Editor's Note: This is part of our continuing coverage of SOCAP 2015. Read the rest here.
“Money won’t do much good if people and purpose get left behind.” – White Road Investments
Did you know that Patagonia, Seventh Generation and Clif Bar each invest millions in social enterprises through their investment management funds? I didn’t, until SOCAP 2015 this month in San Francisco.
Investment funds for triple-bottom-line impact
At a session entitled Cool Companies with Cool Impact Funds, moderated by Kate Danaher, lending manager for RSF Social Finance
, panelists shared frank advice for social entrepreneurs who are seeking funding to expand their business. So, let’s get right to it! What do you need to know if you are seeking funding from one of these organizations?
- $20 Million and Change is Patagonia’s $20 million venture fund, established in 2013. Preferring not to take board seats, the company typically looks for a 2 to 20 percent ownership stake, and seeks out enterprises that inspire and invent solutions to environmental crises. With a focus on food, water, energy and waste, Patagonia has invested in 10 companies to date, including Bureo, a company that turns fishing nets into skateboard decks and sunglasses.
- Seventh Generation Ventures was established last year with a $30 million investment from Al Gore’s Generation Investment Management. The purpose of the fund is to transform commerce to nurture the health of the next seven generations, with a focus on non-food products (like Bobble). Noteworthy: With many entrepreneurs heading for retirement now, Seventh Generation Ventures can represent an exit plan that helps ensure that the company will thrive in the long term, and not simply flip for a high profit by the next owner.
- White Road Investments (Clif Bar) is about five years old, focusing on small, mission-driven companies of about $1 million to $20 million. The company has invested in 13 companies so far, including Public Bikes and the Honest Kitchen. Clif prides itself on its “connective capital,” and likes taking board seats (though that is not required). It prefers companies that do direct-to-consumer sales.
These funds vary in their particulars, but there were three points on which all the panelists agreed: relationships, metrics and mission-alignment all matter. A lot.
It’s all about relationships
Investment decisions for this group have first and foremost to do with personal relationships. Yes, the business has to pencil out, but the numbers take a backseat to who the partners are and what they stand for. Every panelist emphasized this point:
“Transparency and authenticity are everything to us,” said Pete Alberse, general manager of Seventh Generation Ventures. “Before we invest, we need to be in love with the people.”
“The cap table is everything,” said Phil Graves, Patagonia’s director of corporate development. “Who are the existing investors? It matters. You can lose your business if you have the wrong partnerships.”
“It’s a relationship-based business,” Kate Danaher of RSF Social Finance agreed. “It takes two-and-half to three years of knowing people before they will lend to you or invest in you.”
“Authenticity is so important to us,” added Gregg Bagni, director of White Road Investments (Clif Bar). “We rely on our ‘gut check’ on people, and we’ll back out if it doesn’t seem right.”
Have metrics for social and environmental performance
Panelists seemed to agree on another point: companies seeking financing don’t need to be B Corporations
to qualify for investment – Seventh Generation, RSF Social Finance and Patagonia are all B Corps – but showing that you have at least taken the B Impact Assessment
In fact, RSF Social Finance asks companies in which it invests to re-take the assessment yearly, to make sure that they are staying on track.
Make sure you are mission- and values-aligned
Each investment fund has a specific focus for its investments, so make sure that what you want to do is squarely aligned with that focus. All agreed that they want to operate in their sweet-spot of expertise and mission. You may have the best social enterprise on the planet, but if its purpose or operating principles run contrary to the investment fund’s mission or values, you are best looking elsewhere.
You can see the video of the full session, interrupted only occasionally by the thundering roar of the Blue Angels practicing over the rooftop during the conference:
Image credit: B Impact Assessment logo used with permission of B Labs.
Image credit: 1) Flickr/dianaconolly101 2) B Lab