Exploring social business strategy

Every once in awhile I come across a story that, while interesting, makes absolutely no sense to me. Outvesting, which I discovered through Springwise, is just such a story. What the site has managed to do is raise $5,000 in seed capital, through 100 donations of $50 each, for a yet-unchosen Irish start-up to use. Those that have provided the capital will get to vote on who gets the money. Twitter has been a big part of how they’ve managed to accumulate the funds.

If I stop right there, it sounds like an interesting story of using prosumers to provide (an admittedly small) amount of venture funding, which is clearly targetted at people with a little Irish pride. But where I find it weird is in relation to the term outvesting. As the site clearly defines it, investing is “The act of committing money to a business while expecting income or profit in return.” Outvesting is “The act of committing money to a business while expecting to get nothing in return, other than the satisfaction of giving a leg up to Irish entrepreneurs.”

So the natural question, of course, is what exactly is the benefit of outvesting over investing? Obviously from the perspective of whoever ends up with the money, it’s pretty clear – they get money for free. But is that really a better model? Will it lead to better innovation? After all, the basic premise of investing is that the incentive to earn a positive return leads people to allocate capital to projects they deem most likely to succeed. With that incentive not in place, won’t more capital get wasted if an approach like this scaled at all?

Like I said, I find it interesting – but right now I just don’t quite get it. I’d much rather see a more traditional model here – using Twitter, micro-capital-contributions, etc. to allow people to invest in small, promising start ups. But am I just missing something here?