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Raising Money from Double Bottom Line Investors:
An Entrepreneur’s View
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The Importance
of RISE
Given these
lessons, I cannot emphasize enough the importance of the RISE directory.
For the first time, there is a resource that lists a large number of
investors and investment firms that invest in double bottom line
businesses.
When a
traditional start-up is trying to raise money, not only is there a
strong word-of-mouth network for many entrepreneurs, there are
extensive resources online and offline for finding investors of all
types. This has not been
true for activist business people.
If the RISE
directory had existed years ago, companies like CitySoft would have
been able to find capital much more easily. We would have saved countless hours of effort
searching for the right investors, hours we could have used to build
our businesses and activism.
On a larger
scale, if the RISE directory and similar resources had existed years
ago, who knows how many more activist businesses would have been
created and would have survived.
With RISE and similar resources, the inefficiency and
"friction" in double bottom line business formation is being
reduced quickly.
The Importance of
Double Bottom Line Capital
By listing
a large group of funds that have social interests, the RISE directory
helps to identify a growing movement of double bottom line capital without which it
would be difficult to develop activist businesses.
At the risk
of preaching to the choir, the rise of DBL funds over the last 20 years
represents one of the most important innovations in the capital
markets. This change is
real and is important for several reasons.
The main
reason is that the old development model of purely profit-maximizing
business at one end of the spectrum and purely charitable non-profits
at the other end stifles social change Jed Emerson has described the
shortcomings of this approach as applied to foundation giving in a
recent article in the Stanford Social Innovation Review, writing, "Historically,
foundations have maintained this impermeable wall between investing and
programming – the idea being that what's business is business, and
what's social is social, and never the twain shall meet." The assumption that making a
lot of money and then giving some away to charitable causes will result
in long-term meaningful change is wrong. This approach can seem to work in individual cases,
but in aggregate it creates a social structure that actually
perpetuates and "locks in" many of our most challenging
social problems.
A case in
point is urban development.
It is common knowledge that problems in America's inner cities
result from lack of jobs and wealth. However, when faced with this obvious causality,
"leaders" in the business, public, and non-profit sectors too
often prescribe social services as a "solution" to the
problem of lack of jobs.
My favorite example is from a highly committed colleague in
social work who had been tossed out of an inner city planning meeting
by local residents. When
asked what the problem had been, she said, "They asked for jobs and
we offered them a dental clinic."
Wouldn't it
be easier to invest in job creation?
To see the
absurdity of the old model from another perspective, consider
this. When wealthy people
want to create wealth and jobs, they invest in business and demand a
return on their investments.
When wealthy people want to create wealth and jobs in
the inner city, they give away billions of dollars a year in
the form of grants – with a guaranteed 0% return. They actually prevent capital
from doing what capital does best: creating opportunity, focus,
discipline, and accountability around the process of creating wealth.
Meanwhile,
while all this grantmaking is taking place, businesses that can or
would provide paying jobs to residents of inner-city communities have a
very difficult time getting debt or equity capital despite the fact
that many of them could actually provide returns on the money which
could be put toward additional productive uses.
When the
most successful segments of society abandon the skills and tools that
made them successful to deal with urban challenges, we have a problem
that charities alone will never fix.
Enter
double bottom line investors.
By managing
economic and social interests, double bottom line investors are better
able to provide capital where it is really needed. They can have more impact than
services alone can. For
example, the vast majority of inner city residents will never work in a
company that receives venture or other high-risk, high-return
investments. And yet, a
disproportionate amount of capital is focused on those businesses (and
on 0% return grants) to the exclusion of the businesses that employ
most of the people who live in the most challenging neighborhoods.
If you have
made it to the end of this article, it should be no surprise why I
consider the emergence of the RISE directory and its pioneering funds
to be the most interesting and important innovation happening in the
capital markets.
Nick Gleason is Founder and CEO of CitySoft and
Founder of CitySkills.
Both organizations seek to improve technology opportunities in
lower-income communities.
Nick's career has spanned the private, public and non-profit
sectors. He can be reached at
ngleason@citysoft.com.
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