Editor’s Note: This post was originally published on Seattle 2.0, and imported to GeekWire as part of our acquisition of Seattle 2.0 and its archival content. For more background, see this post.
By Nathan Parcells
As a team comprised of first-time founders, our relative naiveté to the challenges of creating a successful company has in some ways been an asset, clouding our vision of how high a mountain it is that we are climbing. I was initially driven to jump on board InternMatch for two reasons– one I was excited to build a really large and profitable business, and two I felt strongly that InternMatch could help under-privileged and under-financed students gain access to previously inaccessible opportunities and create a scalable social good. These dual goals have been both a core motivator of our team and have created additional challenges when assessing what success looks like.
I thought it would be interesting to write two posts, knowing what I do now on the challenges and benefits of starting a company with a social bent.
Social Entrepreneurship
When starting InternMatch we got really fired up by the idea of social entrepreneurship, which is a concept that is rapidly growing in popularity on campuses nationwide (although significantly less so in funding and support channels which I will touch more on later).
The main idea behind social entrepreneurship is that there are social problems that need to be solved and that the answers to these problems can also be extremely profitable. The profit makes the solutions scalable, offering higher social and monetary returns. (Note: the actual definitions of social entrepreneurship are really varied but to me the number one need is a scalable solution which 99% of the time requires some sustainable revenue stream).
The big issue as mentioned above is that despite the growth of the social entrepreneurship concept in academic and intellectual circles it does not have the support structure to allow entrepreneurs to differentiate themselves when talking to investors.
There is No Middle Ground:
Right now new ventures determine early on what the core of their mission is and choose to be either a for-profit company or non-profit organization. While the government recently developed the new B corporation filing status, it is still in its very early stages and lacks the funding, legal, and mentorship infrastructure to make it a practical alternative. From what I can tell filing for a B corp right now is the equivalent of committing entrepreneurial seppuku.
Jay Z says “I got rich and gave back so that’s the win-win.”
While there are investors who invest heavily in both startups and non-profits almost none will give a discount to startups with a social externality. One of the reasons it is hard for investors to consider a middle ground is that it muddles the alreadydifficult and emotional process of putting a lot of money towards a risky venture. On the one-hand when investing in a for-profit, without at least the possibility of making a hockey stick return, it is hard to justify the risk.
On the other, when donating money it is much easier to rationalize giving away money if you are supporting a hard-working non-profit or foundation rather than some business that is making their own profits (even if the NFP is significantly less impactful overall than the for-profit).
The thing that bothers me is not that I think for-profit social companies need a discount to succeed – there are plenty of companies from Tesla Motors to Seattle based EnergySavvy who prove this is not the case; however, there are a lot of really smart investors who I don’t think are maximizing their interests? Compartmentalizing money by putting for-profit companies on one side of the fence and putting giving and non-profits on the other may make life easier but is it really the best use of time and money?
How social ventures win now:
Plenty of companies have already bucked the trend and have begun building companies with the additional challenge of a double or triple bottom line. Tesla is tackling the enormous challenge of building a high selling car that also revolutionizes auto emissions. In Seattle, EnergySavvy is building a fantastic company that generates leads for consumers looking to save money by insulating their house with green building practices.
But, I can’t shake this feeling that there are some great companies not getting off the ground, because they are interested in trading some margins for social good, and that there are people out there for who investing in such companies would solve two of their deepest interests, but who don’t get involved because the structure does not exist.
Next week, in Part 2 of the series I want to drill deeper into the benefits and challenges for for-profit companies who currently operate with a social mission and I want to propose an alternative to the floundering B corporation. I would love your thoughts and feedback before next week.
