In his influential book on transforming communities, "The Power of Social Innovation," Stephen Goldsmith refers to "discretionary venture capital," but he does so in a different way than you might think.
Here, the mayor-turned-Harvard professor isn't referring to pouring money into high-growth startup companies. Rather, he's talking about an approach for funding innovative ideas.
Consider: In order to start a new business one must take on risk.
The more innovative the business, the bigger the risk - and the less likely financing will come from a traditional lender, such as a bank.
As a result, many entrepreneurs end up seeking equity financing - agreeing to give up an ownership stake in their business in exchange for capital.
Such a practice in the private sector could easily translate to the public sector, Goldsmith argues.
To dramatically transform communities, risk is a necessary element. But more often than not, the limitations of public funding force community leaders to compromise, dooming their efforts even before they've begun.
Where, one asks, is the capital to fund risk in the public sector in Memphis - and is it finding and funding innovation?
I submit that Memphis needs a true discretionary venture capital fund for purposes of supporting community efforts. This fund, however, should only put money into efforts that meet the same
criteria that the private sector uses when it decides to back quality startup businesses.
For example, when a program is proposed to address a community problem, can proponents demonstrate that their approach is likely to yield results? Have they quantified the severity of the problem?
Have they explored alternative solutions? Do they have statistics and research to back up their findings? Have they tested their solution in the community first, and built momentum and support?
Have they identified who will be served and what value they are bringing to the table? Have they identified key activities and partnerships that will spell success?
The people who propose an initiative must do the legwork, and be expected to answer these questions. The most important thing they should be prepared to provide - the same thing any entrepreneur in
the private sector would be expected to provide - is the ability to convey how results-driven the initiative will be and how those results will be tracked.
Then they must sell their proposal just like any entrepreneur pitches a potential investor, showing why they're uniquely qualified for funding and differentiating themselves from the competition.
It is at this point that the managers of the venture fund will assess and fund only those who show the highest potential for growth.
Just imagine what an impact such a funding mechanism for public-sector dollars - one that opens the door to innovation - could mean locally.
Perhaps groups in Memphis and Shelby County could come together and form a Memphis Civic Venture Capital Fund.
Let such a fund be managed by innovators who are already involved in entrepreneurial activities locally - people already "on the ground," building businesses and developing communities; people who
aren't politically independent and civic-minded.
Right now, we have too many competing efforts in our community - many worthwhile, many redundant, many complacent, and many hurting our city. It's time for a way to identify and fund initiatives that
actually work.
A more entrepreneurial approach to providing capital to the community might be just what we need.
