Venture Capital Boom Neglects to Support Startups Tackling Poverty

There is a great deal of venture capital that is coming back into the economy. Luxury applications abound as money flows into the tech scene for businesses that help people find a valet or a home delivery for their laundry. However, one of the biggest critiques of the new money in the industry is that it is going to the top one percent.

The Number One Critique of Modern Venture Capitalism

Venture capital is somehow not finding its way down into the rural and underrepresented areas of the world. Although there is plenty of money flowing into luxury services, there is very little money that is going into keeping staples around four the people who need it. There is a great need for water and sanitation in some areas, but there is no venture capital going into these places at all.

Companies that put poor people first are always dismissed as charities or non-profits. Neither of these descriptions necessarily appeals to the top shelf investor who is looking to showcase profit to his social circle. However, companies who deal in social impact work are now proving to be profitable quantifiably. This may be changing the course of many businesses when it comes to traditional financing options, but the current class of venture capitalists seems not to have caught on quite yet.

The Money in Silicon Valley

Silicon Valley is a worldwide phenomenon. Businesses from poor countries in Africa and Asia routinely petition Silicon Valley for the money that they hold there. These businesses are successful in their areas; however, they do not receive the same support from venture capitalists as businesses of the same success in first world countries. This has left many of these companies in poor countries unable to scale their businesses in order to provide more service for their area.

Peter Scott, CEO and founder of BURN, is an entrepreneur who sells cleanburning stoves to families in Kenya. Although Scott was given funding for his successful idea from the impact investing firm Acumen, these kinds of firms simply do not have the same kind of funding that venture capitalists on Silicon Valley have.

The Payback Silicon Valley is Looking For

Many social impact companies that are successful do not have the numbers that Silicon Valley is looking for. For instance, although BURN is quite successful, it definitely does not have the profitability of a company like Uber. This ensures that the smaller companies will not receive the same kinds of benefits, because venture capitalists are not only looking for a profit: They are looking for bigger profits than their competitors.

The Turnaround

Even with this attitude firmly ensconced in Silicon Valley, there are some people who are breaking through. There are some venture capitalist investments into companies in the United States that are working on water purification, toilets and hygiene, rural agriculture and new stove technology. The amount of money that went into companies who were specifically looking to bring technology to poor and rural areas has gone up over US$100 million from 2010 to 2014, according to the Dow Jones data from the San Jose Mercury news. However, there is still quite a long way to go before these social impact companies will receive anywhere near to the funding that they need to truly expand their efforts.

For venture capitalist investment services, contact John McDuff at 512-457-1177.