Most private equity investors have heard of the “double bottom line” concept. But what about “B Corporations,” “external rates of return” and the “LOHAS market”?
Those were some of the terms bandied about in San Francisco last week at the Social Entrepreneurship Symposium, a gathering of eco-minded investors and entrepreneurs, organized by the University of California at Berkeley’s Haas School of Business.
The symposium, in its second year, is one of at least a half-dozen sizeable conferences that have cropped up this spring to focus on the theme of “social entrepreneurship,” a moniker for startups that incorporate a social or environmental mission. Other conferences include Harvard University’s ninth annual Social Enterprise Conference, Oxford University’s Skoll World Forum on social entrepreneurship in March, and angel fund Investors’ Circle’s upcoming San Francisco conference Patient Capital for a Sustainable Future.
Conference frequency and new buzzword coinage have never been reliable indicators of a sector’s growth prospects. If they were, however, the conclusion might be that social entrepreneurs, LOHAS (which stands for lifestyles of health and sustainability) consumers, and B Corporations (which meet transparent social and environmental performance standards) are the hottest things since “dot-com” became a part of the lexicon.
The reality is somewhat murkier. Clearly, some socially conscious startups, particularly in the organic food, microfinance, and cleantech sectors, are raising substantial sums. But funding has been stymied in the past by the fact that such businesses don’t fit neatly in either the mission-oriented world of charity or the ROI-centric realm of venture capital.
“One of the problems in the capital markets is any time an investor hears the phrase, ‘social investment,’ they think philanthropy,” says Steve Hardgrave, a partner at
As social venture models have matured, Hardgrave says that he’s seeing the mentality of investors changing.
Indeed, more funds are targeting the social investment arena, though it’s hard to say just how much capital is in play. The last widely cited overview, from Columbia University’s Research Initiative on Social Entrepreneurship in 2003, found that the double bottom line private equity investing market comprised at least 59 funds with more than $2.6 billion under management, and $1.9 billion available to invest in companies for social or environmental purposes.
Over the last five years, funds targeting socially minded startups have mushroomed. The San Francisco Bay Area—a hub of the social entrepreneurship movement—is home to several, including
Many traditional venture firms are also adopting socially conscious mission statements.
One example is
Other socially conscious investors say that their approach is markedly different from that of a traditional investor. For example, a socially conscious investor is willing to wait longer for an exit and to forgo some ROI for other benefits.
“Our first question for entrepreneurs isn’t ‘What’s your exit strategy?’ We’re patient investors,” says Mark Finser, a general partner at Sausalito, Calif.-based TBL Capital, a $50 million fund that invests in “triple-bottom line” businesses, which are profitable, provide a social benefit and improve the environment.
TBL’s portfolio includes a solar-powered battery charger company, a maker of goat’s milk ice cream and a sustainable seafood company. Finser says he laid out modest ROI expectations for LPs when forming the fund.
“In our organization document I said they’re only going to get a positive return, that’s all,” he says. But Finser himself expects something better. “I think we’re going to wow them.”