What is Proving Capital?
Proving Capital is financing used to get an emerging social venture from the pilot stage to proof of concept.
In the for-profit marketplace, this initial push is usually financed through government grants, the 3 F’s (Friends, Families and Fools) as well as from early-stage angel investment. In any early-stage venture, the earlier the project, the greater the risk. In the for-profit marketplace this high risk is compensated for with high potential return.
For ventures with a social-first mandate, this high risk is compensated for with high potential social return, but this doesn’t translate to the financial marketplace and therefore many social ventures die before they’ve had a chance to prove themselves. Proving capital fills this gap.
Proving Capital as early-stage Impact Investment
As impact investing matures we’re beginning to see a crowd gather at the upper end of the pipeline, with investors looking for market or blended returns from more established ventures, or taking relatively sure bets on high impact later stage organizations. However outside a few exceptions (microfinance the largest), deal flow is tough, and investible enterprises and entrepreneurs are relatively few and far between. One of the reasons – impact investing lacks a well developed network of seed stage funders and support to efficiently identify and accelerate high potential new ideas.
Global Catalyst Initiative is in part a response; while investors struggle to deploy dollars, start-up ideas languish, with entrepreneurs unable to garner sufficient support to prove their idea can work.
Traditional start-ups know this as the ‘valley of death’; you garner early energy and support to launch, but just run out of money and time before you can work out the kinks. We believe that providing a relatively small amount of funding and support at this critical stage allows time to challenge assumptions and test models, before trying to scale. Our goal is to help move high impact projects from pilot to proof of concept, and on to larger funders. We want more projects across that ‘valley of death’, more groundbreaking ideas reaching their potential, and more inspiring entrepreneurs given room to grow.
Once a social venture proves its model, there are many well established funds that can help take a promising model to scale. Our goal is to help emerging ideas get through that first year or two and become eligible for these larger capital pools. We believe this is an essential step to help spur innovative ideas to measurably reduce poverty.
Without support for emerging ideas, there are no big scalable solutions.