Getting Investment to the Grassroots

Getting Investment to the Grassroots

confluenceI was on a panel recently at the Confluence Philanthropy gathering in Boston. This is an annual gathering of philanthropists that are looking for ways to effectively invest their resources in enterprises making a positive impact in the world.

The panel was called “Getting Impact Capital to the Grassroots.” My co-panelists talked about some incredibly innovative community-led initiatives designed to deploy capital in a way that truly benefits disenfranchised communities.

The Democratizing Capital East Bay (DCEB) project, funded by Solidago Foundation, is an initiative that is working with grassroots community organizations in Oakland, California like Mujeres Unidas y Activas, Asian Pacific Environmental Network, and the Ella Baker Center to create an investment fund whose focus will be decided by these organizations that represent low-income community residents. These groups are being paid to participate in the planning process and are receiving education about investing so that they can make informed decisions. Once the fund is launched, it will be open to investment by any California resident. The minimum investment amount will be low so that the opportunity to invest will be more accessible.

The Massachusetts Solidarity Economy Initiative (MSEI) has an impressive goal: to build a movement capable of transforming dominant capitalism. This initiative, convened by Access Strategies Fund, includes 14 grassroots groups that are led by people of color. Like DCEB, this initiative is investing significant time and resources to simply listen to the people it intends to serve. These listening sessions have resulted in a model for a solidarity economy with the values of love, art, culture, healing, and community at its base. Also like DCEB, the participants are paid for providing their insights and wisdom to the initiative. Their contributions of knowledge capital are seen as just as valuable as financial capital.

Pioneer Valley Grows Investment Fund is farther along than DBEC and MSEI in its development – after years of planning and community outreach, it is open to investment! This is an investment fund, open to both wealthy and non-wealthy investors that invests in building a healthy food economy in the Pioneer Valley of Massachusetts.

It is thrilling to see the proliferation of initiatives all over the country designed to invest in the grassroots local economy!

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Winning that Pitch Competition was the Worst Thing that Ever Happened to Her!

Winning that Pitch Competition was the Worst Thing that Ever Happened to Her!

I recently had a new client sign on to work with me to raise capital. Her dream is to develop a retail shop targeted at creative people. She wants to set one up and eventually franchise it all over the country. This is her passion because when she was going through tough times, she found that exploring her creative side saved her from the abyss.

She was invited to enter a pitch competition. Her passion showed and the judges were captivated. She won the competition!

Many months later she and I talked and I heard what happened next. The “prize” for winning this competition was that she got to pitch a whole bunch of the top venture capitalists in Silicon Valley.

Why would anyone recommend that someone who wants to start a retail shop pitch to VCs when this is so obviously not the kind of business that VCs are looking to invest in?

Maybe they thought it would somehow help her get some ideas for improving her business.

Well, that is not what happened. What happened was (1) the VCs told her to change her business model to try to make it more like the type of business a VC would invest in and (2) she felt like she was crazy because none of them really got what she was trying to do.

She changed her business model into something that she wasn’t excited about. She got demoralized and depressed. Great prize, right?

Lesson learned: Do not waste time pitching to investors that are not a good fit for you! It is worse than a waste of time. It can take you completely off track, make you feel alone, and plunge you into despair.

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The Curious Case of Ben & Jerry’s: A Cautionary Tale for Social Entrepreneurs


The tale begins in 1978 when two partners, Ben Cohen and Jerry Greenfield, founded a gourmet ice creamery in a renovated gas station in South Burlington, Vermont. Ben and Jerry ran their business so it was fair to its employees, kind to the environment, and kind to the cows who provided the raw product they used to create their ice cream. They called their pursuit of both profits and people the “double dip.” Their slogans such as “Peace, Love, and Ice Cream!” made them poster children for “hippie” corporations — in other words social enterprises, companies that make a positive impact on the world while also making money.

Initially, Ben and Jerry offered stock in their company to Vermont residents only using a Direct Public offering. The idea was to “spread the wealth” to their immediate community. Following a national stock offering in 1985, Ben & Jerry’s Ice Cream established a foundation and committed 7.5% of its annual pretax profits to fund it. Cohen and Greenfield also devised a simple three-pronged mission statement in which they pledged to manufacture the world’s best ice cream, to run a financially successful company, and “to make the world a better place.”

Ben & Jerry’s Ice Cream continued to build its business on the bedrock of its social values. The company sourced its ingredients from regional organic dairy farms. It only used milk that did not contain artificial growth hormones. It even went to court for the right to label its ice cream hormone-free. Then it developed chemical-free containers, and made fair-trade and organic ingredients priorities in their manufacturing process. It also took steps to reduce its trash output, creating a more sustainable overall carbon footprint for its operations. It opened scoop shops in inner city neighborhoods for the purpose of creating jobs for low-income community residents.

In other words, the mission the company’s founders was having a major positive impact.

But in 2000, Unilever, an Anglo-Dutch consumer goods conglomerate, offered to buy Ben & Jerry’s Ice Cream at 25% over the company’s estimated value. Cohen and Greenfield did not want to sell. They voiced concerns that Unilever would neglect if not abandon outright all the socially responsible aspects they had worked so hard to incorporate into their operations. However, as a publicly held corporation, Ben & Jerry’s Ice Cream was worried that they would be sued by their shareholders if they did not maximize shareholder value.

You probably know how this story ends. Ben & Jerry’s Ice Cream was eventually sold to Unilever for $326 million. Cohen and Greenfield each took multi-million paychecks as part of the deal. However, in a statement released to the press, the founders agreed that they would have preferred that their company remain independent.

Cohen and Greenfield’s fears were soon realized when Unilever began shuttering Ben & Jerry’s Ice Cream factories and laying off employees in order to create operational “synergies.” Unilever also reportedly took steps to decouple the corporation from its employees’ ideals. And customers worldwide have denounced the current quality of company’s product as far inferior to what Cohen and Greenfield had produced during their heyday.

Obviously this summarization glosses over many important details in the tale of Ben & Jerry’s Ice Cream. And of course this case has bred numerous dissenting opinions.

Frankly, to my mind, that isn’t the point. The point is this:

Aspiring social entrepreneurs need to plan early to prevent the forced sale of their companies!

For now, the best advice I can you is this: you shouldn’t go it alone.

It has never been more important for social entrepreneurs to have good coach, advocate, attorney, and strategist in their corner. I am all those things in one, and I would love to play that role for you!

Over the past 20 years, I’ve helped social enterprises structure and raise financing in total alignment with their long term goals and values. If you run a socially-responsible business or are thinking of starting one today!

Interested in learning more? Get in touch!

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Spotlight on a Successful Social Enterprise: Equal Exchange


From the Equal Exchange YouTube channel

Financial Success and Core Values
One of my favorite examples of an organization that has been able to raise millions of dollars of capital while staying in control and true to its values is Equal Exchange.

Despite posting enviable growth, this company has successfully retained its mission to create mutually beneficial relationships between farmers and consumers and support worker democracy and fair trade throughout the world.

Try some of Equal Exchange’s teas, coffees, chocolates, and fruit. You’ll be hard pressed to find goods of this quality anywhere else, and you’ll feel awesome that what you’re consuming is good for you and good for the world.

So what’s their secret?
How has Equal Exchange been able to grow and thrive for over 25 years while maintaining its mission and values?

Equal Exchange stipulates from the outset that investors have no voting rights. Investors are sufficiently confident in the worker-owners of the company to steward its resources. And investors have never been disappointed – they have received generous dividends every year, resulting in a return that exceeds a comparable investment in the S&P 500.

Notably, Equal Exchange’s structure prevents any investor or owner from profiting from the sale of the company.

Equal Exchange’s structure and investor agreements ensure that only values-aligned investors will be interested. The controls placed shareholder participation have never proven a hurdle to gaining investment. Demand exceeds supply every time. Equal Exchange offers its preferred stock.

Values-Driven Business
Equal Exchange is not successful in spite of its commitment to its mission but because of it. A majority of investors and consumers want to do business with values-driven companies and Equal Exchange meets that demand.

There is plenty of room for more companies to do the same!

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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.

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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.

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