Patient capital
Encyclopedia
Patient capital is another name for long term capital
. With patient capital, the investor is willing to make a financial investment in a business with no expectation of turning a quick profit. Instead, the investor is willing to forgo an immediate return in anticipation of more substantial returns down the road.
Although patient capital can be considered a traditional investment instrument, it has gained new life with the rise in environmentally and socially responsible enterprises. In this case, it may take the form of equity
, debt
, loan guarantees or other financial instruments, and is characterized by a:
The source of capital may be philanthropy
, investment capital, or some combination of the two. Patient capital is not a grant, it is an investment intended to return its principal plus (below market-rate) interest. It does not seek to maximize financial returns to investors; it seeks to maximize social impact and to catalyze the creation of markets to combat poverty. On the spectrum of capital available to both non-profits and for-profits, patient capital sits between traditional venture capital
and traditional philanthropy, between development aid and foreign direct investment.
Thomas Friedman
of the New York Times has describes patient capital as having “all the discipline of venture capital — demanding a return, and therefore rigor in how it is deployed — but expecting a return that is more in the 5 to 10 percent range, rather than the 35 percent that venture capitalists look for.” Jacqueline Novogratz
of the Acumen Fund
adds patient capital,
“takes the best of the markets as well as philanthropy and aid. Patient capital is money invested in entrepreneurs building companies and organizations that solve tough problems like healthcare, water, housing, alternative energy.”
Organizations/Businesses using patient capital investment methods:
Examples of enterprises that have benefited from patient capital:
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
. With patient capital, the investor is willing to make a financial investment in a business with no expectation of turning a quick profit. Instead, the investor is willing to forgo an immediate return in anticipation of more substantial returns down the road.
Although patient capital can be considered a traditional investment instrument, it has gained new life with the rise in environmentally and socially responsible enterprises. In this case, it may take the form of equity
Equity (finance)
In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists...
, debt
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
, loan guarantees or other financial instruments, and is characterized by a:
- Willingness to forgo maximum financial returns for social impact, and an unwillingness to sacrifice the interests of the end customer for the sake of shareholders
- Greater tolerance for risk than traditional investment capital
- Longer time horizons for return of capitalReturn of capitalReturn of capital refers to payments back to "capital owners" that exceed the growth of a business. It should not be confused with return on capital which measures a 'rate of return'....
- Intensive support of management as they grow their enterprise
The source of capital may be philanthropy
Philanthropy
Philanthropy etymologically means "the love of humanity"—love in the sense of caring for, nourishing, developing, or enhancing; humanity in the sense of "what it is to be human," or "human potential." In modern practical terms, it is "private initiatives for public good, focusing on quality of...
, investment capital, or some combination of the two. Patient capital is not a grant, it is an investment intended to return its principal plus (below market-rate) interest. It does not seek to maximize financial returns to investors; it seeks to maximize social impact and to catalyze the creation of markets to combat poverty. On the spectrum of capital available to both non-profits and for-profits, patient capital sits between traditional venture capital
Venture capital
Venture capital is financial capital provided to early-stage, high-potential, high risk, growth startup companies. The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as...
and traditional philanthropy, between development aid and foreign direct investment.
Thomas Friedman
Thomas Friedman
Thomas Lauren Friedman is an American journalist, columnist and author. He writes a twice-weekly column for The New York Times. He has written extensively on foreign affairs including global trade, the Middle East, and environmental issues and has won the Pulitzer Prize three times.-Personal...
of the New York Times has describes patient capital as having “all the discipline of venture capital — demanding a return, and therefore rigor in how it is deployed — but expecting a return that is more in the 5 to 10 percent range, rather than the 35 percent that venture capitalists look for.” Jacqueline Novogratz
Jacqueline Novogratz
Jacqueline Novogratz is founder and CEO of Acumen Fund, a non-profit global venture capital fund that uses entrepreneurial approaches to solve the problems of global poverty. Acumen Fund has invested over $50 million of patient capital in 50 businesses that have impacted more than 40 million...
of the Acumen Fund
Acumen Fund
Acumen Fund is a non-profit global venture fund that uses entrepreneurial approaches to solve the problems of global poverty. Its aim is to help build financially sustainable and scalable organizations that deliver affordable critical goods and services that improve the lives of the poor...
adds patient capital,
“takes the best of the markets as well as philanthropy and aid. Patient capital is money invested in entrepreneurs building companies and organizations that solve tough problems like healthcare, water, housing, alternative energy.”
Other references
Media References- More 'Patient Capital' for Social Ventures; Business Week
- Entrepreneurship: Resources for 'Patient' Capital; Business Week
- The Patient Capitalist; The Economist
Organizations/Businesses using patient capital investment methods:
- AAvishkaar
- Acumen Fund
- Agora Partnerships
- E+Co
- Grassroots Business Fund
- IGNIA
- Good Capital
- Root Capital
Examples of enterprises that have benefited from patient capital: