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European Center for Social Finance

Social Investing: What Matters From the Perspective of Social Enterprises?

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Due to a massive increase in available social venture capital (SVC), social entrepreneurs
often get to choose among various financing options. As financial parameters can
easily be adapted or replicated, this article analyzes how social entrepreneurs
evaluate the central nonfinancial features of these funders. Based on an experiment
with 44 social entrepreneurs, we assess their perception of the five most relevant
criteria for evaluating investor attractiveness: business advisory, network access,
information rights, control rights, and reputation of the investor. Our analysis of
1,056 hypothetical decisions reveals that the investor’s reputation is the single most
important criterion and that the positive effect of support provided through business
advisory and network access strongly outweighs the negative effect of oversight via
information rights and control rights. These findings indicate that social entrepreneurs
perceive the behavior of SVC investors as steward like rather than principal like.

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