By Gautam Nivarthy '04 and Elizabeth Bury '04, Bottom Line.
Do some venture capital investors look beyond financial returns when considering investment opportunities? Do ventures which do social good necessarily have lower capital returns? Can one be successful and satisfied as an entrepreneur if she or he has a higher social commitment, beyond profit maximization? A symposium at Uris Hall last week addressed some of these very questions.
On October 10, 2003, Columbia Business School hosted the annual social venture symposium entitled Challenges and Opportunities for Social Venture under the auspices of the Global Social Venture Competition (GSVC). The GSVC is an innovative partnership among Columbia Business School, Haas School of Business at UC Berkeley, London Business School and The Goldman Sachs Foundation.
The symposium was opened with welcoming remarks by Professor Murray Low, Director of the Eugene M. Lang Center at Columbia, Ms. Stephanie Bell-Rose, President of The Goldman Sachs Foundation, and Senior Vice Dean Robert Hodrick. The speakers voiced their ongoing commitment to the Social Venture Competition and welcomed organizing members from the London Business School who were led by faculty advisor Ms. Stephanie Robertson.
One of the highlights of the morning’s proceedings was a presentation by Professor Cathy Clark, Director of the RISE project and Adjunct Assistant Professor at Columbia Business School. Professor Clark presented findings from a nation-wide study of private equity investors investing with social as well as financial goals. The study, which is the first in-depth analysis of the Double Bottom Line (DBL) Private Equity Market of its kind, revealed several interesting features regarding this emerging class of venture capital investments.
The RISE Project presentation revealed that the $2.6 billion DBL market is much wider in industry selection and deeper in social and environmental focus than previously thought. Funds in the study varied widely in their characterization and measurement of their social objectives, and the study defined four types of DBL funds. Some are VCs who are interested in changing the dynamics of an industry, like those aiming to create alternative energy technologies. Some develop local economies and develop leadership, like community development VC funds. Some are mainstream VCs who choose to invest in some areas of personal interest, like education. And some are nonprofit funds investing to promote their philanthropic objectives. A key part of the mission of the GSVC is to encourage social entrepreneurs and investors to measure their social and environmental effectiveness using leading business practices. As Clark reported, about 50 of DBL funds aim to evaluate the social impact of their investments alongside financial performance.
To access more information on the RISE project, readers are directed to www.riseproject.org.
The second part of the morning’s proceedings was a panel session featuring Double Bottom Line and other investors and was moderated by Mr. Tony Lent of EA Capital. Participants on the panel were representatives of the New York City Investment Fund (NYCIF), The Rockefeller Foundation’s ProVenEx fund, Cambridge Associates, Braemar Capital, Silicon Alley Seed Investors and Fleet Development Ventures.
The panel debated several critical issues such as whether considering social returns lead to inherently lower financial returns and whether it was possible to simultaneously maximize both social and financial returns from investments. Tod Hibbard of Fleet explained that Fleet’s $100 million development fund aims to achieve returns higher than VC norms, because their team believes that they are accessing talented minority and women entrepreneurs others may not connect with.
Maria Gotsch explained NYCIF’s innovative for-profit/nonprofit structure, set up by CBS alumnus Henry Kravis, to support civic development in New York through both market rate investments and loans to nonprofit institutions. Laura Callanan of Rockefeller described an innovative new fund structure they are creating to promote economic development in Africa, which allows some funds to reap market-rate returns and others, like Rockefeller, to get their money back with less return. Josh Grotstein of Silicon Alley Seed Investors questioned why every venture that creates jobs couldn’t be considered to have inherent social value. Rob Bowers of Cambridge Associates, one of the nation’s largest investment advisors to foundation and university endowments and pension funds, insisted that social investing is less of an asset class than an investment style that can be applied to any existing asset class, depending on the risk/return profile of the investor.
The symposium included a luncheon speech by Mr. Julius Walls, CEO of Greyston Bakery, a Yonkers based firm, well-known for being the sole supplier of brownies to Ben & Jerry’s ice-cream. In doing so, the Bakery is able to pursue not only profit maximization and shares profits with its nonprofit parent, the Greyston Foundation, but also provides employment to low income, underemployed people in Yonkers. Mr. Walls enthralled his audience with his experiences setting up a successful social venture and the challenges that he overcame in the process of doing so.
The CEO Entrepreneur’s Solutions panel session in the afternoon featured a diverse group of entrepreneurs who talked about the challenges they faced in setting up successful social ventures and attracting investment from venture capitalists.
Participants on the panel were from Voxiva, a company that sets up phone and internet solutions to address health and safety challenges worldwide, Zip Car, a company that seeks to revolutionize the transportation problems in urban areas through an innovative car rental service, Prisma Microfinance, an international micro-financing company that provides loans to alleviate poverty in communities across the globe and Netomat, an collaborative software firm seeking both financial and cultural returns.
The panelists agreed that investors in social ventures often need to have longer time horizons than conventional investors and recognize the social capital created by your customer’s appreciation of your missions an important asset. One recurring advice from the panelists to budding social entrepreneurs was perseverance. If you know a social problem you want to address and you have a clear vision around how to solve it, you can fund the means to make it happen.
###