This category includes articles about people, firms and foundations that invest in social good by investing in social entrepreneurs, social impact or pay-for-success bonds, etc.
This category includes articles about people, firms and foundations that invest in social good by investing in social entrepreneurs, social impact or pay-for-success bonds, etc.
This post was originally produced for Forbes.
This is the first in a series of articles about impact measurement for social entrepreneurs.
There are two keys to becoming a good social entrepreneur. Intentionality, that is intending to have a positive social impact rather than merely delivering one incidentally, is how you become a social entrepreneur. Accountability, measuring the impact, is how you become an effective one.
Measurement, however, is not straightforward for most social entrepreneurs. To help guide startup social entrepreneurs on the measurement of impact, I’ve reached out to some of the leading practitioners and experts in the impact arena to comment.
“It may not be as difficult as it seems, at least for now,” says Stephanie Gripne, Founder and Director, Impact Finance Center & CO Impact Days and Initiative. “The majority of individuals and families [investing in social entrepreneurs] can still be satisfied with basic impact premises and themes, much as they’re satisfied with generalized results from gifts to charities. For now, the democratization of impact investing is being led by values and principles more than measurable outcomes.”
“Even many institutional investors and advanced investors,” she continues, “are satisfied with ‘outputs – acres conserved, ex-offenders employed, fair-trade products sourced, etc. – as long as the units counted seem reasonable. A smaller percentage (but perhaps a more vocal and well-publicized percentage) are seeking real ‘outcomes’ – the types of harder, longer-term measures that drive Social Impact Bonds for example.”
Cathy Clark, Director, CASE i3 at Duke, highlights the importance of defining a “theory of change.” She says, “This is basically an ‘if-then’ statement that relates their activities to the change they seek. Every social entrepreneur needs to make this argument about their impact. Using that theory, they can they start to recognize assumptions in the theory and track measures that help test how well things are actually occurring.”
Cecile Blilious, Founder, Managing Partner, Impact First Investments, echoes Clark. “Entrepreneurs should be able to describe their theory of change and work towards creating a social impact plan in parallel with their business plan.”
Similarly, Uma Sekar, Impact & ESG Manager, Capria Ventures, suggests starting with an impact thesis. “Entrepreneurs should start with an impact thesis or strategy, set goals that are achievable and align their core metrics. Some of the common metrics are lives impacted, job creation and geographic coverage. The more specific they are about the populations they are addressing–base of the pyramid, low income, minorities, women, refugees, etc.–the better. If it is an environment focused company – energy conservation, carbon footprint are common measures.
Lisa Curtis, founder & CEO, Kuli Kuli, suggests identifying a short list of key measures. “Social entrepreneurs should understand how their high-level vision translates down into 3-5 key metrics that are quantifiable. They should be able to articulate what success in 10 years would look like in terms of those metrics, whether it’s the number of trees planted, livelihoods created or investment made.”
Focus on measuring the one thing you’re looking to do, says Nell Derick, Founder and CEO, Inspiring Capital. “A simple, customized, quantitative standard related to their self-proclaimed target impact. For example, we’ve been measuring our professionals’ and clients’ reaction to the question, ‘Do you better understand how to use your or your employees’ business skills (e.g. finance, strategy, marketing and operations) to advance social good?’ since our first programs in 2014. It’s not part of a public index or measure, but it tells US if we’re doing what we set out to do, and the very design (and ongoing choosing) of that question forces us to clarify the one thing we’re looking to do in the world.”
Laurie Lane-Zucker, Founder & CEO, Impact Entrepreneur Center for Social and Environmental Innovation, suggests putting impact measures into a broader context. He says, “Global sustainability context is also important in this discussion of impact measures. Grounding social entrepreneurship in widely accepted contextual touchstones such as the United Nations’ Sustainable Development Goals helps: a) provide sustainability context for impact investors keen on seeing “the big picture,” b) facilitates comparisons between different investment opportunities addressing the same sector (i.e. water, climate, poverty, food), and c) helps ESG [environmental, social and corporate governance] reports using (hopefully) similar impact measurements be more comparable and transparently answerable to macro social and environmental needs.”
Matthew Weatherley-White, Co-Founder, Managing Director, The CAPROCK Group, cautions that no single set of metrics will work for all social ventures. “We believe that there are no universal impact key performance indicators. Instead, social entrepreneurs should be prepared to measure, on day one, whatever impact metrics are endogenous to the operations or mission of their enterprise. Far too often, social entrepreneurs believe that tracking and reporting on a host of socially-aware metrics will make their business ‘more’ impactful… when, in fact, doing so may be (at best) a distraction to operating the business or (at worst) a distorting force, putting at risk the survival of the enterprise. Seen through this lens, impact measurement can be interpreted as answering the question of ‘materiality’: what impact measures are critical to the survival of the enterprise. That set of measures should be what the entrepreneur strives to report the day the doors open.
Gary White, CEO & Co-founder, Water.org, also emphasizes the unique measurement challenges each social venture will face. “For enterprises like Water.org and WaterEquity, we are very much focused on delivering impact in the form of number of people reached with water and sanitation improvements. For our WaterEquity initiative, we also look at IRIS metrics and commit to reporting within that framework.”
Matthew Davis, CEO, RENEW, an impact investing firm focusing on Ethiopia, notes that for some ventures impact measure is relatively simple. “In the part of the world where I invest (Africa), where job creation is desperately needed and starting and growing a business is very challenging, the best impact is a healthy growing business that is managed by ethical leaders. Therefore, growth and good governance must be a priority from day one.”
Peter Fusaro, Chairman, Global Change Associates, agrees. “Hopefully, they should be focused on the ESG metrics of environmental benefits, job creation and be ethical vis a vis transparency.”
Bobby Turner, CEO, Turner Impact Capital, also recommends ESG metrics. “At Turner Impact Capital, our reports provide financial, social and environmental metrics for our investors to track. By doing so, one can then see the correlation and interdependency between profits and purpose, i.e. a reduction in carbon footprint leading to lower utility costs or a reduction in crime translating into lower insurance costs and thus higher profit margins.”
Daniel Jean Louis, CEO, Bridge Capital, operating in Haiti, suggest even more basic measures, starting with “customer and employee satisfaction” because they are “much easier to track.”
Balance qualitative measures with quantitative measures, suggests Topher Wilkins, CEO and founder, Opportunity Collaboration and Conveners.org, respectively. “In general, it’s best to be able to justify both quantitative and qualitative impact, i.e. data-driven metrics (how many more children are now attending school, what percentage of women are now surviving childbirth, what’s the increase in average household income, etc.) alongside stories or testimonials from beneficiaries, e.g. ‘before X organization came to my village, it was very difficult to feed my entire family, but now I can provide at least two meals a day and no one is hungry anymore.’”
Expanding on this idea, Lisa Hagerman, Director of Programs, DBL Partners, says, impact measures should include narratives and quantitative measures about the programs and practices related to the target impact. These should include “narratives across: public policy, environmental stewardship, workforce development, community engagement, and, quantitative metrics across: job creation, quality of jobs & benefits offered (including wealth creating programs such as Employee Stock Ownership Plans), environmental metrics, supply chain accountability, among others.
Some investors do have more specific guidelines. Joel Solomon, Chair, Renewal Funds, says, “We are a B Corp Fund. We strongly encourage, but don’t require, portfolio companies to become B Corp. We use the B Corp questionnaire as part of our due diligence before final investment. We prioritize B Corp companies for our intake process.”
Impact takes time so reporting on impact will improve over time, says, Laura Callanan, Founding Partner, Upstart Co-Lab. “If this is a new enterprise, there will be a trajectory to actually deliver impact just like there will be a trajectory to deliver financial return. Impact investors need to think like investors first and foremost and recognize it takes time to build a business and see results, all kinds of results.”
Lauryn Agnew, President, Seal Cove Financial and Founder, Bay Area Impact Investing Initiative, agrees. “We also need to measure both outputs and outcomes, which can take decades. Biotech investments seek the outcome that lives are saved over decades.”
Ultimately, measurement isn’t a panacea. Morgan Simon, Managing Director, Pi Investments, says, “At Pi Investments, we try to focus on impact management above and beyond measurement–ensuring both fund managers and entrepreneurs have a clear vision of how they will enhance the impact of their work over time.”
Lane-Zucker, emphasizes the organization of the enterprise to minimize measurement challenges. “The more that entrepreneurs can bake double and triple bottom line values into their DNA (mission, legal structure, reporting, etc.) from the earliest stages of their project, the easier it will be to locate appropriate measures as the business begins to take shape and mature.”
Today, 13 social enterprises from across Africa put their best feet forward in Nairobi, hoping to attract investor and donor money to help them scale their enterprises and their work in improving health outcomes for women and children.
The entrepreneurs presented at the GE healthymagination & Miller Center Mother and Child Program Investor Showcase. The program largely replicates the Miller Center’s Global Social Benefit Institute program, which it has been conducting in Silicon Valley for 15 years. GE provided funding to make the program possible in Kenya. It has been so successful that GE has committed to fund the program again.
The month’s long program features a focused curriculum to help the entrepreneurs generate more self-sustaining revenue sources and includes counsel from accomplished mentors. The program culminates in today’s investor presentations, with each entrepreneur getting six minutes on stage to hook the investors’ interest.
United Nations Coordinator for Kenya, Siddarth Chatterjee, spoke about collaboration between the public and private sectors to create a leapfrogging of maternal and child healthcare. Sid highlighted women’s issues, including female genital mutilation, child marriage and gender-based violence. He noted, “Kenya’s economy will grow when the woman is allowed to achieve her full potential and can plan her own family.” He congratulated the Miller Center and GE for assembling such an impressive cohort of entrepreneurs.
The following is a summary of each of the 14 social enterprises who pitched from the day’s program:
Access Afya, Melissa Menke, Founder and CEO:
Access Afya creates a model for comprehensive primary care in wellness in Nairobi’s informal settlements. Our tiered approach includes fixed community microclinics as anchors that have authentic medication, emergency response capacity point-of-care lab capabilities, immunization family planning, and qualified clinicians with novel field programs that provide care through field-based programs to community institutions like schools, factories and churches.
Ayzh, Zubaida Bai, Founder and CEO:
Ayzh is transforming access to products through carefully designed kit-styled interventions around reproductive, maternal, pediatric, and adolescent health needs. These products help the care providers and beneficiaries with improved health outcomes.
Health Builders International, Tyler Nelson, Executive Director:
Health Builders (HB) is dedicated to addressing the fundamental challenges that prevent universal access to quality primary health care services in Rwanda: inefficient management systems, inadequate or nonexistent health infrastructure, and outdated technology. Through partnerships with local and national governments, HB mentors health care providers to build strong management systems; constructs comprehensive primary health centers where access is limited; and equips health centers system strengthening technology that supports efficient and sustainable operations. This approach results in health centers with the knowledge, resources, and capacity to thrive as independent enterprises, ensuring more people receive higher quality care in Rwanda.
Health-E-Net Limited, Pratap Kumar, CEO:
Health-E-Net is a social enterprise in Kenya providing innovative solutions to support healthcare delivery in low resource settings. PaperEMR is a unique system to generate electronic medical records directly from paper. It allows clinicians to document cases easily on paper, while interacting with the patient. Data entered on paper can be automatically extracted in digital form, analyzed, and used to improve quality of care. The Gabriel application is an innovative, low-cost tele-consultations platform that allows local healthcare providers to easily create and share digital medical information. Experts from a global volunteer network engage with local healthcare providers, supporting healthcare in the community and improving the efficiency of referral when needed.
Hewa Tele Ltd., Dr. Bernard Olayo, Executive Chairman:
Hewa Tele provides medical oxygen that is needed in medical and surgical situations. Medical oxygen has been listed as an essential drug for the last three decades by the World Health Organization. Unfortunately, many patients still do not receive this vital drug. Oxygen can reduce the chances of a child dying from pneumonia by at least 35 percent when given with antibiotics.
LifeNet International, Stefanie Weiland, Executive Director:
LifeNet International provides a bundle of services for primarily rural and faith-based health centers that improves the quality of clinical care and sustainability as businesses. This includes dedicated mentors to train all staff on-site in updated, life-saving techniques and efficient financial and operational management practices, door-to-door medicine delivery, and access to resources and equipment. In addition, LifeNet provides monitoring of health center performance with regular evaluation and quality assurance. By strengthening local capacity in every link of the healthcare delivery chain, LN is transforming primary care for Africa’s poor.
Lwala Community Alliance, Julius Mbeya, Managing Director:
Lwala Community Alliance is a community-led innovator, tackling the multidimensional drivers of poor health. Founded by Kenyans, Lwala ensures that beneficiaries plan, implement, and evaluate all programs. At the core of our model is a cadre of former traditional midwives whom we train, pay, and supervise to track, support, and refer every pregnant women and child under five. Simultaneously, Lwala works with primary care facilities and the communities they serve to provide quality, patient-centered care. Through bringing communities closer to health providers, Lwala has a driven a 97 percent facility delivery rate and 300 percent increase in contraceptive uptake.
Nurture Africa, Brian Iredale, Co-founder and CEO:
After 17 years of operation, our holistic and community-centered model, providing healthcare, vocational education, and sustainable livelihood loans has proven that offering these services under “one roof” successfully empowers vulnerable families to increase their standard of living. Our new enhanced model shifts from the traditional philanthropic approach to a self-sustainable paradigm. Accessing multiple community services locally benefits affluent residents who will support and subsidize the operations to more vulnerable families.
Outreach Medical Services, Nigeria Ltd., Dr. Efunbo Dosekun, CEO:
Outreach Medical Services is a health service acute care provider for babies and children and professional development company, leapfrogging and leveraging on technology in clinical applications, training and health service operation management. Solutions provided are integrated, high impact and scalable, strengthening our acute care system horizontally and having its influence on saving lives of ill babies and children and preventing chronic disability together with increasing the human capacity of healthcare workers in Nigeria. In our bid to deliver affordable, quality and safe care, there has been need for continuous refinement and modification in our product creation and service deliver responding to the multiple challenges in our internal and external environment in Nigeria.
PurpleSource Healthcare, Femi Sunmonu, Co-founder and CEO:
PurpleSource Healthcare strengthens clinical processes through evidence-based approaches to care and provide quality certification in partnership with standard setting bodies. The enterprise aggregates its primary healthcare centers into one integrated network, centralize management functions and share scarce resources across the network. PurpleSource Healthcare leverages technology for healthcare analytics, population management and to aid responsive performance management of the network.
The Shanti Uganda Society, Natalie Angell-Besseling, Founder and Executive Director:
Shanti Uganda provides a unique model of care where skilled midwives incorporate traditional knowledge and modern best practices. Shanti Uganda’s Birth House is a collaborative-care maternity center staffed by Ugandan midwives and traditional birth attendants that provide mother-centered care throughout pregnancy, birth and the postnatal period. Shanti Uganda’s expansion plans include the development of a Midwifery Training School, which will offer a 2.5 year certification program to students throughout East Africa with both local & international faculty.
Telemed Medical Services/helloDoctor, Dr. Yohans Wodaje Emiru, Founder & CEO:
Telemed’s helloDoctor platform provides reliable and affordable access to health care. Through teleconsultations, we provide chronic disease follow-up and support to underserved people living in emerging markets by leveraging proven technologies and its unique partnerships.
Village HopeCore International, Dr. Kajira K. Mugambi, CEO and Founder:
Village HopeCore International (HopeCore) is dedicated to fostering integrated social and economic development in rural communities in Kenya and Africa. HopeCore enables and empowers members of rural Kenyan communities by providing health education and interventions, and microloans, business education and skills based training. We offer clinical curative services, preventative health information, and educational lectures to women and children to improve health outcomes in the community.
Jason Spindler, Managing Director of I-Dev International, an investment banking firm serving the developing world with an office in Nairobi, attended the event and reflected on what he saw. He said, “A majority [of the for-profit companies that presented] are ready for angel investment. Thirty to 50 percent are ready for later seed investment. Two or three could be acquisition targets.”
He noted that the capital markets in Africa are spotty, flush in some spots and thin in others. “Clean energy has a lot of capital going into it. Hundreds of millions more will be going in over the next few years.” On the other hand, tech ventures are struggling to access startup capital.
He is excited about Kenya’s prospects. “Nairobi is one of the best start up ecosystems in the world, including San Francisco. We’re building a car and you can’t drive it until you put the wheels on and the engine in. Kenya’s entrepreneurial ecosystem is ready to drive.”
This week, I’m traveling in Africa as a guest of Santa Clara University’s Miller Center for Social Entrepreneurship’s Executive Director Thane Kreiner and namesakes Karen and Jeff Miller. Read all my reports.
Impact investors and government leaders from around the world convened in Salt Lake City at the Winter Innovation Summit hosted by the Sorenson Impact Center to focus on the ways that data can be used to inform both investments and government spending.
Jeremy Keele, President & CEO of Sorenson Impact, said, “The central theme of Sorenson Impact and the event itself is to explore how data, evidence, and innovation can be leveraged to solve difficult social problems like homelessness, chronic unemployment, incarceration, and poverty.”
Government leaders, including both Utah Governor Gary Herbert and US Congressman John Delaney of Maryland, address the conference.
Former CNN anchor and current social entrepreneur, Soledad O’Brien, New York Times columnist David Bornstein, and Academy Award-winning filmmaker were featured in a discussion about the role of media in creating social impact.
Salt Lake County Mayor Ben McAdams spoke at the conference. Salt Lake County, under his leadership, has successfully completed a second Pay For Success financing to reduce recidivism and homelessness in the County. The deal involves the County paying for services only if key results are achieved by providers. The providers, in turn, are paid by investors expecting that the results will meet the County’s requirements for a full payout.
Eric Letsinger, founder of Quantified Ventures, George Hawkins and CEO and General Manager of the District of Columbia Water and Sewer Authority (DC Water), and Beth Bafford, Director of Investment at the Calvert Foundation, explained the structure and process for creating the world’s first Environmental Impact Bond. The Pay For Success program provided $25 million of financing to create “green infrastructure” to prevent sewer backups during rain storms. The deal was also unusual in that the payor and the provider are the same entity, creating a moral hazard that had to be managed; the payor/provider only has to pay back the money if the intervention works. They note that they will, however, be strictly required by contracts to do the work, even if it isn’t effective, mitigating the moral hazard.
Pay For Success financings, also called Social Impact Bonds, require the use of objectively obtained and evaluated data on outcomes–not outputs. This data discipline is required for PFS transactions. That same discipline is beginning to spread throughout government social programs and impact investments.
One of the challenges discussed at the conference is the threat that the Trump administration will limit access to data rather than expand it. Linda Gibbs, Principal at Bloomberg Associates, an international philanthropic consultancy, virtually shouted, “Data is a public good!” She made the case that data should be generally available to the public except when there is a compelling reason to keep it private.”
A relatively new field within impact investing is gender lens investing. Jackie Zehner, President of The Jacquelyn and Gregory Zehner Foundation; Jackie VanderBrug, Managing Director, U.S. Trust, Bank of America Corp.; and Robyn Scott, co-founder and CEO of Apolitical, made the case for investing after measuring the number and proportion of women employees, managers and board members. They presented data that suggests that this approach to investing improves returns.
Much more happened at the Summit than can be covered here in a short story. Watch for follow-up pieces here and at Forbes.com.
This is a guest post from Garvin Jabusch, Co-founder & Chief Investment Officer of Green Alpha Advisors LLC.
What are prospects for sustainable and impact investing in the New Year?
With the election of Donald Trump and his selection of a Cabinet packed with fossil fuel executives and climate change skeptics, sustainable and impact investors are facing stiff headwinds.
Despite political challenges, Green Alpha Advisors sees resilience in an emerging economy that is powered by low-carbon, fueled by innovation, locally focused and addressing the looming systemic risks presented by climate change and resource scarcity.
Here are six trends that Green Alpha’s co-portfolio managers Garvin Jabusch and Jeremy Deems say will drive sustainable investing in 2017:
Energy Tipping Point: Though a Trump Administration pledges allegiance to coal and other fossil fuels, Jabusch and Deems say simple economics portends a structural decline in fossil fuels. Put simply, renewables are becoming too cheap for fossil fuels to compete. Solar module costs have fallen 80% since 2008, and solar power can be generated for as little as 2.42 cents per kilowatt-hour—less than half the price of fossil-based electricity.
With solar panels continuing their dramatic fall in price, panel producers face some market headwinds. But Yieldcos, such as 8.3 Energy Partners (CAFD), should benefit in 2017. 8.3 owns, operate and acquire solar energy generation projects and its primary objective is to generate predictable cash distributions that grow at a sustainable rate.
Bridging the divide with wind: What issue can unite Republicans and Democrats? The answer, say Deems and Jabusch, is blowing in the wind. Across the country, wind power has become the new corn for Red State farmers, providing a steady source of income in low-income, Red State rural areas. In fact, the 10 Congressional districts that produce the most wind energy are represented by Republicans. California and other states, meanwhile vow to push ahead in the fight against climate change—with or without President Trump’s blessing.
Vestas Wind Systems (VWDRY) and other original equipment manufacturers are well positioned for continued growth in 2017. Vestas has already sold out its 2017 capacity and with 78 GW of wind turbines in 75 countries, it has installed more wind power than any other company.
Storage Surge: Last year’s massive methane leak from the Aliso Canyon natural gas storage facility outside Los Angeles has put battery storage of electricity on the fast track. Utilities such as Southern California Edison and San Diego Gas & Electric have moved to battery storage for back-up and GTM Research estimates that as much as 1,800 megawatts of new energy storage could come online by 2021, (see: http://bit.ly/2iAbNUy). Companies that stand to benefit from this trend include, ABB Ltd (ABB), Solaredge Technologies Inc (SEDG) and Tesla (TSLA).
Jobs, Jobs, Jobs!: Though coal jobs were a focus of the 2016 Presidential election, renewables are where the most paychecks are. Wind power supports 88,000 jobs, while close to 209,000 U.S. workers are currently employed in solar—and that number is predicted to rise to 420,000 workers by 2020. As of October, coal employed fewer than 54,000, according to the Bureau of Labor Statistics.
Organics poised for record growth: As the fastest growing category in the food and beverage consumer sector, organics continue to set records. Jabusch and Deems believe 2017 will see expanded M&A activity in the category as food companies look to capture market share and growth. Deals like Danone’s $10.4 billion takeover bid for White Wave will become more commonplace with rising consumer demand for organics. Investors can catch this wave with companies like Hain Celestial Group Inc (HAIN), which produces organic food and personal care products; SunOpta (STKL ) which specializes in the sourcing, processing and packaging of natural and organic products from ‘field-to-table;’ and United Natural Foods, Inc. (UNFI), a leading distributor of natural and organic foods in the U.S. and Canada.
Global drive for Electric Vehicles: Deems and Jabusch expect Trump Administration policies may dampen electric vehicle prospects in the short term in the U.S. But globally, the EV market has taken off faster than a Model S. Mercedes plans to spend $11 billion to launch ten new electric models in the next decade, and “BMW will likely phase out internal combustion engines over the next ten years,” according to Baron Capital. Germany, Holland, Norway, India and other countries have passed or are considering bans on all internal combustion engines in the next decade, and the European Union says all new homes must have EV chargers in 2019.
As cities around the globe move to restrict the use of gasoline and diesel cars, Jabusch says investors should keep an eye on companies like FedEx, which is converting diesel vans to electric in urban areas because of greater efficiency and cost benefits.
This post was originally produced for Forbes.
London-based ClearlySo is an investment banking firm that helps social enterprises raise capital from impact investors, those who seek a social impact along with a financial return. Last week, ClearlySo announced a new impact measurement service for private equity and venture capital funds.
Founder and CEO, Rodney Schwartz, is excited about the new product, which he says will make impact reporting easier. He says, “We launched our impact assessment tool, which, for the first time, specifically addresses the needs of PE/VC firms to measure and report on the impact of their privately held portfolio companies. It does so in a way that is portal-based, efficient, robust, easy-to-use, inexpensive and requires no lengthy questionnaires to be filled out by fund managers or investees.”
Mathew Holloway, the CEO of Q-Bot, a social enterprise client of ClearlySo, says, “Obviously ClearlySo has only recently launched ATLAS, but throughout our work with them over the last year, and more recently with ATLAS, they have created a structure by which we can more effectively and efficiency measure and communicate our impact. These tools have allowed us to set goals and targets for the future and track and report on their progress.”
Q-Bot’s ability to tell their impact story has made a big difference for them, including helping to drive top line growth, Holloway says. “This has added a huge amount of value by aligning the interests of different stakeholders, including employees, investors and customers, and creating a framework by which it can be clearly communicated. This has meant that Q-Bot has been able to have an even greater impact than expected and most importantly demonstrate it. Q-Bot works within the social housing sector where wider societal benefits form part of the procurement process and so has also greatly contributed to the growth of the company and winning of new orders.”
Luke Hakes, Investment Director at Octopus Ventures, has worked as an advisor to ClearlySo during the development of Atlas. He says, “Impact and its measurement is becoming increasingly important to both the VC and PE community and is increasingly high up on the agenda of LPs and indeed retail investors.”
The use for Atlas reaches beyond private equity and venture funds that focus on impact, Hakes notes. “Though we are not an impact investor per se, we are very aware that every investment we make has impact both socially and economically and it makes little sense for us to ignore this. Capturing and measuring the impact our portfolio companies have enables us to work with them to improve areas in which they may be weak and to raise awareness in areas where they are strong.”
Hakes also sees that market as the key to the success of Atlas. “To be successful, ClearlySo needs to help educate an industry which historically has been somewhat skeptical of the term ‘impact.’” He notes that mainstream investors view impact investors as sacrificing returns to do good. “They need to help VC and PE firms understand that by measuring the impact of their investments completed under their existing investment strategies and acting on the findings of that measurement, they have the opportunity to actually improve the performance of those assets and drive returns,” he adds.
Building the new platform has been no small task. Schwartz says, “This was the culmination of nearly 5 years of work, from concept development to implementation. ClearlySo built this tool with and for the PE/VC industry and with their needs and constraints foremost in our minds. The impressive and expert audience responded favorably and our first customer came forward, Octopus Ventures, a leading UK-based VC. Others seem set to follow.”
“When you launch something as a pioneer, something that has never before been attempted, and has been developed in a completely new way, you never know what the outcome will be–or even if the product will work,” he added.
That caveat notwithstanding, he says, “It seems to work extremely well and the market has responded in a very favorable way–exceeding our hopes and aspirations.”
Clearly so plans to market the product across Europe, where there is already growing interest, Schwartz says.
ClearlySo is, Schwartz says, Europe’s largest impact investment bank. He adds, “All of ClearlySo’s clients are great businesses, charities and funds doing something which changes the world for the better at the same time as building successful, valuable and profitable organizations.”
Holloway says, “ClearlySo helped Q-Bot raise a seed investment round in early 2016. During this process we found the team to be highly effective at connecting the company with relevant investors, managing this interest and balancing it with the needs of the business, and supporting the closing of the round.”
ClearlySo didn’t walk away at that point, he says. “Since then they continue to support us by shaping our strategy and offering towards future growth and fundraising needs.”
Schwartz, who got is start on Wall Street back in 1980 working as an analyst at PaineWebber, later started a venture fund focused on fintech before launching ClearlySo in 2008. Schwartz seems to be focusing on impact ahead of profitability, acknowledging that the company, which has 25 employees and targets £1.5 million in 2017 revenue, is not yet profitable. His goal is to drive a 30 percent gross margin.
He describes his focus and strategy on impact, “Every company we help is a high-impact enterprise. We enable them to change the world for the better by getting investors to back them and support their growth. We also help investors to understand the impact of all that they do.”
On Thursday, December 22, 2016 at noon Eastern, Schwartz will join me here for a live discussion about Atlas and the state of the impact investing industry at the end of 2016. Tune in here then to watch the interview live. Post questions in the comments below or tweet questions before the interview to @devindthorpe.
This post was originally produced for Forbes.
Upstart Co-Lab is a startup itself, launching earlier this year. The Calvert Foundation is a leader in impact investing, making such investments accessible to ordinary investors–not just the wealthy. Artspace, also a nonprofit, develops live/work projects for artists around the country.
While not seeking to invest directly in works of art, the new partnership is intended to fund businesses that artists often own, being social entrepreneurs by nature.
Laura Callanan, Founding Partner of Upstart Co-Lab, says, art is a big part of the economy but not enough investment is being made there. “The creative economy is more than 4 percent of the US GDP. But JP Morgan and the GIIN report that art and culture are 0% of impact investing. There are currently no tools, funds or manager strategies enabling impact investors to align their capital with the creative sector.”
Callanan makes the case that artists are entrepreneurs who need access to the right kind of capital. “Artists are social entrepreneurs and innovators. They are starting B Corporations and other social purpose businesses. But they are not always recognized as the innovators they are. That means they don’t have easy access to patient and flexible impact capital to bring their ideas to scale. And it is challenging to build a sustainable creative life.”
Kelley Lindquist, President of Artspace, focuses on place. “The problem is that artists across America, and really across the world, consistently lack safe, affordable space in which to live and work. Artists are often low income and as the cost of housing increases, particularly in cities where artists live, they are increasingly priced out, leaving them with with two main unacceptable choices: to leave their homes and/or work space, often forcing the abandonment of their livelihood; or resort to living or working in spaces that are affordable but unsafe.”
These inadequate options can lead to tragedy, he adds. “We have recently–in Oakland–seen the dangers of this second path.”
Callanan explains what Upstart Co-Lab is now doing. “Upstart Co-Lab is looking to unleash more capital for creativity. We are exploring with strategic partners like Calvert Foundation, B Lab and Veris Wealth Partners how to adapt existing impact investment products, tools and approaches.” She see creativity as a drive of sustainability.
Lindquist says Artspace sometimes repurposes existing structures and other times builds from the ground up. “Artspace works with artists and communities to develop and operate buildings that are safe and appropriate for artists and their families. Our projects include both adaptive reuse and historic preservation of spaces such as former warehouses and schools, as well as new construction designed specifically for artists.”
Artspace, he says, is working to create multi-generational affordability. “Our solution is a long-term fix. Rather than moving artists from space to space, following the whims of gentrification, to provide permanent anchors that remain artist-centric and affordable over generations.”
Callanan says one of the biggest challenges she’s faced is bringing the naturally entrepreneurial artists together with the less entrepreneurial funders. “Cultural institutions, foundations making grants in the arts, and others who work in proximity to artists–but are not artists themselves–are often less entrepreneurial, less comfortable with harnessing the power of the markets, and lack basic investment literacy. There is effort required to build understanding and engagement among these likely allies. This requires time and patience. Their participation will help build the enabling infrastructure for artist-innovators.”
Lindquist notes that access to capital for funding their projects is one of their biggest challenges. Of course, that is the purpose for the partnership with Upstart Co-Lab.
He also notes that attitudes toward art have been a traditional challenge, but believes that is changing. “When we first started doing this work, it was a struggle to convince city leaders and others that artists are an asset to communities. That has shifted somewhat. One way of measuring that is that in the last year alone we received 170 calls from mayors, city department leaders, foundation staff and others asking for our help in stabilizing or growing their arts communities.”
Callanan says it is still early days for Upstart Co-Lab to see the potential limits of the work. “As our colleague Patricia Farrar-Rivas at Veris Wealth Partner has said, the conversation we have started about a creativity lens today is where the conversation about impact investing and climate change was 15 years ago.”
She adds, “We have set a three year schedule to implement five projects we think will prepare the system for a big shift. We are testing the potential and discovering the limits of our solution. The limitations of our approach will reveal themselves over the next few years.”
Artspace’s Lindquist notes with the benefit of more hindsight, that their work is primarily limited by their scale. “By some standards, we’ve created a lot of affordable space for artists and arts organizations, but the need is vast. In cities with high housing costs, such as New York, Seattle, Santa Cruz, and the D.C. metro area, we receive thousands more applications for live/work units than we can possibly provide.”
He notes that they are scaling up, but still can’t meet the need. “The process of developing a project can take anywhere from 3 to 5 years, and while we have grown from developing one project a year to now having a dozen in development at any one time, it still doesn’t meet the need nationally.”
Jack Meyercord, Head of Impact Investments at Bienville Capital, says the new partnership will have a positive impact. “Impact investing, at it’s core, is about generating a social return in addition to a financial return. Artists are innovators, social commentators and, in many cases, social entrepreneurs. Impact investing can unlock capital that allows artists to accelerate their creative endeavors, enhance the impact of their work and, in certain cases, create sustainable social ventures in the creative economy.”
Callanan remains optimistic about the impact of Upstart Co-Lab. “Upstart Co-Lab will chart its success through the new opportunities it opens for artist-innovators; the products, structures, and systems it puts in place to connect impact investors with the creative sector; and the engagement it fosters between social change makers and artists who share their goals.”
Lindquist, too, is upbeat about the future despite the challenges and limitations. “We know that the work we do has tremendous benefits to the individual artists and arts organizations for whom we provide affordable space. Artists are more productive and because some of the financial burdens are eased by the affordability, they are often able to devote more time and energy to their art and earn more of their income from that.”
On Thursday, December 15, 2016 at noon Eastern, Callanan and Lindquist will join me here for a live discussion about the partnership and impact investing within the artist community. Tune in here then to watch the interview live. Post questions in the comments below or tweet questions before the interview to @devindthorpe.
This post was originally produced for Forbes.
In the Spring of 2014, Prudential Financial, Inc., announced a commitment in double its impact investment portfolio from about $500 million to $1 billion by 2020. Half way through that period, the financial giant reports it is making progress, with much of the investment going to redevelopment efforts in Newark.
Prudential was founded 140 years ago in Newark, New Jersey and remains there today. Lata Reddy, Vice President of Corporate Social Responsibility, says that the decision to stay in Newark was not simply “inertia.” She says, the company has repeatedly decided to stay in the community and to invest in it as part of its social mission.
Prudential reports investing more than $400 million in Newark’s civic infrastructure, to help create new jobs and attract more consumers. Projects include:
Jonathan Cortell, Vice President of Development for L+M Development Partners, says, “Lata and her team have been invaluable partners in our joint effort to restore the long vacant Hahne & Co. flagship building in downtown Newark. Our initial collaboration was to finance the property’s acquisition and it has steadily grown from there. Vacant for nearly three decades, the acquisition was not the easiest transaction and I can’t imagine any other lender successfully pulling it off as Prudential did.”
Reddy, who rejoined Prudential in 2012 in her current position after a three-year stint as an independent consultant, sees Prudential playing a key role in addressing fundamental problems in Newark, which exist to a greater or lesser degree around the world. She worries that “too many people are excluded from the real economy.” She notes that some communities like Newark are “experiencing concentrated poverty.” This impacts women, veterans and people of color disproportionately.
Communities lose out when the upwardly mobile move out of the community, leaving the less fortunate to fend for the themselves. This impacts the city government, she notes, reducing the tax base and impairing the talent pool that government can draw from for leadership. Ultimately, however, Reddy says that Prudential sees these problems as opportunities for the firm to make a difference and a profit.
Reddy says, “Our goal is to create a thriving, walkable, 24/7 community.” She points out that Prudential is the largest company based in Newark, “the only Fortune 50 company headquartered here.”
Cortell agrees, complimenting Prudential’s work in the community. “Lata’s group consistently demonstrates flexibility and creativity well beyond what you typically see from lenders. Lata and her group encouraged us to raise the bar and actively engaged local institutions, like Rutgers University, that are helping to make Hahne’s a real resource for the City of Newark.”
Daryl Carter, Founder, Chairman and CEO of Avanath Capital Management, which has raised three funds to invest in affordable housing, says that Prudential invested in all three funds and provided debt financing on some of the projects as well.
Carter says, “Because of Prudential’s initial and ongoing investment in our funds, we have successfully acquired, renovated, and preserved over 41 affordable housing communities totaling more than 7,000 units throughout the United States.”
He explains the vital role affordable housing plays in building healthy communities. “For example,” he says, “providing resident services such as after-school programs for kids keeps them engaged and makes communities safer, and creating quality living environments that are also affordable contributes to the overall stability of a neighborhood. Prudential supports our vision and holistic approach in providing quality housing to a segment of the market that is often ignored by other investors.”
Reddy acknowledges that there are challenges. “Even with our resources, you can’t do it alone.” She says, attracting additional capital to support redevelopment has been a challenge. For some projects, the “capital stacks” are complicated.
There hasn’t, however, been a problem with finding good projects to fund. The scale of the problem–opportunity as she sees it–is massive, providing plenty of shovel ready project just waiting for capital.
She acknowledges that not all of the community’s problems can be solved by investments. Prudential also deploys some philanthropic capital to support job training and other programs in Newark.
Furthermore, the money presently allocated to philanthropy and impact investment is too small to solve the problems they hope to address. In order to actually solve the world’s biggest problems, “we need more capital,” she says. Traditional capital markets will have to be deployed with an eye toward impact to solve these problems.
In this regard, Prudential itself is a symbol of this problem. While building a $1 billion portfolio of impact investments by 2020 is a huge step forward, the firm has $1 trillion in total assets. The firm’s allocation of capital to impact is just 1/1000th of its total.
Reddy says that the bespoke nature of impact investing is part of the problem for achieving scale. She expressed hope that standardizing impact investment structures will make the market more efficient and attract more main stream capital.
The impact of the projects, however, is already being felt in Newark, she says. More people and companies are coming to live, work and do business in Newark. More amenities are being created. Prudential has catalyzed more capital by leading the way.
Reddy sees this work as being central to the firm’s commitment to the community and social impact. The firm was founded, she says, on the principle of helping people “achieve financial prosperity and the peace of mind at comes with it.” Impact investing is a contemporary way of continuing that legacy, she says.
On Thursday, December 15, 2016 at 11:00 Eastern, Reddy will join me here for a live discussion about Prudential’s investments in Newark and elsewhere on it way to building a $1 billion impact investment portfolio, Tune in here then to watch the interview live. Post questions in the comments below or tweet questions before the interview to @devindthorpe.
Clean Energy Advisors sponsors the work of the Your Mark on the World Center, including this publication.
According to the Washington Post, the U.S. solar industry is expecting to shatter records for new solar power, with 4,143 megawatts of photovoltaic solar capacity added in the third quarter alone.
The Solar Energy Industries Association and market analysis firm GTM Research, just published its “U.S. Solar Market Insight” report. The executive summary is available for free here.
The summary notes, “Between Q1 and Q3 2016, solar accounted for 39% of all new electric generating capacity brought on-line in the U.S, ranking second only to natural gas as the largest source of new capacity additions.”
Most of the growth, according to the report, is in utility scale projects rather than retail rooftop solar.
Clean Energy Advisors, or CEA, invests in small utility-scale solar projects in North Carolina.
Despite the rosy report, people reasonably wonder about the prospect for renewable energy under President-Elect Trump, who has appointed climate change skeptics to head both the EPA and the Department of Energy.
CEA CEO Chris Warren agrees. “The results of the U.S. Presidential election have undoubtedly raised some questions around the future of the renewable energy industry in America. Given President-elect Trump’s campaign rhetoric around support for coal, fracking, the Keystone XL and Dakota Access pipelines and his apparent belief that climate change is a hoax created by the Chinese, one might assume that the solar industry is in for a rough ride. If this was 2008 I would tend to agree with that assumption.”
He points out that the growth of the industry has been exponential over the past ten years and that portends continued growth.
He says, “This growth which was driven by institutional investor interest in both the stable cash flows and tax attributes available to real assets in the space has changed the landscape in which we operate. In 2008, the price per watt for a solar panel was around $4, today that number is around sixty cents. All of the other major costs associated with solar projects have experienced similar contraction. The net result is an industry that can support itself based on underlying financial returns and not government intervention or incentives.”
“Solar is now at grid parity with fossil fuels in many states across the country and the list continues to grow. While legislative changes at the Federal, state, and local level have in the past created challenges for renewable energy (and in some instances opportunities) the financial returns are driving growth today,” he continued.
Ultimately, Chris has faith that President Trump will make decisions based on facts, not fiction.
“Nobody can accurately predict how a Donald Trump Administration will initially approach alternative energy. What we do know is that once he looks under the hood he will find substance that he probably has no idea exists,” Chris says. “He will find an economic engine that is driving job creation and contributing hundreds of millions of dollars to local economies. He will find an asset class that is widely accepted by the largest financial institutions providing above market rates of return. He will find public support among 90 percent of the American population for advancement in the amount of power we produce from renewable energy.”
“I believe that President Trump will appreciate the reality that renewable energy is here to stay and is indeed the future,” he concluded.
The report predicts that 2016’s expected total increase in solar capacity of 14 gigawatts will grow in future years, topping 20 gigawatts per year by 2020.
On Thursday, December 22, 2016 at 11:00 Eastern, Chris will join me here for a live discussion about the solar industry in the context of the coming Trump administration. Tune in here then to watch the interview live. Post questions in the comments below or tweet questions before the interview to @devindthorpe.
More about Clean Energy Advisors:
Clean Energy Advisors is a private equity firm focused on creating socially and environmentally positive ownership opportunities for investors in utility scale solar energy projects that generate tax advantaged predictable income and preserve capital.
Chris Warren has over twenty-five years of experience in the financial industry and along the way he has acquired a unique set of skills and experiences through roles that include managing assets for high net worth investors, leading a major division of a Fortune 500 company, building three successful businesses from inception, and overseeing complex financial arrangements for over US $860 million in renewable energy assets. Mr. Warren is a graduate of Duke University. His technical training includes a Certification in Renewable Energy Management from North Carolina State University and training in Basic and Advanced Solar PV Design from Solar Energy International.
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Devin is a journalist, author and corporate social responsibility speaker who calls himself a champion of social good. With a goal to help solve some of the world’s biggest problems by 2045, he focuses on telling the stories of those who are leading the way! Learn more at DevinThorpe.com!
This post was originally produced for Forbes.
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You don’t sail across the world’s seven seas and summit the world’s tallest mountains without learning something. Martin Frey, the Guinness World Record holder for being the first person to do it, sums up the key to success in one word: “relentless.”
Frey, a highly successful business leader who was an early employee at Cisco, says, “I’ve been an angel investor but am currently transitioning my time and focus towards projects that drive social innovation, and my portfolio towards investments that have a social impact.”
He explained key lessons from his adventures that have meaning for social entrepreneurs and nonprofit leaders.
Climbing the seven summits, the highest peaks on all seven continents, and sailing across the seven major oceans of the world of the world took 11 years. He began in 2005 and finished on April 17, 2016.
Frey is at heart an engineer. He has no interest in ideas that sound good and don’t work. When he talks to nonprofit leaders, he is focused on measuring success. “Donors and investors also need quantifiable metrics to evaluate various charities and ultimately determine the results of their charitable giving or impact investing.” He believe these lesson have value because they work.
On Wednesday, November 30, 2016 at 4:00 Eastern, Frey will join me here for a live discussion about his seven lessons from sailing around the world and climbing the highest peaks on all seven continents. Tune in here then to watch the interview live. Post questions in the comments below or tweet questions before the interview to @devindthorpe.
This post was originally produced for Forbes.
Social entrepreneurs can be parsed along a variety of different axes. One of those is whether the social entrepreneur comes primarily from a business or entrepreneurship background or an impact background without much business experience. This piece is written as a primer on capitalization tables, or cap tables, for those without much business or entrepreneurship experience.
For this piece, I’m drawing principally on my experience running an FINRA-registered boutique investment banking firm that worked primarily with small and midsize companies.
The cap table is the list of owners and their respective stakes in a business and their respective ownership stakes. Generally, entrepreneurs and investors agree that a simple cap table is a better cap table. The fewer the investors the better. When it comes time to make key decisions that require approval from shareholders, the fewer signatures required, the better.
That said, the clutter in a cap table usually comes from a simple need: more money. Investors bring the money entrepreneurs often can’t succeed without.
To optimize your cap table, you will want to be strategic. Start by raising money in rounds rather than in one-off lumps. Rather than negotiate a deal with your uncle one day and a separate deal with your aunt on another, organize a round of friends and family financing and give everyone the same terms. Another key to strategic capital is to take as much capital as you can in each round, so that each will last as long as possible.
At this point, you may be thinking how many rounds will there be? If I sell 20 percent of my company in each of five rounds, does that leave any for me? Isn’t five times 20 percent equal to 100 percent of my company?
It is difficult to know in advance how many rounds of capital will be required, but first time entrepreneurs are often surprised to learn that the big rounds of capital often come after—rather than before—the company becomes profitable. It takes money to grow. When the company is growing, the value is growing. That growth in value effectively makes room for more capital.
Here’s how it works.
For simplicity, let’s assume that you are a single founder that owns 100 percent of the common stock of the company, let’s call it Startup Co. Each time you raise money, you’ll likely issue new preferred shares that will give special rights to the investors, including most importantly the right to get their money out before you get any money out when the business is sold or liquidated. To be clear, you don’t sell any of your common stock. You keep that and issue new preferred shares to the investors.
Sometimes convertible debt structures are used in early rounds to provide similar protections to preferred stock with simpler legal formalities.
Let’s say you do a friends and family round that is what it sounds like, a round of financing from your friends and family. Sometimes these rounds are said to include friends, family and fools as they tend to be so risky. It isn’t really foolishness to invest, especially in social ventures; rather, it is altruism. People want to help you succeed, especially if you have a mission in mind.
If you raise $50,000 and sell a number of shares equal to 20 percent of the post-transaction total, that is 20 percent of the business, you’ve effectively valued the company at $250,000.
That valuation is said to be the “post money” valuation. It is determined by dividing the investment by the percent of ownership, or $50,000/.2. (That intimidating looking math is easier if you remember that dividing by .2 is the same as multiplying by five.) That implies that just before the investment was made, your business was worth $200,000. The money could only have added $50,000 of value. That $200,000 is said to be the “pre-money” value of the business.
So, as an entrepreneur, your Startup Co, which may be little more than an idea when you raise $50,000 from friends and family, is now worth $250,000 and your share of that is $200,000.
That money won’t last long, but if you are successful in making real progress with it, perhaps by developing a successful prototype or even a marketable “minimum viable product” or MVP as it is called in lean entrepreneurship circles, you may be able to raise a formal seed round of capital of say $500,000. Let’s assume once again that you sell 20 percent of the company.
That investment implies a post-money valuation of $2.5 million and a pre-money valuation of $2 million, ten times the old value. But, there are more shares outstanding. You don’t own the whole $2 million like you owned the $200,000 before the friends and family round. Your friends and family own shares, too. Even so, the value of the shares will have increased eight-fold since the last round. Your founders shares are now worth $1.6 million and your friends and family investors now find their $50,000 investment to be worth $400,000. Not bad.
Keep in mind, this is easy to do on a spreadsheet. The challenge is to build a company that achieves these milestones.
The next round would traditionally be called an “A-round” referring to the Series A Preferred Stock issued by the big venture capital firms that make these investments. To keep our math simple, let’s assume that the A-Round is $5 million and that once again Startup Co sells 20 percent of the business. That would value the business at $25 million, implying a $20 million pre-money valuation. Even after three rounds of capital, the founder still owns more than 50 percent of the business and theoretically owns stock worth $12.8 million.
A follow-on round of venture capital would typically be called the “B-round” and could be as much as $50 million, implying a post-money valuation for Startup Co of $250 million and a $200 million pre-money valuation. Your founder’s shares would be worth $102.4 million at this point.
If all goes well from there, an IPO could be in the offing. An IPO is an initial public offering. Rather than sell shares to one investor or a small, cooperating group, the shares are sold by an investment banking firm to the public. If you could raise $500 million in your IPO, that would value the business at $2.5 billion. Your founder’s stake would be worth $819.2 million even though you have sold 20 percent of the company five times. And those friends who put up $50,000 in the first round, their shares would be worth $204.8 million.
In the IPO, all of the preferred shareholders are typically required to convert their shares to common, just like the founder and just like the shares the public owns. Even in the IPO, however, it is difficult for the founder to sell shares. Usually, the founder will be required to wait until the company has been public for at least six month and perhaps longer before being allowed by the investment bankers, the lawyers, the market, the board of directors and everyone else with a say to sell their shares. Until then, the eye-popping valuation numbers are really just theoretical.
This hypothetical example is intended to help you see how raising money is a fundamental part of creating value in your enterprise. Of course, if your business fails to achieve milestones and runs out of money, all bets are off. Founders commonly walk away with nothing even after raising substantial rounds of venture capital.
The impact investing market focusing on investments in social enterprises is still developing. Many investors who do invest in impact still seek market rates of return on a risk-adjusted basis. These are still early days, but this model should at least help you to see how you can sell 20 percent of your business five times and still own enough of it to keep you motivated.