How to Do Well With 3 Types of Do-Gooder Investors

How to Do Well With 3 Types of Do-Gooder Investors
Image credit: Shutterstock
  • ---Shares
This story appears in the April 2016 issue of Entrepreneur. Subscribe »

Many startups come to me today with dual bottom-line goals: They want to profit and fund a humanitarian bent. They’re often inspired by Warby Parker, the hip-eyewear seller that donates specs to people in the developing world. I salute these founders’ intentions, but they may not realize how hard a social mission slams into investors’ short-term expectations. As a venture capitalist, I almost always have to take a pass. But the well-intentioned aren’t out of luck: These are three potential paths they can take.

Benefit Corps. They’re commonly known as B Corps, and they bake in protections from investors who want to compromise a startup’s social conscience in the pursuit of maximizing shareholder value. If you make yourself a B Corp, investors know what they’re in for when they buy in. How does that play out? We’re all finding out together: B Corps have been authorized for only a few years in most states. (Warby Parker is one of them.)

Low-Profit Limited Liability Company (L3C). Like B Corps, L3Cs enjoy protection from activist investors -- but it’s their unique access to capital that sets them apart. They act like a B Corp in purpose but enjoy the benefits of a nonprofit in tax structure. That means they can legally receive investments from large mission-driven foundations that can invest only in nonprofits. Foundations may prefer putting money in L3Cs because it enables them to pursue their mandate while hopefully earning a return.

Impact Investors. These investors are often ideal. Usually, they take the form of high-net-worth entities such as corporate or personal foundations -- the Gates Foundation or the more recent Chan Zuckerberg Initiative, for example. They’re more interested in advancing a cause, which means they’re more tolerant when purpose starts to trump profits. But beware: They may be so taken by your cause that they disregard your stability. Other investors will notice this and may stay away.

So good luck, do-gooders. Don’t despair if your pitch falls flat on Sand Hill Road. Just remember this: It’s a lot easier to save the world when the bottom line is strong.    

Edition: July 2017

Get the Magazine

Limited-Time Offer: 1 Year Print + Digital Edition and 2 Gifts only $9.99
Subscribe Now
OK

This website uses cookies to allow us to see how our website and related online services are being used. By continuing to use this website, you consent to our cookie collection. More information about how we collect cookies is found here.