Why Venture Capitalists Don't Invest in Social Enterprises

Social entrepreneurs spend years building solutions that could transform communities, only to hear the same answer from venture capitalists: no.

The frustration is real. The question is constant. Why don't VCs invest in social enterprises?

Dr. Luis Martinez has a unique answer because he's lived on both sides. As director of Trinity University's Center for Innovation and Entrepreneurship, he helped launch 65+ student ventures that raised $60 million in external funding. Now, as Senior Venture Associate at Capital Factory, he works with one of Texas's most active early-stage investors managing 750+ portfolio companies including eight unicorns. In this episode, host John Kane Gonzales gets Luis to pull back the curtain on the hard realities of venture capital, why impact alone isn't enough, and what it actually takes to build a social enterprise that can scale.

"Being a startup founder is impossibly hard. Being a startup founder that is also driven by social impact? Congratulations, you're on advanced mode." - Dr. Luis Martinez

🚀 Key Takeaways:

VCs Aren't Giving You Money, They're Investing for Returns: Venture capitalists promise their investors superior returns (10-20x) in 7-10 years—impact alone isn't enough, it has to come with velocity and scale in a compressed timeline.

Social Impact VCs Exist, But They're Rare: There are funds with social enterprise as their thesis, but performance hasn't always matched traditional VC returns, and some investors handle impact through philanthropy instead of expecting investment returns.

The Three Levels of Fit: Problem-solution fit (does your solution work?), value proposition-customer fit (will someone pay for it?), and product-market fit (can it scale?)—most social entrepreneurs get stuck at level two.

You May Not Be the Founder Who Scales It: The team that takes a company from 0 to 10 is often not the team that takes it from 10 to 100—knowing whether you want to be king or rich is critical.

Stop Planning, Start Building: Go build a real business with real customers and real revenue before seeking VC funding—if you can't convince people you know to invest, you'll never convince institutional investors.

⏳ Chapters:

00:00 Introduction to Luis and Capital Factory

01:40 Luis's journey from organic chemist to VC

05:09 How Trinity launched 65+ student ventures with $60 million raised

08:01 The four components of startup success: idea, capital, mentors, talent

13:01 Why social entrepreneurship flourished in the 2010s

15:07 The nonlinear path from science to entrepreneurship

18:31 English majors launching tech companies at Trinity

21:05 Creating value vs capturing value in entrepreneurship

23:36 The difference between Trinity and Capital Factory

28:44 Why VCs promise superior returns to their investors

32:26 What venture scale actually means: velocity matters

34:49 Why social impact VCs are less common

39:07 The competitive advantage question most founders miss

44:18 The three levels of fit every entrepreneur must master

46:21 What makes a business actually scalable

49:27 Do you want to be king or rich? You can't have both

52:16 Go build a real business first

54:04 What would flip VCs toward social enterprise investing

59:12 Five pieces of practical advice for social entrepreneurs

01:04:43 Where to find Luis

🔗 Connect with Luis Martinez

Website: https://capitalfactory.com

LinkedIn: https://www.linkedin.com/in/drluismartinez/

X: https://x.com/DrLuisEMartinez

🔗 Resources Mentioned

Capital Factory Portfolio: 750+ companies, 8 of Texas's 20 unicorns

https://capitalfactory.com/portfolio/

🎙️ About SowGood to GrowGood: Hosted by John Kane Gonzales, entrepreneur and innovator. We explore how change-makers and innovators are building sustainable systems for a better future, turning ideas into scalable impact.