Social Entrepreneurship and Private Equity: Should it always sound like an oxymoron?

By Nayim Khemais – Ashoka Arab World ASN Member.Nayim

I joined Ashoka Arab World as a support network member in March 2009, for I was thirsty to make a difference in a region known for the daunting challenges it is facing. The private equity field – that I work in – would not obviously be the first place to look at to learn transferable social practices. As you may know, this part of the financial sector is more publicly known for its unethical greed by means of notorious tactics such as stripping companies’ assets and laying off employees. Nevertheless, underneath the often superfluous contrast between these two worlds, “the nice vs. the nasty”, which may be just the tip of the iceberg, there is a connecting fine line between private equity and social entrepreneurship, a link that could unlock an untapped and powerful potential for the region.

In order for me to expound on the similarities between the two sectors, I should first introduce the world of private equity. Private equity has many definitions, from the most esoteric to the simplest one. I will define private equity in broad terms, as seeing in any asset an opportunity where others see a challenge. Most of the time, the asset is a family-owned unlisted company that you buy, grow – by bolstering sales and improving operational performance for instance – and then resell for a profit. As a seasoned investment professional, you are supposed to look at a company from an angle that others don’t see and substantiate that view with judgment and facts. Buying a company, private equity firms generally seek to partner with smart and motivated management teams to migrate the company to a completely new dimension, a dimension that will attract more buyers because of the compelling success you have instilled into the company. Due to the fact that private equity is about changing and empowering organizations with the best available resources, the most successful private equity investment tends to realize, more than any other form of investment, the importance of emphasizing vision, creativity, and ethical leadership as key success factors of a lasting and positive change for a company and its stakeholders. By now then, you may start to see the similarities between private equity and social entrepreneurship. What private equity aims to do for the corporate sector is akin to what social entrepreneurship endeavors to bring to citizens and society as a whole.

My interest in social entrepreneurship and private equity has reinforced each other strongly over the past few months. When I started learning about social entrepreneurship – reading an inspiring article by Bill Drayton in the Stanford Social Innovation Review – I still didn’t know much about private equity. Oddly enough, when I set out to work in private equity, I quickly became convinced that there would be no chance whatsoever to escape from the dollar profit obsession and that it was inevitable to turn into a “nasty coldhearted dealmaker”. However, reflecting back on these two experiences, I figured out that I started subconsciously shaping a new personal understanding of these two fields. Particularly, I started to think deeply about social entrepreneurship from a practical, “bottom line”-oriented point of view and how my current experience could be of any benefit. And yes, there are benefits, because to me social entrepreneurship is about utilizing business skills to leverage social impact. The process of going from business to social value was not obvious to me, nor was it systematic and rigorous. The Arab region is facing a number of pressing societal issues; this puts a premium on applying the appropriate problem-solving tools and approaches to fruitfully solve these complex social problems. These social problems are only the symptoms of the real issues, though. Dealing with the whole iceberg problem, and not just its appearing tip, implies taking the courage to change mindsets and behaviors towards the identified new social standards, be they in women rights or education or any other area of social concern. Similarly, oftentimes in private equity deals, management incentives plans are put in place – the underwater part of the iceberg to take the same analogy – to enable the smooth and successful transformation of a business. These core incentives carry oftentimes more weight than the most apparent issue of driving a company’s day-to-day operations – the tip of the iceberg.

Many of the solutions to some of the long-standing issues the Arab region is grappling with can be imagined through a private equity, or social entrepreneurial, lens – by capitalizing on leading social entrepreneurs and supporting their efforts to scale their “social business model” up. The private equity approach can teach social entrepreneurs to create a roadmap to capture the best change – exploiting opportunities and thickening the “skin” of their enterprises for social profit to weather the roadblocks impeding their full potential.

The private equity analogy can help social leaders think in new ways about creating a plan to get there in the most efficient and traceable way. If private equity firms in the region realize the importance of bolting a far-reaching social goal to their profit-maximizing goals, they could easily double the impact they are making. As Ronald Cohen, co-founder of Apax Partners, a prestigious UK private equity firm, and one of the most iconic figures of this industry, recently said in Private Equity News: “I think the private equity industry has the skills and the resources to turn social entrepreneurship into mainstream activity and social investment into an asset.” These two fields have much in common and are here to help the rare breed of visionary individuals, those passionate social and business entrepreneurs, lead more and better and leave their mark on society for the benefit of all.


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