Trickle-down giveth, trickle-down taketh away

Social enterprise took flight in a prolonged period of market expansion. Now venture capital is pulling back. Via Portfolio:

"There has been a real 'de-risking' of the market, which will certainly affect the I.P.O. market," said [Union Square Ventures' Fred] Wilson, whose firm was an early investor in the social bookmarking site del.icio.us, which Yahoo bought, and Twitter, a site that combines social networking with blogging.

"That will impact the late-stage venture market," Wilson added, "because the I.P.O. market drives the late-stage venture market. And that will slowly impact the early-stage venture market."

As investors move out of equities and into fixed income and other usually safe investments, equity prices will drop across the board, he predicted, creating bargains.

"Valuations will come down," Wilson said. "There will be less exuberance about venture capital investments. What will probably take place is a flight to quality. Venture capitalists will want to invest more in the companies that look like they're going to be successful and be a little less willing to take fliers on things that are hard to really handicap.

Commercial social enterprise tends to operate in areas of the market characterized by high risk and low margins. To continue to attract substantial investment--as opposed to de facto grants--social entrepreneurs will need to develop more sophisticated business models that rely far less on good intentions.