People are willing to pay on average 5-10% more for their attribute choices, for fair-trade, organic and local items, for hybrid cars and for blended value or double/triple bottom line financial returns.

Innovations to the traditional financial system
The shortcomings of traditional financial systems, their hierarchical nature, the lack of universal access and cyclic failures like the current mortgage crisis are triggering innovative solutions such as…

• Microfinance and P2P finance (for example, Kiva is currently active in 40 countries and lending about $750,000 per week)
• Socially Responsible Investing and social capital markets including social venture capital as offered by GoodCap
• Timebanks, gift economies and other non-monetary currency solutions
• Alternative payment mechanisms like developing country cell phone networks as money transfer systems

Low cost of starting a startup in the globalized world
The increasingly low cost of starting a startup makes a whole new tier of businesses possible: the LAMP software bundle provides free technology infrastructure, APIs replace business development and blogs and community interaction replace marketing (social networks become an overlay, a property of every website) and virtual world interactions replace face-to-face meetings.