What is a Social Enterprise?

What is a Social Enterprise?

CORE Foods team

A social enterprise is a business (for-profit or nonprofit) that, in addition to striving to be profitable, takes actions that in some way make the world a better place. Such actions could include paying a living wage, using environmentally friendly practices, supporting improvements in the business’s community, and so on.

I often refer to such businesses as socially responsible, heart-centered, or mission-driven enterprises. In fact, if you read my blog posts or get to know me to any degree, you’ll often hear me use the terms interchangeably.

While it may seem like a delicate balance to pursue profit while also contributing to a better world, plenty of organizations have been successful in pursuing this business model. And so can you! In fact, evidence exists to support the notion that socially responsible businesses can actually be more profitable than businesses focused solely on profit.

Structurally, as I mentioned, social enterprises can be organized as for-profit or non-profit companies. Depending on the country or locality in which they are established and the preferences of their founders, they may choose to organize themselves as co-operatives, traditional corporations, limited liability companies, benefit corporations, community interest companies, or charitable organizations, to name just a few possibilities. Some create “hybrids,” combinations of two or more entities that work together to achieve the business’ goals.

These days, because of growing public outrage over socially irresponsible companies, many businesses say they are socially responsible. But are they really?

The truth is, many companies add socially responsible activities to their operations because they perceive that, by doing so, they will make their overall conduct more palatable to consumers. In other words, social responsibility does not drive the mission of these organizations. Such activities are added as icing on a cake to make it sweeter to the consumer. From a terminology standpoint, such companies are not social enterprises but merely organizations that operate various “corporate social responsibility” programs.

True social enterprises place mission at the center of everything they do. Many codify their missions into their charter documents. When they raise money from investors, they ensure, through properly drafted agreements, that the investors will not interfere with the long-term pursuit of the company’s mission.

There are infinite ways in which social enterprises can be structured and investor agreements drafted. And there are many wonderful examples of companies that have designed very creative structures to ensure long-term fidelity to mission, even after bringing on investors. Here are a few great examples:

It is a great time to be a social entrepreneur!

Many organizations have already led the way, and you can stand on their shoulders.

Interested in learning more? Get in touch!

If you are interested in working together, send us an inquiry and we will get back to you as soon as we can!

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How Not to Get Fired from the Business You Created, Part Two

How Not to Get Fired from the Business You Created, Part Two

(Click here to read: HOW NOT TO GET FIRED FROM THE BUSINESS YOU CREATED, PART ONE)

Let’s summarize what you learned in Part One of this series.
First: any business founder who brings in professional investors like venture capitalists, could be setting themselves up to be fired from their own business.

Second: there are ways to structure your relationship with investors that ensure you cannot be fired.

I have worked with many clients over the years to design their offering to investors so that they could stay in control of their own companies.  Some “experts” will tell you that if you sell equity, you are automatically going to be giving up control.  This is not true!  Equity can be structured in an infinite number of ways.  There is nothing inherent in an equity investment that requires you to give up control of your company.

One of my favorite examples of a successful business that has raised millions of dollars from investors but has given up ZERO control is Equal Exchange.

Equal Exchange offers investors preferred stock with no voting rights.  Thus even though investors own a majority of the stock, the management (elected by the workers) stay in control.

Other companies, like CORE Foods, choose not to offer equity to investors and raise money in the form of debt.

Knowing what to offer to investors is one of the most important keys to a successful capital raise.  And by success, I mean not just raising the amount you want to raise, but also being able to continue to run your business the way you see fit even after you raise money.  Take the time to understand all of the options and choose the one that fits best with your vision and goals.  That way, you can make sure that you don’t sow the seeds of your own firing by bringing on investors.

Interested in learning more? Get in touch!

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How NOT to get fired from the business you created – Part One

How NOT to get fired from the business you created – Part One

If it happened to Steve Jobs, it can happen to you.

Or David Neeleman, who founded Jet Blue. Or Jerry Yang at Yahoo. Etsy’s Rob Kalin or Chesapeake Energy’s Aubrey McClendon.

Many company founders find themselves with a pink slip in their hands after bringing on investors if those investors have sufficient control to engineer leadership changes.

Here’s the bottom line: it doesn’t matter how much blood, sweat, and tears you’ve put into your business. Bringing in outside investors and giving them control makes you vulnerable to termination.

The bad news is that “founder firings” happen all the time.

Rather than being naive and hoping it won’t happen to you, it’s important to do one of the following: (1) choose your investors carefully if they are going to have the power to fire you OR (2) structure your investors’ participation in a way that makes it impossible for them to fire you.

Of course, the second option is the ONLY way to be 100% certain that you won’t be fired from your own company. Some investors insist on control in exchange for their investment, but many others do not. Think about what kind of relationship you want to have with your investors before you start raising money. Know in advance what control if any you are willing to give up.

Interested in learning more? Get in touch!

If you are interested in working together, send us an inquiry and we will get back to you as soon as we can!

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What would you like to see changed in the laws governing capital raising?

What would you like to see changed in the laws governing capital raising?

I’m excited to announce that I’ve been appointed to the Securities and Exchange Commission Advisory Committee on Small and Emerging Companies, thanks to a recommendation from American Sustainable Business Council.

The purpose of the Committee is to provide advice to the SEC regarding its rule making and policies related to facilitating small business capital formation while promoting investor protection.

If there is anything that has been driving you crazy about the laws governing capital raising or you have suggestions for innovative ways to support small businesses in the capital raising process, please let me know!

Interested in learning more? Get in touch!

If you are interested in working together, send us an inquiry and we will get back to you as soon as we can!

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Investment Crowdfunding under the JOBS Act – One More Tool in the Tool Box

Investment Crowdfunding under the JOBS Act – One More Tool in the Tool Box

The Securities and Exchange Commission has finally released the rules for the crowdfunding exemption of the 2012 Jumpstart Our Business Startups (JOBS) Act.

My involvement with what ultimately became the JOBS Act began in 2010 as the co-founder of a nonprofit called the Sustainable Economies Law Center (SELC). Janelle Orsi and I founded SELC to provide legal support for the movement to create a transition to a healthy, sustainable, and just economy. One of the areas that we decided to attack was the securities law that makes it challenging for regular folks to invest in the ventures they believe in.

In the summer of 2010, I worked with law student interns to draft and submit a formal petition to the Securities and Exchange Commission (SEC) requesting the creation of a crowdfunding exemption from the onerous registration requirements for public securities offerings.[1]

Our original petition garnered media coverage and letters of support from all over the country, yet we heard nothing from the SEC. But a White House staffer was intrigued by the idea when we presented it to the SEC’s annual Forum on Small Business Capital Formation. Congressional hearings and a Presidential proposal for a crowdfunding exemption followed, and after some major changes to the original proposal, the final legislation – the JOBS Act – was signed into law on April 5, 2012.[2] I was there in the rose garden to watch the President sign it.

The legislation gave the SEC 270 days to complete a rulemaking process so that the crowdfunding exemption could go into effect. Three and a half years later, the rules have finally been released and would-be investment crowdfunding portals will begin submitting applications to the SEC and FINRA in January. Investment opportunities will begin to be listed sometime in 2016.

Something interesting happened to me between 2010 and today. I got tired of waiting for the SEC so I identified and implemented legal strategies that allowed my clients to achieve the exact same thing that the JOBS Act allows (public offering of investment opportunities allowing an unlimited number of both accredited and unaccredited investors). The overarching term for these strategies is the Direct Public Offering (DPO). Using DPOs, I have helped multiple social enterprises all over the country raise hundreds of thousands to millions of dollars.

Here is a list of some of my clients that have currently open investment opportunities that are open to all investors – both accredited and unaccredited. The minimum investment amount is usually $1,000. These offerings are only available to residents of certain states, shown next to their names below.

Artisan Beverage Co-op – Massachusetts Residents

HydroRevolution – California Residents

Capital Good Fund – multiple states

Pioneer Valley Grows Fund – multiple states

Dorchester Food Co-op – Massachusetts Residents

Green City Growers – Massachusetts Residents

Maker’s Common – California Residents

My Trail – Colorado Residents

Economic Development and Financing Corporation – California Residents

Nia House School – California Residents

People’s Community Market – California Residents

Sunspeed Enterprises – California Residents

Once I started researching DPOs, I learned that it is actually not a new model. Ben and Jerry’s completed a DPO in 1984 to open their first production facility. For some reason, after all these years, many people don’t realize that it has been legal all along to do an investment crowdfunding campaign!

So, was it a waste of time to create a new crowdfunding exemption given that DPOs which have been legal for decades already allow investment crowdfunding?

I’m not sure what the answer is to that question but it is true that the new crowdfunding exemption introduces some things that were not previously possible under existing law. For example, the new rules make it possible to accept investors from all 50 states without having to do state by state compliance.[3] Also, for the first time there will be online investment platforms open to everyone that need not be licensed as broker-dealers. The crowdfunding exemption is a new and unique tool in the tool box that is already quite full of tools.

So how do you decide whether to use a DPO or the new crowdfunding rules?[4] It will be difficult to answer this question until there are some actual platforms available for conducting a raise under the new rules. Once there are platforms open for business you’ll be able to evaluate pricing, user friendliness, etc.

Here is a generalized comparison between the two options:

DPOs under pre-2016 law DPOs under the new crowdfunding rules
Nationality of issuer Any U.S.-only
State by state registration required (can take 1-5 months or more) Generally yes No
Maximum that can be raised Generally none (some multi-state offerings are capped at $1 million; there is a proposal to increase this cap to $5 million) $1 million
Per investor cap Generally none If investor annual income or net worth is less than $100,000, cap is the greater of $2,000 or 5% of the lesser of their annual income or net worth; if both their annual income and net worth are equal to or more than $100,000, cap is 10% of the lesser of their annual income or net worth
Use of intermediary Not required; very few intermediaries are available Required – communication outside of intermediary prohibited
Reviewed or audited financials required Usually not Yes if raising more than $100,000
Investors have the right to pull out at the last minute No Yes
Annual reports required Generally no Yes – must include company financials and must be posted on company web site
What kinds of securities can be offered Any (equity, debt, etc.) Any (equity, debt, etc.)

If you’re interested in exploring your options for conducting a public offering of securities, please feel free to contact us.

[1] The most commonly used legal compliance strategies for raising capital require investors to be “accredited” – having a minimum $1 million net worth or $200,000 in annual income. Offerings that are open to an unlimited number of unaccredited investors and involve public advertising generally require registration.

[2] The JOBS Act actually included several reforms to the securities laws in addition to the crowdfunding exemption.

[3] There is one type of DPO that also allows this (known as Regulation A+) but it requires a relatively onerous process with the SEC.

[4] I actually consider an offering under the new crowdfunding rules to be a type of DPO, but I’m making this distinction between the two for the sake of clarity. My definition of a DPO is any securities offering that can be made doing public advertising and is open to an unlimited number of both accredited and unaccredited investors.

Interested in learning more? Get in touch!

If you are interested in working together, send us an inquiry and we will get back to you as soon as we can!

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As a thank you for subscribing to our email newsletter, you will receive a free copy of my ebook entitled Get the Right Money from the Right Investors.

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