The White Dog Cafe: A Study of Social Business and Mission-Aligned Exit

How can social businesses be scaled so that they maintain and enhance their mission after an IPO, acquisition, or any other transition? Judy Wicks, founder of White Dog Cafe, told her inspiring story during the final conversation at the Investors’s Circle conference this week: The White Dog started as a coffee and muffin take-out shop on the first floor of her home and grew to a 200 seat restaurant and store with gross sales of $5M.

Wicks made a conscious decision not to scale. If she grew larger, she would “lose the authenticity of my relationships with employees, customers and the environment. Business is about relationships; money is just a tool. So rather than grow wider, I grew deeper,” Wicks explained. “I found many different ways to expand consciousness — we created a solar house tour, offered energy audits, invited customers to the Dance of the Ripe Tomato … I use good food to lure innocent consumers into social activism.”

Wicks shared her learnings and best practices with her competitors. “If we want to create the world we want, we need to work cooperatively to build that economy,” she explained. Wicks is also working with B Lab to develop B Corporation restaurant standards.

When it came time to sell the business, Wicks created a social contract and then licensed the name White Dog Cafe to another entrepreneurial restaurateur in her community. The social contract laid out guidelines for operating the business in a manner that would maintain her mission. For example, one stipulation states that White Dog Cafe’s must be locally owned and independent. It also lays out local purchasing practices, a ratio of highest paid to lowest paid employee and much more.

Like other panelists at the conference, Wicks stressed a focus on the local.

“We are still in denial as a society about how to prepare for climate change and peak oil. Why are we shipping basic needs around the world?” Wicks inquired. “Communities are vulnerable. Look in your own communities for investing opportunities – ask yourself what does my community need?” She spoke of a “living return,” which is what you get when you reap the local benefits of your investment.

Continue reading on GreenBiz.com

 

How Can We Make Impact Investing Mainstream?

Impact investing, or investing for social and/or environmental impact as well as financial return, has become more and more popular, and will hopefully become the norm rather than the exception. At the Investors’ Circle conference, a panel of experts discussed impact investing.

Amit Bouri, of the Monitor Institute, explained the findings of a recent report, “Investing for Social and Environmental Impact“.

1. Market fragmentation is a challenge.
2. The field needs better metrics and measurement standards, such that impact investments are transparent and comparable.
3. Investors need to assess, understand and communicate the impact of their investments.

Binda Ganguly, Associate Director at the Rockefeller Foundation, manages Rockefeller’s $20M program related investment portfolio. She explained how Rockefeller is working on building the impact investing space.

1. Networks: Rockefeller’s Global Impact Investing Network (GIIN) is a network of investors seeking social and environmental return. The aim is to create a transparent forum for the field.
2. Infrastructure: Rockefeller strives to create the infrastructure for impact investing to thrive. As such, they are creating a social investment bank, a social stock exchange and a standardized reporting and rating system for assessing the social impact of investment.
3. Intermediaries: Rockefeller is working to develop the investment intermediaries so that they can drive capital towards underserved sectors.

Ganguly indicated that lack of syndication and liquidity are two central issues that need to be addressed in this field in order for impact investing to scale.

Don Shaffer, President and CEO of RSF Social Finance, explained that impact investing at RSF involves supporting organizations, like IceStone (the case study of the panel), that want to do business in a fundamentally different way. Shaffer reported that RSF Social Finance assets are up 15% from last year because people are gaining interest, and okay with a lower return. He explained, “We need to move from financial transactions that are complex, opaque and anonymous to ones that are more direct, transparent and personal, based on long term relationships.” Reiterating the local focus discussed in the water panel earlier in the day, he stressed the need for diversified regional economies for food, energy, building materials, and other basic needs.

IceStone was used as a case study example. Peter Strugatz, co-founder and co-CEO of the recycled glass and concrete countertop manufacturer which has reached ~$7.5M in sales, spoke on the panel. IceStone has raised ~$16M in funding over the years, $10M from angels, and $0 from venture capital firms. Strugatz referred to it as “commune capitalism” wherein there is one class of stock and nearly 100 partners, all of whom are impact investors. But even though he has done well for himself and his business, Strugatz indicated the lack of social capital available to businesses like his own.

Measuring impact was a popular topic of conversation. Andrew Kassoy of B Lab, Shaffer and Strugatz discussed the B Corporation rating system. Kassoy stressed the importance of balance and transparency – not managing to just one metric. Shaffer, who has been on the B Lab standards council, conveyed that while it’s important to have standards to rely on, the B rating system will be an endlessly iterative process. Sturgatz brought the manager’s perspective and said that while B Lab is not the be-all and end-all for accounting for impact, it is one holistic way of being judged and resonates with investors. All in all, measurement is just in its early stages – we’ll need to develop more sophisticated impact management systems in the years to come.

Originally posted to TriplePundit

 

Live from Investors’ Circle: The Prospects for Social Enterprise

Tuesday’s Investors’ Circle conference in San Francisco kicked off with a panel discussion on the prospects for social enterprise, bringing in voices from policy, academia, journalism and socially responsible investing (SRI).

Jerry Engel from Berkeley’s entrepreneurship program, who served as moderator, voiced the opinion that social investing is mainstream and all ventures are social ventures. He described SRI in three segments — negative screens (avoiding bad companies), positive screens (rewarding good companies) and shareholder activism (reforming companies from within). We are at the inflection point, where social investors are no longer unique. Despite its growing popularity, Engel stated bluntly “Right now we’re in a world of hurt. New venture investing is at its lowest in 11 years. Even healthcare and greentech are in the toilet.”

“We’ve been here before,” stated David Crane, special advisor to California Governor Arnold Schwarzenegger for Jobs and Economic Growth, “For those of you who remember 1973 oil embargo.” Investment surged in clean energy, but then oil prices dropped and it all went by the wayside. And 35 years later we are in worse shape than before. According to Crane, we need to create policies that build massive, long-term demand for sustainable products “no matter who’s in office and no matter what the economy is doing.” This is Schwarzenagger’s No. 1 goal, Crane explained.

Concern over exit options were voiced throughout the panel. IPO’s are a rare breed, more and more companies exit via mergers and acquisitions. It takes longer for initial investors to get out of deals and make new ones. And early stage investors are diluted significantly. An audience member voiced her concern: “I manage a small fund, and I can’t invest in you because your brethren have not exited, not because I’m greedy.”

Cheryl Smith, chair of the Board of the Social Investment Form and president and senior portfolio Manager at Trillium Asset Management Corp., stressed the need for developing a framework of transparency and disclosure. “We haven’t had a framework that encourages disclosure … If we know what we are doing, we have a better chance of not dropping off the edge of a cliff.” Smith also voiced her optimism for the opportunity we are faced with today — a call to action.

Smith also noted that social/mission investing is on a longer time frame. “When you look at the long term time frame and health and viability, the focus a mission based organization has is related to long term return on investment because … they are focused on sustainability and building community, which is incorporated into the thinking.” When asked about quarterly returns and measurements, Smith advocating that social ventures should be evaluated on their five-year plans and their missions, rather than quarterly numbers.

“Lasting impact can’t be built on quarterly returns,” Smith said. To cause this change in the financial markets, the cost of transactions must increase, so people can’t buy and sell so easily.

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Investing and Entrepreneurship in Water at Investors’ Circle

Water is fast becoming top of mind, joining oil as a precious resource, and carbon as something companies ought to pay attention to. A panel of water investors and experts discussed opportunities in water at the Investors’ Circle conference. My takeaway from the conversation is that water is a difficult (read: fragmented, inefficient, and complex) issue, but one that demands our attention and our intelligence. The panel featured David Zetland, a Postdoctoral Fellow in Natural Resource Economics and Political Economy at UC Berkeley, Brian Dunn, CEO of Growth Capital Services, and Dominic Kulik, founding Principal of Dakai Enterprises.

We just scratched the surface of the complexities of water. Panelists generally agreed the term “water market” is a misnomer, as we really don’t have any sort of market for water. Rather, monopolies rule, Zetland explained.

“Water is on a 10 year lag to alternative energy,” Kulik explained. Water is undervalued, and the system is inefficient. The field is begging for clear competitive mapping and analysis, but this does not exist as yet.

Water is difficult for angels to get involved in, Dunn commented. You need to get in early enough, or you’ll be dealing with project level financing.

A recurring theme at the conference was a focus on the local. Zetland stressed that water is a local issue – most decisions are made at the local level. For example, California has 1,200 water districts.

Kulik explained his interest in soft-path, rather than hard-path investment opportunities. Hard path describes infrastructure, which he characterized as conventional, energy and capital intensive. Soft path refers to alternative, appropriate, energy efficient solutions, which can mimic natural systems. When exploring the sustainable water investment opportunity landscape, Kulik is most drawn to the soft path solutions that treat water holistically, considering the full water cycle, such as local rainwater catchment systems for local land application and filtering water using natural elements like sand.

From what we know of the competitive landscape, water is dominated by giants like GE. But panelists encouraged entrepreneurs not to shy away, but rather to get in on the local and regional level, where most business happens, and where fragmentation and inefficiency have kept the giant players out. Dunn explained that water is “cliquish,” and biased towards engineers with the right name brands behind them. But water managers are risk averse because there is no penalty for incompetence in water management, Zetland noted, making the water space prime for breakthrough innovation in my opinion.

Originally posted on TriplePundit

 

Impact Investing at Investor’s Circle Conference

I’ll be attending and covering the Investor’s Circle Conference this year. My day job at SVT Group involves impact management consulting for social ventures and my writing focuses on the social enterprise space as well. (I recently reviewed a new book by former Investor’s Circle Chairman, Woody Tasch, Slow Money, as well as a book by Investor’s Circle poster child Tom Szaky of TerraCycle.) So I am excited to get a glimpse of this year’s bright ideas and learn from the field’s experts.

I’m particularly looking forward to the afternoon session on “Impact Investing.” I recently wrote about my struggle to find a better bank on JustMeans. I think there is tremendous room for improvement in the way our money is invested, including liquid cash. As such, I recently moved my short term savings from Bank of America and ING to Shorebank and Microplace. My next project will involve moving my longer term investments into companies and vehicles that better reflect my values. So I’m excited to learn more.

The Impact Investing panel offers four experienced speakers:

Amit Bouri works for the Monitor Institute. At last year’s Social Capital Markets Conference, Bouri’s colleague, Katherine Fulton gave a fantastic keynote speech which laid out a framework for growth of the social capital markets. So I look forward to hearing Bouri’s perspective. Since SoCap08, Bouri helped publish a new paper Investing for Social and Environmental Impact: A Design for Catalyzing an Emerging Industry.

Brinda Ganguly works in Program Related Investment (PRI) at the Rockefeller Foundation. I’ve always been impressed and inspired by Rockefeller’s leadership in this arena, so I’m looking forward to learning her outlook. While PRI and other forms of impact investing are growing, I am still shocked by how many foundations and university endowments continue to be invested in traditional asset classes with little social or environmental impact.

Don Shaffer is President and CEO of RSF Social Finance. RSF is another leader in the field and after hearing him speak recently for the first time, I’ve grown to truly admire the work they do. Instead of making investments, RSF gives loans (as well as grants) to sustainable businesses within the areas of Food & Agriculture, Education & the Arts, and Ecological Stewardship. The low interest loans they offer allow businesses greater flexibility and maintained focus on mission and impact.

Peter Sturgatz, the fourth panelist, is co-founder and co-CEO of IceStone. IceStone creates countertops with 100% recycled glass and cement. A B Corporation and Investor Circle alum, IceStone has also received Cradle to Cradle Gold Certification. Like the other panelists, Sturgatz has experience on the investing side, having run a socially minded venture firm for 6 years. The panel will discuss IceStone as a case study in profit-seeking investment that also generates social and environmental impact.

I’m really looking forward to taking part in this meeting of the minds!

 

Book Review: “Slow Money”- How Current Financial Structures Wreck Soil Fertility

In “Inquiries into the Nature of Slow Money: Investing as if Food, Farms, and Fertility Mattered” Woody Tasch, former Chairman of Investor’s Circle, argues for a new financial system that brings money back down to earth by supporting small food enterprises (SFEs) and the local agricultural economy. In addition to myriad environmental problems in the public eye (i.e. carbon, water), Tasch introduces another in this collection of essays – depletion of soil fertility – which he links to our financial system. Our farming practices are abhorrent and strip the land of its fertility for future generations. Tasch contends that our obsession with speed and high financial returns leads to broken ecological and social relationships. “How can we allow money to accelerate endlessly, hoping that it will not accelerate commerce, erode culture, and degrade nature?” Tasch asks. We invest with a mantra of “Wealth Now/Philanthropy Later” and refuse to accept below market rate returns. This is a book about reworking business as usual to support the lifeblood of our economy – food and soil.

“Fast money does violence to the web of relations on which the health of communities and bioregions depends. It is not enough to steer money in new directions. We must slow money down.”

Slow Money is the title of the book as well as an NGO that Tasch founded in 2008 to incite the very changes he describes in this book. This book marks the beginning of a movement. Slow money, the term, describes the “nonviolent” and “beautiful” financial structures that will support investment in “small, independent, local-first food enterprises” and therefore soil fertility. Tasch posits that “Ford + Yunus + Petrini = Slow Money;” in other words combine Henry Ford’s hatred of speculative financing and the fast money of stocks and bonds, with Muhammad Yunus’ vision of social business which develops for-profit solutions to poverty and other social problems, with Slow Food founder Carlo Petrini’s vision of “food as a tool for social change” and there you have Slow Money.

Despite our current organics craze, Tasch presents the startling figures: only 0.5% of all agricultural land in the US is organic; only $100M of the USDA’s 1997 budget of $92B went towards small or mid-sized organic farmers;and in 2007 only a small percentage of foundation capital (0.1% or $50M out of $40B) and venture capital (<$1B of $20B with organics in portfolio) went towards organics or sustainable agriculture.

Tasch suggests several solutions – which include a Main Street Exchange, dedicated to building a “restorative economy” and a Ground Zero Fund to invest in the small food economy he describes. Though specific details are not a focus of the book, the message is clear: We need to rebuild the concept of fiduciary responsibility, such that “investors measure their success as much by what they leave in the soil for the benefit of future generations as by what they take out.”

“Slow Money” is an engaging read thanks to Tasch’s colorful writing style and heavy use of quotes from leading thinkers in the field. I recommend it to all interested in the topic. However, Tasch’s non-linear narrative style and at times esoteric language may be frustrating for some readers looking for a straightforward argument. I am absolutely on board with Tasch’s vision of a new financial system, and this book caters to those who are already thinking about these very issues. Tasch assumes a level of understanding that will make “Slow Money” less appealing to those who have never heard of N-P-K fertilizer (something Tasch mentions many times without stopping to define). Needless to say, Tasch’s argument is strong for reform – I personally began reconsidering where I keep my money and the returns I expect after reading “Slow Money.”

[Originally posted to TriplePundit.]