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SOCAP – DAY 2 RECAP

Day 2 at SOCAP… what a blur. We met so many amazing people and sat in on some of the best sessions of the conference. Below are some of the highlights from those sessions.

Seed Investing For Social EnterpriseRoss Baird, John Hardman, Kim Scheinberg, Tim Freundlich, Jessica Jackley

This panel was, by far, the most entertaining panel at SOCAP. I hate to say it, but you really had to be there to experience it… start saving your pennies for your ticket to SOCAP11 so you don’t miss out next year. Here are some of the best lines from the session in no particular order.

Village capital model uses the wisdom of a group of entrepreneurs to decide who to invest in. The HUB is launching a village capital fund called HUB Village Capital. It’s launching now with a cohort of 20 entrepreneurs at the HUB Bay Area. -Freundlich

Profounder is going live with 20 entrepreneurs looking to raise seed capital through private fundraising campings. The investors enter into a revenue sharing, not equity deal. Entrepreneurs looking to raise capital can do a private campaign for friends and family, or a campaign to the broader public. The unique twist on the public campaign is that once an investor makes his/her money back, the remaining proceeds go to a charity of his/her choosing.  – Jackley

I hate philanthropy.  – Scheinberg

Q: How does one get seed capital? A: Tell your story in a genuine way. -Jackley

If you are sitting in this room, you don’t need my money. -Scheinberg

Kiva was rejected twice by Echoing Green. I was rejected from Stanford Business School. You don’t need to be a part of any club to make it.  – Jackley

Not everyone thinks your kid is cute. Not everyone wants to steal your idea. – Scheinberg

Typically the relationship between the seed investor and the entrepreneur is like performing fellatio and having your hair grabbed. – Scheinberg (I think this was a comment on the power dynamics involved… but make of it what you will)

ReachScale Lunch Discussion – Corporations and Social Enterprises

David Wilcox curated a sharp group of people at this private lunch event. The topic was centered around the questions: How can large corporations and social enterprise work together? How can a partnership with between the two go beyond a transfer of money to assuage corporate guilt? Can real, equal partnerships exist? If so, what does that look like? This was by far the most engaging and intellectual discussion of the conference. I cannot do justice to the discussion here, but I will point you to a must read Harvard Business Review article on the Hybrid Value Chain by Ashoka.

The People Side of Triple Bottom Line – SJF Ventures, Endeavor, Better World Books

This panel discussed the bottom line that is all too often treated as an afterthought in triple bottom line accounting… people. The panelist discussed innovative ideas to engaging employees.

SJF Ventures presented highlights from an forthcoming report on the topic. One idea that caught my attention was Open Book Management.Open book management is a management stractegy based around transparency and accountablity from management to employees, whereby management discloses key financial metrics to the entire team so at they can rally around those goals and use them as a benchmark for success. For example, if your social enterprise needs to close $1.8 million of deals this year, that key metric is shared very publically with your employees. They use is as a goal and a constant benchmark for gauging success. Open book management is a simple, but often overlooked technique of creating employee buyin for the company’s goals. Combined with appropriate performance-based incentives, open book management can engage employees while motivating everybody to achieve stated goals.
Better World Books is the best example I’ve seen on employee engagement for two reasons: their approach to stock options and their response to the recession. Better World Books has instituted an incredibly generous stock option program: they give stock options to EVERY full time employee that has been there over a year. Currently 70% of their full time employees have options…. the other 30% are waiting to hit their one year anniversary. The fact that 30% of their full time work force has been employed less than a year shows that this type of employee engagement can lead to incredible growth in a social enterprise.

Better World Books was not immune to the recession, when it hit, their business suffered. Management had some difficult choices to make about how to cut costs in order to survive. like any business, they contemplated laying off employees, but in the end, they decided on a different approach. During the recession they cut everyone’s pay in order to avoid any layoffs, but they did this on a graduated basis, the highest paid managers took the biggest cut, and the lowest paid employees took the least cut. As business started picking back up, management decided to reinstate the lowest paid employees’ pay first, then gradually reinstate the better paid employees. The top levels of management didn’t reinstate their own pay until a year after the lowest employee’s pay was reinstated.  The outcome was a more loyal and engaged workforce.

These are but a few examples of some of the great ideas around fully engaging the most important resource any social enterprise has… its people. For more on employee engagement check out www.engageemployees.org

SOCAP – DAY 1 RECAP

The first day at SOCAP was impressive. In only its third year, SOCAP completely sold out. There are 1198 attendees and many of the session rooms were overflowing. The Mason Center is an incredible venue with views of the Golden Gate Bridge, the perfect spot for SOCAP.

What we were most excited about on Day 1 of SOCAP was Jay Gilbert’s of B Labs keynote speech to close the day. His theme was the absolute imperative to creating a distinct asset class for impact investment. This asset class must have a single standard of measuring impact for triple bottom line companies, and he noted that GIIRS has garnered widespread support from government, business, foundations, and funds to be THE standard by which we can measure impact. He announced that 25 GIIRS Pioneer Funds have committed to using GIIRS as their metrics for measuring impact. Gilbert closed with a call to action, “If you want to plan for a year invest in a company. If you want to plan for a decade invest in a fund. If you want to plan for a century invest in an asset class.”

But the most exciting from Gilbert was buried in the middle of his speech. As of October 3rd, only 3 business days after the Maryland Benefit Corporation statue went into effect, 11 companies have filed as Benefit Corporations! Out of those 11, B Labs had only had a conversation with one of them. So, clearly the demand for the Benefit Corporation exists. All we need to do is make the structures available and companies will respond.

The day started with a welcome from Kevin Jones and keynotes from Jacqueline Novogratz of Acumen Fund, Matt Flannery of Kiva and Kushal Chakrabarti of Vittana.

Novogratz was spreading her message of patient capital and the importance of measuring impact through PULSE. She spoke of the aid community looking to social enterprise to understand how to reform their efforts. She closed with a passionate call to action. We are the ones to create this movement that will bring equity to humanity.

Flannery, who started by celebrating the fact that Mohammed Yunus had made it on The Simpsons on Sunday night, was talking about the struggles that Kiva had starting a new category of online microlending. He ran into opposition from both the charity world and the business world. One side said Kiva is not charity, but the other side said that it’s not really business either. He had to navigate the legal landscape very carefully in order to get Kiva off the ground in the US, due to securities regulations.  Looking ahead, Kiva’s biggest challenge is not a struggle for capital or for lenders, but a fight for the most rare commodity – attention. How does Kiva – who gives loans to farmers in the developing world – compete with the massively popular online game Farmville – where users tend to their “virtual farm”.

Chakrabarti talked about the success of Vittana, an online micro-student lending site. It seeks to address the main obstacel for students to stay in school in developing countries – money. 70% of students that dropped out of school in Uganda dropped out due to the cost of school.

Those were the main highlights of Day 1. Stay tuned for Day 2 Coverage.

THE ONLY WAY TO UNLOCK THE $120 BILLION MARKET OPPORTUNITY FOR IMPACT INVESTMENT IS REFORM OF THE US SECURITIES LAWS

As an attorney for social enterprise, I speak with clients almost every day that have no lack of people and organizations that would like to invest in them. Many of their customers, neighbors, and fans would much rather invest their small nest eggs into local socially responsible businesses than mutual funds (even SRI ones) that invest in giant multinational corporations. But guess what? It is illegal for them to do so.

An extremely complicated set of laws and regulations adopted in the 1930s and early 1940s makes it illegal for a business to offer or accept investments from the public without jumping through numerous legal hoops that can easily cost hundreds of thousands of dollars in legal and accounting fees, filing fees, and other costs.

The result is that social enterprise must compete for extremely scarce funding which may require entrepreneurs to sacrifice their vision. And the vast majority of us are prohibited from putting our investment funds where we would like to put them. After all, is it really riskier for me to invest in a business in my community where I shop regularly and know the owners than it is for me to invest in faceless multinational corporations most of which seem to be completely out of touch with the imperatives of the new economy?

The securities laws were put in place for a good reason – to protect average investors from losing their life savings in unregulated investment schemes. Well, didn’t investors lose their life savings in completely regulated and legal investment schemes in the last few years? It is time to ask why these regulations make it almost impossible for small social enterprises to raise capital and what we are trying to protect people from.

This past summer, I participated in a small step toward changing this situation. At Sustainable Economies Law Center, a nonprofit at which I am co-director, two summer law student interns wrote a request for a rule change for the Securities and Exchange Commission, the federal agency that regulates investing. Our request was simple: exempt from the regulatory requirements solicitation of investments of up to $100.

Imagine if social enterprises could solicit investments of $100 and offer a financial return on those investments without having to spend hundreds of thousands of dollars for securities law compliance? This would not solve the current market failure, but it would be an amazing first step that could lead to more extensive reforms.

My colleague Michael Shuman in his book Small Mart Revolution and elsewhere has shown that small locally owned businesses are not the risky investments they are made out to be. They make up approximately half of the economy and are more than holding their own in a system which is stacked almost completely against them. We must do away with the outdated laws that prevent investment dollars from flowing to them.

Jenny’s blog post is a finalist in the SOCAP / Triple Pundit Competition asking the question: How will social enterprise unlock the $120 billion market opportunity for individual impact investment?

photo: Aram K.