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. Prominent examples of patient capital includes pensions, sovereign wealth funds, and university endowments. Governments with access to patient capital may have greater maneuverability in formulating domestic economic policies.
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 these cases, it may take the form of
equity,
debt
Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...
, loan guarantees or other financial instruments, and is characterized by:
* 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 capital
Return of capital (ROC) refers to principal payments back to "capital owners" (shareholders, partners, unitholders) that exceed the growth (net income/taxable income) of a business or investment. It should not be confused with Rate of Return (ROR ...
* Intensive support of management as they grow their enterprise
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 (often 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
A nonprofit organization (NPO) or non-profit organisation, also known as a non-business entity, not-for-profit organization, or nonprofit institution, is a legal entity organized and operated for a collective, public or social benefit, in co ...
and for-profits, patient capital sits between traditional
venture capital
Venture capital (often abbreviated as VC) is a form of private equity financing that is provided by venture capital firms or funds to start-up company, startups, early-stage, and emerging companies that have been deemed to have high growth poten ...
and traditional philanthropy, between development aid and foreign direct investment.
Thomas Friedman
Thomas Loren Friedman (; born July 20, 1953) is an American political commentator and author. He is a three-time Pulitzer Prize winner who is a weekly columnist for ''The New York Times''. He has written extensively on foreign affairs, global ...
of the ''
New York Times
''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
'' 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 (born 1961) is an American entrepreneur and author. She is the founder and CEO of Acumen, a nonprofit global venture capital fund whose goal is to use entrepreneurial approaches to address global poverty.
Early life
Novogra ...
of
Acumen 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."
The success of the
platform company business model is in large part due to patient capital, as investors are prepared to accept long periods without profit in the hopes that the platform company obtains a dominant market position.
Notes
External links
More 'Patient Capital' for Social Ventures; Business Week
* ttp://www.economist.com/people/displaystory.cfm?story_id=13692513: The Patient Capitalist; The Economist
{{Types of capital
Capital (economics)