As I continue to wrestle with how to do a social investment appropriately, I’ve gotten a couple of new insights. One: both in investment and grantmaking the fund provider seeks some kind of low-grade control, the tools are just different. Two: I’m becoming convinced that for something to be a good investment, someone in the deal needs to understand how to steward that investment.
One critique of restricted non-profit funding compares it to for-profit funding and decries the specificity of how funds can be spent. I forget where I read my first version of this critique, but it went something like “Investors in FedEx don’t get to say ‘this money is just for trucks’”. At the time I thought that was pretty thoughtful, but now I see it’s not that simple. For profit investors have their own set of tools for exercising control. For one, most of those nonprofit donors writing detailed contracts aren’t also seeking representation on the board, but for-profit investors expect it. For-profit investors also have their own versions of restricted funding – providing services for free or discounted in return for equity. In non-profit, restricted funding is the more common tool. In for-profit, board representation is the common tool, but both are for similar ends – some funder engagement in where the money goes.
I’ve also been thinking more about how to emulate Kim Scheinberg’s Presumed Abundance model, and talking to her a bit about it. I do think that innovation needs some amount of essentially grant funding – don’t worry about the details, let’s just get started. If it doesn’t work out it was at least worth the try (and Kim emphasizes that You the Entrepreneur deserved the support anyway) and if it does work out then we all win. I’m beginning to see that latter part can only happen if the entrepreneur actually understands how finance plays a role in the enterprise or recruits the right talent to help. I suppose knowing how to recruit talent would be an aspect of the kind of inspiring person that a social investor just wants to support, but it doesn’t seem guaranteed.
I was initially attracted to the idea because I want to dedicate a pool of capital to building social enterprise and I don’t need that money to come back to me, but I do need it to come back to the fund or it will quickly be game over. One aspect mentioned in Kim’s original blog was a hope of better aligning interests if it wasn’t about making more money for a seemingly greedy investor but for social enterprise overall. I do think that helps professionals: the separation from the return being for themselves vs representing others. However I think to really “partner” with the entrepreneur, they need to understand the economics of an investment fund and be bought into the success of the fund, and getting their time & attention for that is not easy when they’re deep into their own enterprise.
In other news: I visited the Viva Farms incubator today in Skagit Valley. I saw beautiful Romaine lettuce being grown. It actually kind of blooms out in its natural state and the 1st-year farmer showed us how just yesterday he learned that as it grows the leaves should be closed together and bound with the long twist-tie we see when it shows up at market, so it will have that distinctive elongated head. I now think of Romaine as the veal of the lettuce world.