The Big Venture Challenge looked into the motivations of new investors in social ventures and published their findings. In summary, they noted the following six “motivations”:
- the expectation of a financial return
- a strong business proposition
- an impressive social entrepreneur
- a financially literate team
- an offer of an equity stake
- risk mitigation
I was disappointed to see that solving a meaningful problem or innovation were absent from the list. This, the result of a study by an organization whose tagline is “supporting social entrepreneurs” and “to raise the investment for big ideas”, reads more like a due diligence list. It does little to answer “why do you invest?” and rather is the answer to “what are your criteria?”
Take house hunting for example. Why might you want to buy a house? You might answer: “to protect myself from the cold of winter and heat of summer” and “to keep myself, my family, and my personal possessions safe from harm and the elements”. You might choose a house with a garden over an apartment or flat because you want a private space for your children to run around freely or to grow flowers and vegetables. But when it comes to making the decision about a particular home, you’ll want to know that it is structurally sound, that it is in a location where local amenities are accessible and is connected to the places to which you want and need to go. It will need to be of a certain size to accommodate you and your family and the price of the house will need to be within your budget. You are not motivated to buy a house because it is structurally sound, near local amenities, is big enough, and affordable for those reasons, but they do form part of your due diligence before buying a house.
Out of the six “motivations” noted in the study by Big Venture Challenge, only #1, the expectation of a financial return, has some semblance as a motivation to invest. A financial return is required as a form of sustenance or to compensate for the losses experienced in unsuccessful ventures or to make even more investments in the future.
The other five are points of due diligence – they are about mitigating risk, are meant to ensure the highest probability of success, and most certainly need to be consider before making a decision to invest. Due diligence helps people satisfy the analytical part of making a decision to invest, takes the guesswork out, and makes sure you have covered all the bases.
However, motivation is, at heart, an emotional driver that propels someone to pursue a particular path.
Investing is essential to build businesses that enable people to access the Essential Resources they need to sustain themselves, express themselves, connect with others, manage change, and make decisions. Investors are able to take risks when other people (employees, suppliers for example) cannot.
So, what are motivations to invest?
- Sustenance: To generate a financial return, which itself can be a form of sustenance.
- Status: To be the person who discovers the next big thing, to be the talent-spotter.
- Power: To influence and have power over business decisions
- Leadership: To empower others and provide vision and direction.
- Connection: To connect with other investors and be part of an investor community.
- Security: To create financial security through the accumulation of assets and reserves to manage an uncertain future.
- Future Consumption: To enable future consumption, through the accumulation of resources that grow, multiply and can be used in the future to purchase goods and services.
- Obsolescence: To prepare for products and services becoming no longer useful nor serving purpose.
- Innovation: To proactively develop products and services that are useful and serve us better in the future.
- Legacy: To provide for future generations.
Next time you’re thinking about investing, take a moment to reflect on your reasons for your decision. What are your motivations for investing?