Gift Hub

Social Ventures with Two Bottomlines, Both Crooked?

Social Venture pump and dump? How, as a venture capitalist, can you inflate and dump (on unsuspecting buyers) a worthless startup, in which you are maybe the majority investor? And how can you do this with tax-deductible money? Via.

Philanthropy is a feel good business. It is along with patenting the human genome, and owning the food supply, or privatizing the water supply, one of the last things for capitalism to exploit and corrupt. Yet against that observation, capitalism, venture investing, mission aligned investing, honesty, solidarity, sustainability, and love can be well-aligned too. We just have to be careful and look at these deals with open eyes. They are subject to financial and tax abuses. They are also subject to the abuse of our trust and good will. As abuses abound, regulation will follow, causing unintended harms in their turn. For now it might be better if we use public opinion to ferret out and shame those who use double bottom line rhetoric to pick our pockets.

Profits versus Starvation: A Balanced Biofuels Scorecard

The headline reads, Biofuels Under Attack as Food Prices Soar. Doesn't this story serve as reductio ad absurdam of double bottom line accounting? We can say that a biofuels company does well by doing good in that it makes a profit while reducing global warming.  Young idealistic college grads flock to the firm. Social investors pump in the social investment dollars. Presidents beam. Then it turns out that every 100 gallons created costs the life of a child in Biafra. Now, as the PR person for the biofuels company, what data gets into your advertising? As the double bottom line accountant, in the spirit of Jed Emerson, what data makes it onto your balanced scorecard? These are ethical and political issues, and they partake of the nature of tragedy, which Hegel characterized as a "splitting of the ethical substance."  What international body will develop a balanced scorecard to balance benefits for rich and poor in developed and undeveloped countries? And through what process, elective or otherwise, will that body draw its legitimacy?  

Here Comes the L3C Structure for Social Investment

In Trusts and Estates, unfortunately not available on line, David T. Leibell & Daniel L. Daniels, partners in the Stamford, Conn., office of Wiggin and Dana LLP, report that several states are on the verge of inaugurating a new type of low-profit entity, the Low Profit Limited Liability Company, or L3C, that could make it possible for many foundations, who may currently be leery of program related investments, to prudently practice social venture philanthropy. In essence the new corporate form is designed to make it possible for foundations to invest in a mission aligned for-profit venture in such a way that,

1. The foundation would provide a goodly portion of the seed money for a start-up.
2. The L3C would be organized so the foundation buys down the investment risk for others investors. That is, the foundation bears the greatest risk of loss and receives a lower than market return.
3. The arrangement allows the remaining interests in the L3C to be marketed to purely economic investors.

Leibell et. al. conclude that at least one state, either VT or NC, will authorize the L3C this year. This could be a "game-changer" for mission aligned social venture investing.  Imagine, for example, that a pharmaceutical company owns a patent on a drug that cures river blindness. However, those suffering from the disease in Africa cannot pay much for it. So, the medicine has never been brought to market. Now imagine that an L3C is formed to purchase the patent and make the drug. A foundation makes the initial investment, and takes a low return. (The investment may be considered a grant, under the program related investment rules to which the L3C is accommodated.) Other investors now see that they can invest and get a competitive return. So the remaining dollars flow into the L3C which goes on to sell affordable medicine that saves the vision of hundreds of thousands of people.  (Some additional background on L3Cs from a foundation perspective is here.)

Doing Good within the Ethos of Business

David Brooks in The NY Times:

Earlier generations of benefactors thought that social service should be like sainthood or socialism. But this one thinks it should be like venture capital.

Good article, well-informed and balanced. Connects Bill Drayton and Bill Gates as exemplary of a new breed of highly educated, results-driven, "social entrepreneurs" whose preferred style and language is that of business. 

Ex-Cons make the Best CEOs and Presidents?

Is success in running a drug smuggling operation, or in achieving high rank in a street gang, predictive of success (with proper training) in business, or for that matter in high government office? Early indications are positive. I question the premise, though, of recruiting these future leaders from the prisons. Don't we want to recruit our future leaders of business, the CIA, Homeland Security, regulators, lobbyists, newscasters, and the Judiciary, from the ranks of pimps, whores, murderers, and bandits who have not been caught? Wouldn't they be our best bet, from a Darwinian meritocratic perspective?

Tax Court Eyes Social Enterprise

Jeff Trexler, JD:

The world of social enterprise is not the world of the tax code; if you want to survive you must adapt.

Social Investors Asphyxiated

Is social investing a vanity project, a luxury good? So the estimable Jeff Trexler suggests in response to an earlier post here. Jeff files his posts under various categories. This one goes under, "we are doomed," among other categories. Perhaps it might also go under "magical thinking." Money, our Monkey-God, will save us, if we invest it right.  If Bill Gates buys the Rain Forests, perhaps our children will breath. More likely no one will invest in the Rain Forest and our social investors will suffocate with the rest of us, only in plusher surroundings. Imagine New York as Pompeii, only instead of ash, the citizens perish of Co2. What moral will visitors from another planet draw about the wisdom of crowds? Darwin was right. Maybe there is a reason why the wealthy are booking flights to outer space.

Doing Well by Doing Good is One Option Among Several

Are virtue and profit well correlated for business enterprises? A new Harvard Business School study by Joshua Margolis and Hillary Anger Elfenbein finds little correlation between doing well and doing good, other than doing very bad things (and getting caught) is bad for business.

The Choice of Hercules

Hercules as a Social Venture Entrepreneur choosing at the cross roads between Virtue and Profit.  The Cherub at his feet is Self-Deception, holding his Mother's hand.

Social Enterprise and the Recency Illusion

Jeff Trexler at Uncivil Society:

Instead of an unprecedented revolution, what we might be seeing in social enterprise is just the latest in a series of selective attention cascades, in which a new generation of do-gooders--a web of students, researchers, retirees and emerging entrepreneurs--clusters around an organizational metaphor that seems new to them. What is new, though, is not so much the underlying structure as our awareness of the metaphor itself.