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The Halo Effect: Seeking Angels


Specialized funds are springing up that help socially concious outfits, and even conventional capital wants its share

As the number of socially motivated companies has grown, so have the ranks of investors interested in funding them. Just about everyone seems to be getting into the act: successful entrepreneurs who've sold their own companies; specialized funds; philanthropic enterprises such as Google.org, Google's $1 billion charitable arm; community development venture capital funds, which invest in companies that provide jobs to unskilled workers or help develop underserved areas; angel investing groups—and the list goes on. Says Cathy Clark, director of the Research Initiative on Social Entrepreneurship at Columbia Business School: "It's a very hot area."

One such investor is Schuyler Lance, a co-founder of Windjammer Capital Investors, a private equity firm in Newport Beach, Calif., and Waltham, Mass. "I wanted to apply my skills to making the world a better place," says Lance. Two years ago, he started Patient Capital Collaborative, a fund that works with the Investors' Circle, an angel investing group, to aggregate the individual investors' funds and put them into social enterprises. Alex Shohet, a serial entrepreneur who has struggled with drug addiction, started 12 Angels in Los Angeles two years ago to target businesses that address substance abuse. In 2005, Peter Liu launched New Resource Bank, a San Francisco commercial bank that specializes in green industries. Liu says that because the $100 million bank has a deeper understanding of these businesses than its competitors, its terms are more favorable, and its decisions better grounded. "We can assess the real risk rather than the perceived risk," says Liu.

Conventional venture capitalists are investing huge sums in clean-tech companies—green businesses that promote the use of renewable materials and energy sources. Kleiner Perkins Caufield & Byers, the influential Menlo Park (Calif.) venture capital firm, is creating a $100 million fund dedicated to green technologies. In all, according to a study by the University of California at Berkeley, Cleantech Network, and Environmental Entrepreneurs, venture capitalists invested $2.9 billion in such businesses last year, up 80% from 2005. Only software and biotechnology drew more funding.

No matter what type of investor you are targeting, you still need to draft a traditional business plan. In most cases, that plan should include a section discussing your social or environmental goals. But not always. "Customize your pitch based on your audience," says Jay Coen Gilbert, co-founder of B Lab, a Berwyn (Pa.) nonprofit that rates social enterprises. "Do your homework so you know exactly what the investor wants to hear about." You may want to highlight your social agenda in the executive summary or not mention it at all.

To find funds, visit xigi.net, a network that tracks social investments and connects entrepreneurs and investors. Community Development Venture Capital Alliance, cdvca.org, is an organization of 60 community development funds, and the Social Investment Forum, socialinvest.org, is a group of about 500 individuals and organizations interested in socially responsible investing.

Back to BWSmallBiz December 2007/January 2008 Table of Contents


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