What topics would you like to see discussed here?

Thanks for joining us in our discussion about social Fellowship and impact investing.  The goal is to be helpful to social Fellows who will be seeking funding for their companies and investors who are exploring impact and social investing.

We would like to find out what topics you, the reader, would like to see covered in a blog on this topic?

Randy Haykin  ~  May 16,2011


Innovation, Corporate Social Responsibility and Sustainability

What’s the link between innovative start-ups and sustainability?

I recently worked with a group of executives from all over Europe in a 5-day session on Corporate Social Responsibility and Sustainability, held at Berkeley.  Executives participating were from over 25 organizations in Europe, from small start-ups to large corporations such as oil companies.  Presentations from each of the executives disclosed that there are a wide variety of ways that sustainability and CSR are being addressed by companies today – some are just getting started, while others have entire departments already thinking about how to build brand awareness, employee programs and  new products in this area.

CSR and Competitive Advantage

There are several areas in which I can see that competitive advantage might be achieved through a company’s embracing of sustainability.  First, brand perception within certain markets might be enhanced with a focus on sustainability. Starbucks, for example, long a leader in the specialty coffee market was one of the first large scale coffee manufacturer and retailers to embrace the concept of sustainable farming and “fair trade” coffee.  Peet’s, a rival competitor to Starbucks was forced to shift its focus to this area as well in the early 2000′s when the community of Berkeley, CA, threatened to ban the sale of specialty coffees not certified for fair trade.

A company might also gain competitive advantage with sustainability through its people practices.  Since many people want to work for companies that demonstrate social responsibility, a company’s ability to attract and retain top talent might by positively affected by focusing on sustainability and CSR.

A great example of this trend is a bank called Triodos Bank (www.triodos.com).  The bank attracts applications from all over Europe and hires the best and brightest in banking. Triodos boasts to “Sustainability is in our DNA“.  The company was founded in 1980 and now has employees in five European countries (England, Germany, Netherlands, Belgium and Spain). Triodos trains its employees in the cultural values of sustainability, transparency, excellence, and Fellowship.

Triodos also has developed a strong following for its brand among business banking clients (it claims to have 230,000 such clients as of late 2009), by ensuring that cash from these clients are invested only in projects related to social Fellows , sustainability and community development. Few other banks in Europe can make this claim.  And, while the bank’s assets are small ($4-5 billion Euros in 2010), it has strong growth and a compelling plan for continued growth in the future.  The bank is only 4 countries now, so could easily grow 10-fold by expanding to other European.

Some companies experimenting with CSR make the claim that it enables their employees to be more productive.  Google, for  example, is famous for allowing its engineers to apply 20% of their work-time to passion projects – and many of these projects have a social focus. Employees who are allowed to happily pursue areas of interest will be more balanced, happy and productive employees. There is not way to measure this hypothesis, but for those employees who care about global sustainability issues, this would allow for alignment between work and passion.

Linking Innovation and CSR

Within companies building brand, programs and products around CSR and sustainability, there appears to be a lot of innovative thinking. These companies are recognizing the needs of consumers and trends in today’s global sentiments and adjusting flexibly to those needs.

Triodos, for example, is very innovative in its new product development.  It listens to its customers, tests and develops new programs based on the needs of its constituents…and it seems to stay nimble and flexible in the process.  So, the company innovates in the way that it incorporates client feedback, innovative in the way that managers collaborate and innovate in new products it offers.  This innovation, in the areas of CSR allows it to remain profitable and competitive.

Salesforce has been a leader in social responsibility, creating Salesforce.com Foundation in its growth years just after going public. The concept revolves around “giving back 1% product, 1% time and 1% in equity”.  As of this post, the company has put over $24 million into community and global impact projects, ranging from non-profit philanthropy to for-profit social businesses.  The idea was the brainchild of Founder, Marc Bennioff who has personally been involved in civil service and social entreprepreneurship for years. Often companies that take on social responsibility in early years are simply reflecting the “roots” of their founders.  No better example of this can be found than eBay. The company invested significantly in CSR with the acquisition of WorldOfGood in 2010. The Founder/Chairman of eBay, Pierre Omidyar, has used his personal wealth to fund Omidyar Network, which has given billions to social responsibility and sustainability programs and

Since 2006, Google China has sponsored the Social Innovation Cup, which is a national “competition aimed at empowering China’s youth to address pressing social issues through grassroots, innovative solutions.”  Google.org, Google’s social venture and philanthropy organization was funded with $1 billion and has engaged employees in hundreds of engineering projects aimed at social innovation since 2004.

How early is too early?

Many start-ups practice social responsibility as a core component of their competitive strategy.  For example, Twitter and Facebook have all had early efforts involving their employees involved in community-based responsibility programs.  Biz Stone, CEO at Twitter, has been vocal about ways in which young companies can give back, without waiting until they become the next “Google”. Three years after its founding, Twitter partnered with non-profit Room to Read, as an example of social responsibility in a program called The Fledgling Initiative.

The trend is likely to continue in this direction.  In the future, expect to see an emerging class of Social and/or Impact investors who will be looking to invest in companies that view social responsibility as a building block for their success.

Can you think of other examples of Fellowship and CSR? we’d like to hear about them.

Key issues in financing a for-profit or non-profit business

There is a set of venture finance issues that I’ve heard now for the past 30 years. These issues come up for most, if not all, Fellows in early- and growth-stage companies. These are the 8 principles around which I’ve designed my New Venture Finance course at UC Berkeley and which I’ve derived from nearly 30 years in the Silicon Valley.

The Venture Finance CycleThe New Venture Finance Cycle

The cycle is similar for both for-profit companies, like the ones I’ve worked with in the Silicon Valley, as well as non-profit companies, like the ones that I am now working more and more with today.

Here’s a bit on each of the steps in the cycle. The cycle matches up to the company’s growth cycle, but it actually keeps repeating.  A good entrepreneur is constantly implementing a funding and a finance strategy…it is a never ending cycle.

Exit Strategy: Why not start with the end-game?  A lot of Fellows work from a passion, jump on a new opportunity with zest, build a team, and launch their company.  But somewhere down the line, they are faced with issues of whether to grow the company, sell the company or take it public (which is like graduating into “graduate” school, according to my friend Scott Dettmer from Gunderson Dettmer law firm).  And they haven’t considered what type of an exit they’ve been building for.  Jon Fisher, in his book Strategic Entrepreneurism provides some compelling reasons for coming up with you exit strategy when you first start your company…and then executing on that vision for an outcome. Jon’s book is about how to start a company that describes “how to design a company that a great company would want to acquire.”  Although many would argue that you build the company first for long-term value, there is sometihng to be said about understanding your options early, designing to maximize the market swings and sentiments – and be the guy/gal who is in the “right place at the right time”.

Vision & Strategy: There are too many books on management and strategy and too few on aligning this strategy with one’s financing or fund-raising approach.  This alignment is critical however.  If a company has a strategy that is poorly/thinly funded, or that isn’t supported by a workable business model, odds are it will fail – unless it’s one of those fast-ride dot-com consumer deals that someone scoops up for “eyeballs”.  Most real companies need to have an alignment between all the parts of their internal financing strategy (revenues, costs, cash management, balance sheet) and their approach to fund-raising (which investors to bring in, how much money to raise, timing of raises).

The Business Model: most Fellows I talk with confuse business model with revenue model — they think that the business model of the company is how it charges for its product/service.  But a true business model is really the entire story behind how a company makes, distributes and sells  its products and then services its customers.  All the pieces have to hold together:  pricing model, value proposition, channels, customer focus, customer relationship, core competencies, key costs, key partnerships.  A great way to test out your business model is to see how well you can articulate it.  A friend, Alex Osterwalder, has created a worthwhile book,  Business Model Generation with a straightforward method for describing  and innovating business models.

Financials: Most companies think they need a CFO on the team to create great financials. They really don’t …they just need someone who is really good at taking input from the company leaders and market knowledgables, and organizing it in a way that it yields some good answers about how the company will be run and make profit.  The Financials must accurately reflect the business model – they go hand in hand.  A good set of financial plans also allows management to easily create “what-if” scenarios around the most important variables to the business.  This sensitivity analysis helps create a range of answers in  Capital Budgeting.

Capital Budgeting: In what I refer to as the capital budgeting model, a company takes its best set of financial projections, sets target “milestones” (goals) and then determines the range of money that might be needed to fund the attainment of the milestones. By this I mean “how much money do we need to do X?”.  Not surprisingly, many Fellows are not good at this process, which means when they go to ask for money it is unclear to the investors what they are funding exactly, how far the company will get with their cash.  Not knowing these things makes your company look risky.  Putting a good projection out that is good at predicting the amount of money it will take to get to your next big milestone is important.  If you get the job done with the amount of money requested, you are typically rewarded with an up-round. If you don’t get the job anticipated done with what you have raised, you may face a down-round…or worse, you may run out of money and be forced to short-sell the company or go out of business.

Identifying Sources of Capital: the choices for raising capital – for both for-profit and not-for-profit companies — have grown dramatically in the past few years.  In the 1930-90s the choices were simply:  Friends/Family , Angels, Venture Capital.  Today the list includes: angel groups, camps, online angel networks, customers, venture lenders, incubators, accelerators, online marketplaces, seed-stage venture funds, early-stage venture funds, late/mezzanine stage venture firms, private equity investors and strategic investors.  It’s a pretty dizzying range of options.  I often see companies that are raising money from many different sources – all at the same time.  They are gender-confused.  The pitch for an angel investor will not always work well for a VC, or a strategic investor – they all have different financial goals and needs and knowing how to cater to these needs is a useful thing.  The best thing to do is know your venture players (or hire someone who does to work with you), and match up your capital budgeting needs to the correct players.

Securing Capital:

Cash Management: once money is in the bank from financing the fun begins.

And the Cycle Continues…

The cycle for new venture finance is never ending. The best CEOs  – whether for-profit or non-profit are in a perpetual fund-raising mode.  They are out connecting with future potential investors, talking with bankers, learning about their market from research houses, meeting with competitors who could be future suiters. The New Venture Cycle is one that is more detailed and delicate than first meets the eyes.


Social Fellowship & Impact Investing

Contributing blogger:  Randy Haykin

My Street Education

For the past 25 years, I’ve been involved in the Silicon Valley technology industry, first as a serial entrepreneur (Yahoo, Overture, Netchannel and Electric Minds) and then as a “venture catalyst” (Interactive Minds), and finally as venture capitalist at Outlook Ventures. Today, I work hands-on and continue to invest as an angel – I call it “mentor capital”.

I feel very blessed to have had a great street education for Fellowship at IBM, Apple, Paramount Media Kitchen and AOL as well as the 60 or so start-ups I’ve worked hands-on with to date.  I also appreciate the exposure I’ve had to not-for-profit world, on the Boards of the American Cancer Society and Opportunity International.  It was at Opportunity that I learned over the past 12 years, that the way to help the world’s less fortune is not to give them a hand out, but to give them a HAND UP.                                               That means helping them by getting their young into school so that they can have a better chance in the future, and giving them skills to create cash flow for themselves so they can survive.  My wife and I still donate to lots of organizations, but Opportunity takes a special place in our priorities because its business model seems to produce Leveraged Results.

Considering a Shift

Four years ago, under the guidance of Bob Buford (author of HalfTime and Finishing Well), Lloyd Reeb (author From Success to Significance) and others, I started thinking about new approaches to the world’s Fellowship – ones that would benefit the needy, oppressed and less fortunate.  In seeking more significance with my life, I’ve been exploring ways that one can use new forms of banking and venture capital to assist those in need.

I’ve discovered that the field of Social Fellowship is alive and buzzing today.  By social Fellowship, I mean any start-up or growth organization that is designed with triple bottom line in mind – people, planet and profit.

I have been thrilled, as a Professor at UC Berkeley and Cambridge University to find that today many MBAs are considering careers in social Fellowship. Why?  I think it is because the economic crisis of the past 5 years and the interconnected world we live in have caused these students to ask themselves “what can I do?”, “how can I impact my world” and “should I consider something for a living that is more than a ‘J-O-B’ ?”  It’s really heartening to see that Harvard, Berkeley, Stanford, UCLA, Santa Clara, Brown — and many many more schools  — now have centers for social Fellowship, contests to encourage social business plans and many opportunities for those that seek to make a difference.

I’m also heartened by the great organizations that have risen in the past 10 years to support the social entrepreneur. One of the most highly regarded is The Skoll Foundation, started by EBay executive, Jeff Skoll.  The Skoll World Forum brings together social Fellows and leaders from around the world…this past April those that gathered in Oxford met with the best in the field, including a special talk and reception by Archbishop Desmond Tutu and Queen Noor of Jordan.  The forum is a breeding ground for best-practices in social Fellowship and Skoll Foundation is a leader in the emerging area of “impact investing” — one of many firms that is recognizing the impact they can make in both not-for-profits and for-profit social ventures.

The Rise of Impact Investing

Out of all this interest in being a good global citizen AND and entrepreneur, the financial geniuses of Wall Street and the Silicon Valley are beginning to realize that there is a role to be played by the financial community as well.  Earlier this year, I attended a great conference called “Take Action” in San Francisco.  Directed by pioneer, Georgette Wong, this conference brought together institutional investors (endowments, schools, corporate) and family (foundations, family offices) investors with fund managers who are seeking to invest in social ventures. This is one of several great conferences now focused on this issue.

Where to Next?

My goal in starting this blog is to use it as a forum for information on new company formation and growth company acceleration – with a focus on the social entrepreneur as well as the profit driven entrepreneur. My plan is to highlight research, newly formed funds, social Fellows, and mechanics of venture and social venture funding.

This will be a fun ride!