Are free-market principles the best way to solve humanitarian issues?

I work for a tech-startup. The epicentre of venture capital funding and short-term thinking. The motto of this culture is to grow at all costs at the expense of short-term profitability (and the sanity of their founders). You can sense the pressure founders are under to give venture capitalists a 10x return on their investment in the shortest time frame possible. On a casual lunch with one of the co-founders, he laid out plans to create a for-purpose venture capital fund that will look to solving humanitarian issues. Philanthropy money from high net-worth individuals would be reappropriated into a trust fund. When the fund reaches a value of approximately $1b, it will then be rapidly invested into start-ups looking to solve some of the planets most pressing humanitarian issues. The way it was explained to me is that human progress lies at the intersection of talent, problems and capital. This got me thinking-would this investment model based on free-market principles be more effective in solving societal issues than the current not-for-profit model?

I have experienced first-hand what happens with the rapid deployment of venture capital. There is only one way to grow, and that is fast. Investment into the product and talent is scaled rapidly, many times before there is a sustainable business model. Inevitably, losses accrue, and the company either reduces headcount or goes back hat in hand to venture capitalists. Venture capitalists look for exponential or compounding growth of the user base, hoping that one day economies of scale will be achieved, creating long-term profitability. How would this model work in for-purpose businesses?

Generally, the argument against not-for-profits is that they are not incentivised to efficiently spend money. As donors are not looking for a return on their investment, not-for-profits wastefully spend money that does not have a material impact on the issue they are trying to solve. A friend of mine told me once to steer clear of the NFP sector because of the lack of performance metrics and incentive to improve would drive me insane. Would a for-profit business better spend this money?

Undoubtedly, creating a for-profit business in the humanitarian sector would drive performance, as the people who usually start these types of businesses are insanely driven to grow. The issue I see would be what outcomes will they be optimising? If a return on investment is the primary goal, short-cuts and cutting expenses are inevitable. This cutting of expenses would possibly be the reduction in quality service to a vulnerable individual. You should never put a dollar amount on an individuals life, although I’m sure that this happens. This is not an issue for NFPs as they can invest large sums of money into research and development with a long-term view.

It’s an interesting concept and I would love to hear your thoughts.