Social Investing Interest Up, Tho Funding’s Not

It’s hard enough sounding upbeat about traditional VC lately, what with exits scarce and would-be startup customers broker than they’ve been in years.

That’s why this week’s Social Capital Markets (SoCap) conference stood out as a particularly remarkable testament to entrepreneurial optimism. More than 800 people attended the event, which wraps up tomorrow in San Francisco and featured presentations on everything fundraising during a downturn to scaling services for people living on less than $2 a day.

I attended a couple of panels, and walked the floor, which included displays demonstrating just how broad the social capital sector has become. There were reps of socially responsible drink makers, double-bottom staffing agencies, green building engineers – even socially conscious law firms.

On the investment side, participants maintained that social venture (basically, investing in companies that produce both profits and some measurable social good) remains immature. Bettina von Hagen, CEO of Ecotrust, a conservation-oriented combination bank, fund and community organization based in the Pacific Northwest, says there’s much evolution that must still to occur. She’d like to see a broader spectrum of social asset classes (public, private equity, etc.), a deeper pool of talented leaders for these ventures, and a more standardized system of investment analysis and ratings that takes into account both financial and social goals.

Gil Crawford, of microfinance provider Microvest, says he’d also like to see social venture copy something from the traditional venture arena: a tolerance for failure. Because social entrepreneurs have to fewer funding sources to turn to, he says, expectations for success are set quite high.

The funding picture’s not likely to improve much. While while plenty of socially-minded investment firms were in fund-raising mode last year, signing up limited partners has been a difficult task in the current market environment. Add to that the fact that business schools are churning out increasing numbers of social entrepreneurialism-trained grads, and demand is on pace to further outstrip supply.

Still, there is money to be invested. As of last year, an estimated $5.3 billion was under the management of 46 different socially or environmentally screened alternative investment vehicles, including venture, private equity and hedge funds, according to the Social Investment Forum, a trade group. The group estimated that last year roughly $2.71 trillion—or 11% of assets under professional management in the United States—were involved in socially responsible investment, largely through public market investments.