The MBA Venture Fellows

by Molly Deringer, Entrepreneur Services Manager

When I began working in the Entrepreneur Services department at Investors’ Circle, I received the equivalent of a crash course in social entrepreneurship and business plan evaluation. By participating in the review of applications submitted to the network, reading the company evaluations completed by our member investors, and listening as investor committees discussed both the appeal and the weakness of a particular company, I learned a considerable amount about early-stage business in a short period of time. Today, with the new IC Venture Fellow program, we’re able to offer this unique learning opportunity to a new generation of leaders in the social venture space.

A bit of background: Every six months, Investors’ Circle initiates a new cycle of deal screening in preparation for the next national conference and venture fair. Our company selection process lasts about 3 months, immediately following a company application deadline. Roughly 95% of the deals submitted come in at the 11th hour before the deadline. Before sending company applications along to committees of our investors, it was the job of Investors’ Circle staff to do an initial review of each application and determine whether a company would make our first cut. During a 10 day period, it would be my job to do a first screen on roughly 250-300 company applications. As you can imagine, the level of scrutiny I could apply to each company was minimal. A good brunt of the “winnowing down” work was passed on to our investor-led selection committee members who were only given a couple weeks to review deals themselves. Each season, we ended up with a stellar group of presenting companies at our venture fair, but the process for getting there left something to be desired.

I’d been ruminating on the question of how to bring additional eyes and minds into the initial application screening process when Napoleon Wallace of UNC’s Kenan-Flagler MBA program visited our office last summer. Napoleon was meeting with K-F alumn Deb Parsons when he mentioned a proposal he’d put together as part of a class project that would integrate MBA students into the IC process. Obviously, my ears perked up.

Napoleon and I worked together to develop a proposal for the inaugural IC MBA Venture Fellow program which began August 2009. Despite our concerns that the program would conflict with students’ internships and the start of a new semester, we received 30 applications that season. The fellows completed their assignments on time and with great thoughtfulness. As a result, we were able to send just 15 to 20 proposals on to each of our member-led selection committees, as opposed to the 40 or 50 proposals sent the previous season.

More importantly, through the venture fellows program, Investors’ Circle is able to provide the next generation of social investors and innovators with exposure to real early-stage social enterprises while building the social investment community. Anne Katharine Wales a second year MBA student at Wake Forest University, comments, “The Venture Fellows program offered me an opportunity to evaluate real time deals and at the same time gave me a chance to work with some top MBA students from across the nation.” Students also find the program to be quite synergistic with their academic curriculum, providing them opportunities to apply theory learned in the classroom. Dominic Hofstetter, a two-time IC venture fellow from Chicago Booth School of Business, notes “There is only so much you can learn at school about making decisions under uncertainty. But by scrutinizing more than 30 business plans over a two-week period, with real consequences behind my evaluations, I was able strengthen my intuition about what a good business plan should look like.”

Investors’ Circle’s mission is to promote the transition to a sustainable economy through direct investment, innovation and inspiration. Through the Venture Fellows program, we hope to inspire MBA students to pursue a career in social enterprise or investment while providing them with the tools and knowledge to excel in that career. Jorge Mas Saavedra a student at Babson’s F.W. Olin school of business who has also been working in the Ashoka Changemaker Campus Initiative, says, “Being part of the IC Ventures Fellow program has given me the complimentary tools needed to carry these projects forward and make them a true success. It has given me a more broad vision as to the future of investing in order to alleviate the pains of this world.”

At our Spring Conference in San Francisco, we will invite several of our MBA Venture Fellows to participate as special volunteers where they can see the companies they’ve reviewed present, meet our member investors, and join in as active members of our community. Napoleon Wallace, who attended our Fall 2009 Conference and Venture Fair, commented boldly that the event was “the highlight of my year”. Through the MBA Venture Fellow program, Investors’ Circle is able to serve its entrepreneurs and members more effectively, while creating new opportunities to include younger, enthusiastic members of the social venture community.

A Fresh Perspective on Investing for Impact

by Rosie Sharp, Undergraduate Fellow

Greetings from IC’s new Undergraduate Fellow, Rosie Sharp! As a newcomer to the socially-minded private equity space, I hope to provide some valuable insight and a fresh perspective for newbies and seasoned vets alike. I’ll attempt to delve into the field of ethical investing and answer the question “What is investing for impact anyways?”

As a college student who is fairly new to social entrepreneurship and brand new to the investing landscape, angel investing and socially responsible investing (SRI) are new and exciting, bringing innovative ideas and start-ups to realization with money.

Through coursework and a field study program in South Africa through the Social Enterprise Institute at my university, I’ve learned about social return on investment (SROI) as well as business models and performance criteria for social enterprises. However, I have not yet learned about how you get the financial support to advance the social missions you feel passionate about in order to make real impact. A professor of mine, an extraordinary social entrepreneur himself, used to ask us in class, “How do we get the rich to invest in the poor?” in reference to how we scale the flow of capital into microfinance. Looking at the larger spectrum, this thought has always sparked a different question in my mind, “How do we flow capital to the issues and the social causes that we really believe in?” The answer is through business, through market based, mission-driven businesses, and in reality that’s exactly what Investors’ Circle does. Although start-ups may be a much riskier investment than micro-credit borrowers, who have a better repayment rate than student loans or credit card debt, there is one thing that connects the two: vision.

Angel investors bring vision to life in the same way micro-loans bring business to life for entrepreneurs. Angels see the same North Star as their entrepreneurs, they share a dream for a better world, and they bring their commitment to the issues and their faith in the company to fruition through investment. Summed up in a cheesy phrase that is rarely applied to private equity and business: they make dreams come true.

So, angel investing can simplify to this: Intelligent, ambitious entrepreneurs have innovative ideas that they grow into businesses. Those businesses need money beyond what can be raised through outreach to friends, family, or traditional capital markets (banks or debt equity). Angels adopt these entrepreneurs’ goals as their own and invest in hopes that one day these seedlings will grow to be big and successful. The extra ingredient in this space, however, is that the angels and the members of IC have a passion for social and environmental change. The success of their investment means that a greater good will have been done and that collectively we are one step closer to a better world.

Many members have been entrepreneurs themselves and understand the pitfalls of young companies. They seek solid, successful companies that will generate profit, but at the bottom line, they want positive change. They want double and triple bottom lines that reflect respect for the environment, respect for humanity, and strong corporate responsibility. They have realized that the destructive means by which many achieve wealth is not a sustainable way to achieve global well-being. This is not to blame tradition or institution, but is rather a call to action for all of us, whether we are angels or not, to integrate our values into everything we do.

So, my question is this: How do we get more people to put their money where their mouth is, to use private capital to promote social change? This idea of merging capital with our morals and beliefs may seem like oil and water in terms of traditional business, but for the new generation of social entrepreneurs and to Generation Y, I feel this changing.

Though many may argue that there are better ways to progress social and environmental change, socially responsible investment and mission-driven businesses will play crucial roles. As part of a new generation of social entrepreneurs, I am hopeful that Gen Y will begin incorporating their personal beliefs and morals into their professional lives. And although it may be naive to have hopes this high for the next generation, if we don’t aim high the outcome is far scarier.

Negotiating an Angel Round Term Sheet by Jonathan Storper

Which provisions in an “Angel round” term sheet are negotiable?  All of them. Yes, you may frequently hear that certain terms are “market” and that there is no room to negotiate in connection with such terms if you want early stage funds. But the reality is that the term “market” is often over-used in the investing world. It is certainly true that a number of provisions are almost always found in term sheets for equity financings. The parameters of such provisions, however, are frequently changing and are almost always open to some amount of negotiation. The market is fluid, changing over time, from industry to industry and often deal to deal. The influence of market conditions matter less if a company or investor has leverage in any particular transaction.  While the venture capitalist will draft the term sheet when it proposes to invest, the company often drafts the term sheet for Angel investment offerings.

This article discusses ten provisions you can almost always expect to see in a term sheet, as well as the parameters of such provisions in negotiations.

1. Valuation.  Valuation is probably the most important issue a company will face in negotiations with Angels and the most negotiable, especially for early stage companies. Valuation refers to the value of your company before the investment, and determines the price of new money coming in. The lower the value that is placed on your company, the higher the cost of investment money since your ownership of the company will be diluted to a greater extent. Valuation is negotiable because it can be nebulous for an early stage company and can be estimated in any number of ways. The outcome of negotiations over valuation will depend largely on your knowledge of your company, your market and your competition. You will need to do your homework and attempt to ascertain valuations used for similar companies that have recently completed equity financings.

You should be able to demonstrate the value of your company at some point in the future. If your company is in the early stages, it may show tremendous potential but may not see any earnings for some time and losses may be likely for the initial years of operation. Thus, you should develop financial projections setting forth the value of your company at or around the time that your investors will likely exit, typically 4-7 years after an initial investment is made. This can then be discounted to present value, which may serve as the basis for valuation of an investment. The stronger the case that you are able to make, combined with empirical evidence to back it up, the higher the valuation is likely to be. You should be able to conduct valuation research online, and by inquiring with acquaintances in your industry. There are also services that collect information about private company investments and make them available to the public for a fee.

2.         Liquidation Preference.   For the risks associated with investing in an early stage company, investors will typically require a premium on their money. Liquidation preference refers to the right of an investor to receive a return prior and in preference to other investors on liquidation or sale of the company. Liquidation preferences are usually expressed as a multiple, e.g., 1x or 2x, meaning a return of one time (1x) or two times (2x) original investment. In the early part of this decade, liquidation preferences were known to reach 3x or higher, meaning that certain investors were entitled to receive three times their investment before founders and others received anything! Today, it is much more common to see liquidation preferences of 1x, but the multiple will really hinge on the risk perceived. The company should also try to limit the definition of liquidation to exclude such things as subsequent financings in order to avoid paying a liquidation preference in the first place.

3. Participation.  After the receipt of a liquidation preference, the next issue is whether the investor is entitled to participate with other stockholders in remaining proceeds. This is not uncommon, especially with lower liquidation preferences. The higher the liquidation preference, the more the company should focus on eliminating or minimizing participation in the remaining proceeds. One way to do this is to propose a cap. Once a certain dollar amount is allocable to the investor on liquidation, the company should push for eliminating or minimizing the investors right to the balance.

4. Antidilution Protection.  In most instances an Angel investor will require protection against dilutive stock issuances in the future. This protection usually takes the form of adjustments to the price at which preferred stock (the type of stock that an Angel investor typically receives) converts into common stock, meaning that the investor may ultimately be entitled to receive a larger piece of the company. The negotiation concerning antidilution protection usually concerns the adjustment mechanism used. A broad-based weighted average adjustment mechanism is the most company-friendly and considers the effect of a dilutive issuance based on the broadest possible base of existing equity interests. Narrow-based weighted average may exclude existing interests such as options or warrants and results in a larger reduction to the conversion price. Full ratchet means that the conversion price of preferred stock is adjusted downward for a dilutive issuance on a dollar-for-dollar basis, and is the least favorable to the company. The effects of anti-dilution protection can be mitigated by eliminating certain issuances from the definition of “dilutive issuances.” For instance, stock that is anticipated to be issued to employees or service providers at below market prices for incentive purposes might be eliminated, meaning that such issuances will not affect conversion price.

5. Dividends.  In most instances, investors are not investing in early stage companies with any expectation of dividends. Thus, the most common dividend provision provides that dividends will be paid when, as and if declared by the board of directors. The company should resist cumulative dividends provisions, providing that dividends will cumulate at a certain rate (e.g., 8%) until paid, though some investors will insist on such terms.

6. Protective Provisions.  Angel investors typically hold a minority interest after completing an early stage investment.  It is common for venture capitalists to receive special voting rights that permit them to block certain actions or events. Angels make ask for the same type of rights.  For instance, it is not at all uncommon to require a separate preferred vote on amendments to organizational documents that would affect preferred shareholder rights. Founders should focus on limiting such protective provisions to events that directly impact the rights and returns by investors and avoid provisions that give investors control over general business and corporate decisions. This is often a fine line. If and when additional series of preferred shares are sold, companies should endeavor to ensure that protective provisions apply to all such series voting together as a class, rather than separately to each series.

7.         Redemption. Investors may want the right to require the company to repurchase their stock at some point in the future. This makes an investment similar to debt in many respects. While such a right is not likely to be exercised unless an investment has or is heading south for all, the company should resist such a right on the grounds that the company is looking for an investor and partner, not a lender. Some investors are not insisting on this provision these days because it is not used often, and they may prefer to concentrate on negotiating a favorable valuation.

8. Pay-to-play.   Pay-to-play provisions are designed to encourage the participation of existing investors in subsequent rounds. There are two basic pay-to-play provisions to consider. The first eliminates anti-dilution protection if an investor fails or refuses to invest in a subsequent round with a per share price less than that paid by the investor. The second forces conversion of preferred stock held by investors into common stock, resulting in the loss of all preferences and privileges appurtenant to preferred stock if the investor fails or refuses to participate in a subsequent round. Pay-to-play provisions are not as common now as they were a few years ago but are sometimes supported by investors who want to encourage the participation of all investors in subsequent rounds. There also may be differences between the expectations of east and west coast investors on this issue.

9.         Vesting of Founder Stock.  The savvy investor will want to ensure that founders have contributed sufficient value to justify a proposed investment and are incentivized to stay with the company at least until certain milestones are achieved. It is not uncommon, however, for founders to provide that their stock is owned and fully vested upon issuance. To ameliorate concerns, investors often request that founders agree to subject their shares to vesting provisions, for instance 25% a year over the next four years. Founders should at a minimum request credit for time worked prior to investment and consider requesting a shorter vesting period (e.g., 3 years rather than 4) and monthly increments. Founders should also request acceleration in the event of a change in control or termination without cause.

10.       Board Composition.   Early stage companies should endeavor to keep their boards fairly lean. That said, significant investors will almost always want at least one seat on the board and perhaps more depending on the amount invested, the number of investors and the level of control sought. If a group of Angels is making the investment, then it may require that it be allowed to appoint a board member.  For an early stage company, you might negotiate for a three person board with one seat filled by an investor representative. Alternatively, and not at all uncommon, is a five person board with two seats filled by the vote of common, two filled by venture capitalists or a group of angels and the final seat filled by an industry expert acceptable to both the preferred and the common stockholders. Negotiation will of course focus on the final seat and will in all likelihood concern such things as whether preferred and common vote together as a single class or separately to elect that member of the board. The outcome of such negotiations will, again, depend on the amount invested and the level of control sought or required.

The key point to remember is that it doesn’t hurt to ask. You should work carefully through the ramifications of each and every term in a term sheet, asking how it may affect the company’s performance, management, incentives for founders and employees, and the possibility of raising additional funds in the future. If you do not like the answers to your questions concerning any term or condition, then the parameters of these terms and conditions should be explored and you should request changes to terms proposed by the investor that you believe may be difficult for the company to live with on a going-forward basis.

Jonathan Storper is a partner with the law firm of Hanson Bridgett LLP, with expertise in corporate law, sustainability and social entrepreneurship, among other areas of the law.   In addition to serving companies that deliver environmental and social benefits along with profit, Mr. Storper has advocated in legal and political venues in the US to accelerate the uptake of positive-impact businesses, including the establishment of a legal structure, and tax benefits, for those enterprises.  Mr. Storper speaks widely on the topics of clean-tech and sustainability, and is based in San Francisco, California. He can be reached at 415.995.5040 or jstorper@hansonbridgett.com.

What we see: Trends in social enterprise

Every six months, Investors’ Circle is afforded a unique look into the developments and trends in the social enterprise space as well as a gauge on how potential investors are reacting to new businesses. During our application screening process we get a high-level look at what’s popular, what’s no longer exciting, what spaces are too crowded, etc.  Below is a sketch of some of the trends and curiosities we’ve seen over the last six months:

Consistent and Lasting Trends:

-         Boom in biofuel projects including power generation, fuel production and the technologies in between. Proposals show exploration of new feedstocks including algae, jatropha, sewage oil, etc. Several projects are also looking to source feedstocks from the developing world. However, investors’ issues remain: Uncertain barriers to entry, questionable carbon equations, inputs that compete with food supplies.

-         Wind and Solar Power solutions are a consistent presence, and with good reason! There is still plenty of “room” for technologies and models that make solar more efficient and affordable, offer pricing and installation solutions to bring solar to a wider group of residential and commercial users, and determine how to locate and develop wind power projects to reach a critical scale.

-         Diverse and plentiful green transportation solutions: Everything from websites that help you plan trips to hydrogen fuel cell cars, better batteries and adult tricycles.  Some projects are simple and some quite farfetched. One thing we agree upon: someone will win this challenge, even if it means defying the entrenched car culture.  The “who” and the “how” remain to be seen.

-         Beverages, Beverages, Beverages. New teas, healthy sodas, sustainable coffee, exotic juice. We always see lots of beverage companies but few make a great case about their ability to compete in a difficult, crowded market.

-         The all-purpose GREEN website, complete with online sales of green products, green product ratings, social networking, compelling stories, tips on how to go green, etc. Proposals for these businesses are a dime a dozen.

New Trends:

-         Emergence of Carbon Credits as a revenue source. A number of businesses are being built around the model of selling carbon credits as a source of revenue, either directly or via consulting or software sales for businesses developing their own carbon accounting systems. The carbon market in the US, however, is very premature and our Investors are left asking: Where are carbon credits liquid? What will happen in Copenhagen? What entity does the external verification?

-         New lines of sustainable home-ware. Filling the space between organic food and green building products, a new range of brands and products are supplying environmentally friendly alternatives to your everyday products: toothbrushes, silverware, dishes, Tupperware, water bottles, plastic wrap, etc. They’re employing a number of materials including recycled plastics, biodegradable plastics, bamboo,  palm, sorghum, etc.

-         Alternative banking and lending services are cropping up left and right. Either as a response to the recent economic crisis or due to good timing, we’re seeing a lot of solutions for providing banking services to the unbanked and for providing lower interest loans from non-traditional lenders or with new lending models. Community development banks are not a new concept, but are now better positioned and offering more attractive value propositions.

-         Focus on kids’ nutrition. We’ve seen lots of companies focusing on healthier snacks and meals for kids at home and in schools, whether that means producing natural and nutritious packaged foods especially targeted at kids or overhauling the traditional school lunch.

-         Smart systems for managing building energy. A number of new technologies employ software, monitoring systems, automated adjustments, etc. to help both homeowners and commercial building operators reduce their energy use.

-         Tools and services for the elderly. We’re seeing new offerings enabling elderly people to live independently longer, to manage healthcare treatments, etc. In addition there’s a new focus on the elderly population as a specific target market for media.

-         Home, roof-top or backyard gardening tools. Businesses are capitalizing on the recent popularity of home gardening and providing a range of tools, kits, grow boxes, services, and even modular green houses to help the average American do as Michelle Obama does.

On the decline:

-         Website for personal healthcare and social networking around health topics. Whether it’s that people no longer trust the web for health-related advice, that there were simply too many sites launched around the same time, or that early models failed to become profitable businesses, we’re seeing less of these models among our proposals.

-         Organic as “enough” to create a successful brand. Compared to a few years ago, turning a conventional product into an organic one and naming it is no longer a sufficient strategy for creating a new food brand. The potential winners in the natural foods space seem to be those that also focus on the sourcing of their ingredients, especially in ensuring products are fair-trade, and those that are bringing a new ingredient to the market or re-introducing that ingredient based on its health benefits.

We have 22 outstanding companies presenting across several categories at our Fall Conference and Venture Fair. It will be exciting to see how the investors respond to these winning proposals.

The New Generation of Social Entrepreneurs

The explosion of social enterprise programs at the university level is radically changing the evolution of entrepreneurship.

When Investors’ Circle opened its doors to mission-driven companies in ‘92, for-profit social entrepreneurship was still in its infancy. Many IC entrepreneurs had ground-breaking ideas with the business experience and passion to break out from the pack and transform their respective industries (e.g. Stonyfield Farm, Zipcar, and Evergreen Solar). These companies came to the Investors’ Circle community because access to capital and general support for social entrepreneurship was largely underdeveloped.  These companies didn’t benefit from today’s progressive business networking groups like Net Impact, internship opportunities at world-renowned mission-driven businesses, and green MBA programs.

We are now on the brink of seeing a new generation of entrepreneurs who are armed with better access to resources and educational opportunities tailored to support their social endeavors. We tip our hat to a few (of the many!) stand-out universities and non-profits working to increase student interest in social entrepreneurship through competitions:

Academic Institution Competitions

1.) Carnegie Mellon: McGinnis Venture Competition

Prize: $20k, Sustainable Technology track

This competition revolves around new technologies and helping MBA students move from the dorm room to the board room, bringing new businesses to life.

2.) Duke: Duke Start Up Challenge

Prize: $5k, Social Entrepreneurship track

This entrepreneurship competition runs the course of the academic year and provides teams with feedback to help with development of the business concept into the next phase and beyond.

3.) Georgia Tech: Business Plan Competition

Prize: $4k (divided between 1^st, 2^nd, and 3^rd places), Ideas 2 Serve track

In the I2S Competition, teams develop an idea concept, initial business model, and feasibility analysis for venture concepts focused on the triple bottom line.

4.) Harvard: HBS Business Plan Contest

Prize: $25k for 1^st place and $10k for 2^nd place, Social Enterprise track

The Social Enterprise Track of the HBS Business Plan Contest aims to educate about the process of creating and evaluating new ventures that have a central focus on social value.

5.) James Madison University: Sustainable Business Plan Competition

Prize: up to $50k

This competition provides a forum for entrepreneurs to refine sustainable business concepts for ventures in seed, start-up or early-growth stages.

6.) MIT: MIT Enterprise Competition

Prize: $100k grand prize, features Development and Energy tracks

This competition encourages its participants to act on their talent, ideas and energy to produce tomorrow’s leading firms.

7.) Notre Dame: Social Venture Competition

Prize: $15k for 1^st place and $2k for 2^nd place

This competition focuses on business plans with social missions/purposes and fosters a spirit of collaboration between business and social ventures.

8.) NYU: Social Venture Competition

Prize: $100k

The NYU Stern Social Venture Competition was started to recognize and support the use of business and entrepreneurial skills to create innovative approaches to tackling social problems.

9.) Rice: Rice University Business Plan Competition

Prize: $20k, Dow Sustainability Award; $10k, Sheafor-Lindsay Social Venture Award

The Rice University Business Plan Competition (RBPC) simulates the real-world process of soliciting start-up funds from early-stage investors and venture capital firms.

10.) Seattle University: Harriet Stephenson Business Plan Competition

Prize: $2500, Social Venture Award

Seattle University’s annual Business Plan Competition is designed to helps launch new business ventures by providing an enhanced learning experience, generating feedback on ideas, and developing networks.

11.) Stanford: Stanford University Entrepreneurship Challenge

Prize: $50k

The Social E-Challenge is a business plan competition for entrepreneurial ventures whose primary goal is to effect social and/or environmental change.

12.) Tufts: $100k Business Plan Competition

Prize: $50k, Social Entrepreneurship track

The Social Entrepreneurship Competition was created to encourage thought on developing new ventures that benefit society.

13.) Tulane: Business Plan Competition

Prize: $20k, Social Entrepreneurship track

The Tulane Business Plan Competition has added a social entrepreneurship track to reward not-for-profit and for-profit organizations whose products or services serve the greater good.

14.) University of Colorado: Cleantech Venture Challenge

Prize: $25k

This competition features business plans that demonstrate venture-grade, for-profit business models that provide innovative solutions, services or products in the cleantech sector.

15.) University of Idaho: VIEW Business Plan Competition

Prize: $2k, Social Entrepreneurship track

The Social Entrepreneurship track is focused on developing innovative solutions for social or environmental problems at the local, national, and global levels.

16.) University of Michigan: Michigan Business Challenge

Prize: $5k, Erb Award for Sustainability

This competition stimulates the creation of new businesses that harmonize economic, environmental, and social considerations.

17.) University of Texas: Dell Social Innovation Competition

Prize: $50k for grand prize, $10k for environmental sustainability

This competition invites students to create change at home or worldwide with an innovation designed to tackle a significant social problem.

18.) University of Washington: Global Social Entrepreneurship Competition

Prize: up to $17k

The Global Social Entrepreneurship Competition (GSEC) engages creative minds around the world to encourage bolder and less conventional business solutions to global poverty.

19.) Wake Forest: Elevator Competition

Prize: $5k, Social Entrepreneurship Competition

The Elevator Competition for Social Entrepreneurship seeks socially-conscious entrepreneurs to share their world-changing ideas.

20.) Yale: Yes – Y50k

Prize: $1k, Social Venture Award

Each April, YES holds a two-day conference—the Innovation Summit—in New Haven to celebrate Yale’s dynamic entrepreneurship community.

Organizational Competitions

1.) AC-NET: Clean Tech Business Plan Competition

Prize: $25k for 1^st place, $10k for 2^nd place, and $5k for 3^rd Place

The Clean Tech Business Plan Competition supports ideas in energy and water technology.

2.) Global Social Venture Competition

Prize: $25k for 1st, $10k for 2^nd place, $5k for 3^rd place

The Global Social Venture Competition provides mentoring, exposure, and prizes for social ventures from around the world.

3.)     Clean Tech Open: Clean Tech Open Competition

Prize: $100k to 6 CA semifinalists, $50k to 3 Pacific NW semifinalists, and $50k to 3 Rocky Mountain Finalists

The Clean Tech Open Competition seeks out early stage clean technology companies and provides unique resources to empower these start-ups to become viable businesses.

4.)     DTE (with U of Michigan): Clean Energy Prize

Prize: $65k for 1^st place, $21k for 2^nd place, and $3400 for 3^rd and 4^th place

This competition calls for the best plan for bringing new clean-energy technologies to market in Michigan.

5.) Green Spaces: Green Business Competition

Prize: $8k for 1^st place and $1k for 2^nd place

The competition rewards investment funds to companies that have the ability to revolutionize their industry and create economic opportunities by working with NY ecological resources.

6.) MIT Enterprise Forum: Ignite Clean Energy

Prize: not listed

The Ignite Clean Energy Competition’s objective is to foster, nurture and energize the emergence of world-class renewable energy technology firms.

7.) NCIIA (with ASME): Green Business Competition

Prize: $10k for 1^st place, $7k for 2^nd place, and $5k for 3^rd place

ASME’s IShow provides the full experience of technology product commercialization, bridging the gap between engineering school practicum to business school theories.

8.) NCIIA (with U of Texas): IC2 Student Commercialization Plan Competition

Prize: $10k for 1^st place, $3k for 2^nd place, and $2k for 3^rd place

The IC2 competition’s goal is to encourage graduate students to commercialize technologies developed at their universities and to facilitate the resulting new ventures in obtaining funding.

9.) Walmart: Better Living Business Plan Competition

Prize: $20k for 1^st place, other $5k and $10k prizes

The Walmart Better Living Business Plan Challenge provides a forum for students to invent sustainable products or develop sustainable business solutions and present them to a panel of Walmart executives, suppliers, and environmental organizations.

10.) William James Foundation: Socially Responsible Business Plan Competition

Prize: $3k for 1^st place, $2k for 2^nd place, and $1k for 3^rd place

This competition supports the evolution of a sustainable global economy.

Getting ready for Washington DC, one funders outlook

As we prepare for our November Fall Conference in Washington DC we asked a few of  our members to provide context on our conference theme: Public and Private Partnership Opportunities.

Michael Gurau is Managing General Partner of Clear Venture Partner and an Investors’ Circle member.  He wrote this piece for our Fall Print Newsletter.

Stimulating the Small Businesses Market

As has been well covered by the business press, the current economic environment has dampened not only the business outlook for large and small companies but also their access to capital, both debt and equity.    This pullback comes at the very time when the need for capital is at its greatest.  Small companies have planned for revenue growth that may not arrive in the near term, exacerbating their capital requirement.  Small “capital gap” funding has never been easy to access—today’s economy has made the gap even wider.  With private markets out of the funding market in the near term, small companies must look to federal and state government programs for what equity, credit and grant funding might be available.

Your Tax Dollars at Work for Small Businesses.

In good economic times, the US government has played an important role in lending and equity markets, whether stimulating lending by lowering interest rates, providing SBA- and USDA-backed loans, offering Treasury sponsored tax credits, and—with the exception of the last eight years of the (recent) Bush Administration– matching private equity capital through SBA’s (www.sba.gov) Small Business Investment Company  (SBIC) program.    Since 1994, the US Treasury’s Community Development Financial Institution’s (CDFI’s) Fund has provided equity and grant capital to mission-centric community development organizations; the equity funding enables certified CDFI’s to leverage their private equity capital with that of the CDFI Fund (www.cdfifund.gov) for the benefit of small businesses in which they invest.

On the grant side, the feds have long provided early stage grant money in several forms: SBA’s Small Business Innovation Research (SBIR)  and Small Business Technology Transfer programs provide sizable R&D grants to small businesses (under 500 employees) so that these companies can get their share (alongside universities and larger corporations) from government-funded research dollars.  The US Department of Agriculture (www.rurdev.usda.gov) too, supports small businesses with its Rural Business Enterprise Grant programs, that support value-added agricultural businesses, including natural products businesses such as those my fund and IC has supported.

Stimulus for small businesses

The American Recovery and Reinvestment Act (ARRA) of 2009 is providing considerable stimulus dollars to and through those existing agencies that support small business–SBA, DOE, CDFI, USDA and Department of Commerce.   ARRA’s lending support comes in several forms—in some cases increasing capital to (and improving terms and rates) for existing borrowers; in other providing new and varied grant pools to address the impact of the downturn.    As part of its renewable energy push, the Obama administration also allocated grant funds to support small businesses’ efforts to improve their companies’ energy efficiency; USDA has loan and grant funds that support small businesses’ energy systems and efficiency.   Department of Energy (DOE) and Treasury offer tax credits and loan guarantees for commercial energy projects that leverage renewable. This would seem good news for clean energy investors such as my new fund-in-formation and IC investors. Recovery.gov is a supersite for recovery related info, while each agency has—on their relevant home pages—information related to its allocation of ARRA.

The State of the States

While most state economies have suffered budget contraction due to the downturn, many states have something to offer small businesses.  In my home state of Maine, the Maine Technology Institute (MTI—www.mainetechnology.org) provides both grants and (limited) early stage equity to companies that fall within its target technology clusters.  Maine and many other states offer early stage investment tax credits that provides incentives to individual and state-based entity investors to provide equity to early stage (often pre-revenue) companies.   Many states also fund –typically through a bond-issue–early stage venture capital programs—e.g. Small Enterprise Growth Fund (SEGF in ME), Massachusetts Technology Development Corporation (MTDC in MA).  While these program are facing many of the same issues as their private sector VC brethren, some (including  SEGF) are pursuing new state funding.

Outlook for 2009 and 2010

From an investors’ perspective, it is the best and worst of times–worst for investors who have existing fund commitments and no path to liquidity in their portfolio; best for investors—whether VC or individuals—with liquid capital in a market in which demand has never been greater.   The venture capital fund that I’ve been managing since 2001 is an SBIC-like program, called the New Markets Venture Capital (NMVC) program; the NMVC scheme mandates that fund managers drive eighty percent of their capital into federally designated underserved communities—in CEI Community Ventures’ case, in northern New England.  On March 12^th, the bi-partisan Congressional duo that advocated for that program in 2000 announced a bill (HR 1491) to refund the NMVC program so that regions less well served by capital may see resource for growth.   The new fund I am setting out to raise will pursue this capital for New England, should the bill pass.

For small companies, it’s going to be a rough couple years, marked by contraction, survival and fewer capital sources than any other in modern memory.  Early stage equity is going to be very hard to come by, but for the most promising opportunities.  Accordingly, small businesses need to look to federal and state sources coupled with some creative bootstrapping.

Michael Gurau is Managing General Partner of Clear Venture Partners (www.clearvcs.com), an early stage venture capital fund-in-formation targeting a $50-75M pool targeting select sectors (clean energy, health and wellness and IT) in underserved and distressed secondary New England cities and towns.  Clear is a new fund, wholly unaffiliated with CEI Community Ventures and CEI.   You can reach Michael at mg@clearvcs.com.

A New Measure of Success: Investors’ Circle Launches the IC 20

By Molly Deringer

As a network of entrepreneurs and angel investors, Investors’ Circle is acutely aware of the fact that launching and growing a business is an uphill battle. According to the Small Business Administration, less than half of all start-ups survive beyond four years after their launch.

Despite this humbling fact, social entrepreneurs continue to break new bounds and redefine success. It is clear that entrepreneurial spirit is alive and well. In the last 12 months, Investors’ Circle—an organization serving 200 accredited investors and 2,400 entrepreneurs—received over 600 entrepreneur applications to present to the progressive-minded investors in attendance at their exclusive Spring and Fall National Conferences.

Every six months, the organization screens deals, sends them on to investors, and supports them through the fund raising process. Since its inception, Investors’ Circle has funded $131 million into 212 firms. But where are these high-growth-potential firms today?  How have they grown and profited—and more importantly—how have they realized their human and environmental missions?

Compared to Venture Capital Funds, angel investor groups (Investors’ Circle included) tend to be notoriously poor at tracking the success of their investments, since each group’s “portfolio” is a mix of its various angels’ individual portfolios. As Jean-Luc Park of Calvert Social Investment Fund explains, “Angel investors have only themselves to answer to.  It is their money, and they can do what they want.  It is human nature to highlight the wins and diminish the losses.”

As an organization advocating for the crucial role that angel investors play in promoting social enterprise, Investors’ Circle recognizes that it is important to look back, assess its collective successes and failures, and draw inspiration from these lessons.

At the Fall 2009 Conference in Washington DC, IC will announce the IC 20: a list of the top twenty high-impact and profitable firms that have come through the IC network.  Covering seventeen years of ventures and accounting for financial, environmental, and social results, this unique list will be the main source for profiling fast-growing companies that are beneficial for both investors and society. Companies surveyed will be asked to report on several factors, including:

• Revenue Growth
• Job Creation
• Board and Employee Diversity
• Energy and Water Use

The importance of tracking the growth of a business is understood as fundamental to finance. Inc. Magazine has been profiling the top 500 fastest growing companies every year since 1982. Increasingly, however, businesses and entrepreneurship organizations are recognizing the importance of measuring a company’s social and environmental impact in addition to their financial success. Rockefeller Foundation, B Corporation, HIP Investor Inc, and Social Venture Technology Group are leading the effort to determine how to assess business impact. At the same time, a growing number of S&P 500 companies are self-reporting their companies’ impact on their business websites and to company shareholders. Today, Investors’ Circle is reconnecting with companies that approached the organization years ago with, for example—a two-person team, $50K in capital from the founders, a sound model, and a laudable mission—to find out where they are now. Are the “winners” the companies that were expected to take off all along? Are the pioneers of social impact also companies with the greatest revenue growth?

Ultimately, Investors’ Circle hopes that the IC 20 will help inspire a new generation of entrepreneurs. “The IC 20, like the Inc 500 and Fortune’s Best Companies to Work For, will highlight the new ventures that provide high growth, great jobs, inspiring products, and ultimately an attractive financial return and significant benefits for society. What could be better?” – Paul Herman, HIP Investor, IC Member.

• Visit investorscircle.net to see who’s been funded through the IC network.
• If you have your own business venture that delivers profit and impact, submit a proposal by July 31^st.
• Be a part of Investors’ Circle this November in D.C.

One Month Left to Apply for IC Fall ‘09

Investors’ Circle is currently accepting applications for our Fall Conference and Venture Fair to be held November 15th – 17th  in Washington, DC.

To apply, please submit an application by July 31st.

BENEFITS OF CIRCULATION:

• Your company summary will be posted on IC’s secure online deal database for its investors to search and view.

• Your company will be highlighted in the next monthly e-newsletter sent to IC’s entire investor network.

• Your company will automatically be considered for a presentation opportunity at the Fall Venture Fair.

BENEFITS OF BEING SELECTED TO PRESENT:

• Presentation of your investment opportunity to an exclusive audience of angel and institutional investors, including both IC-members and non-members.

• Pre-event coaching on your presentation from IC investors.

• Extensive formal networking opportunities with investors.

TO APPLY

• Click here for information on who should apply.
• Click here for information on the application format and process.
• Click here to submit an application through our Angelsoft application system.

Contact inbox@investorscircle.net for more information on how to apply.

Click here to view a list of recent presenters.

Lipstick Economics

by Kelsi Boyle, Communications Associate

Last week, Business Matters interviewed 5 women entrepreneurs to find out how they approach business, stay true to their values, and achieve positive financial results. I was especially pleased to see two of Investors’ Circle’s ★superstar entrepreneurs★ (and spring presenters) on the list: Karen Bantuveris of VolunteerSpot and Jody Weiss of PeaceKeeper Cause-Metics.

Karen, a management consultant and working mom, got the idea for her business after encountering so many hurdles in the volunteer space. She was passionate about getting involved in her daughter’s school community but not pleased with countless “reply-all” emails and other spam. Karen decided to fix this problem with web-based software and voilà … the tech start-up to mobilize community helpers—VolunteerSpot—was born.

In its first few months in business, VolunteerSpot already has a database of over 30,000 volunteers mobilizing around various issues such as: animal rights, day laborer breakfast preparation, voter registration, community festivals, etc. When posed with  the question “How difficult has it been for you to find funding?,” Karen replies that although VolunteerSpot received national attention when chosen as one of Investors’ Circle’s 20 hottest social venture start-ups this spring, the market is still incredibly tough. Moreover, angel groups are predominately male and typically less familiar with the volunteering space. With a 27% female membership base, IC is one of the most gender-diverse investment groups, but there is still opportunity for our organization to diversify. Fortunately, VolunteerSpot has been able to find some good angel matches despite the fact that they are “pitching in high heels!”

What is Karen’s advice for budding women entrepreneurs?

“Find something you’re passionately interested in, intersect that with your skill set, and then you’ve got the recipe for moving forward. Getting a good team and surrounding yourself with board members that are experts in industries that can support your business—I think that’s the secret sauce.”

I’ve had the pleasure of interacting with Jody Weiss over the years at Investors’ Circle. This former sports agent who decided to dedicate her life to promoting peace and justice has presented at multiple IC Venture Fairs and worked with our investor members to expand her business and create positive change in our world. Peacekeeper Cause-Metics, a socially conscious cosmetics company, raises awareness and dollars towards urgent human rights issues affecting women across the globe.

In her interview, Jody discusses the type of investors she has worked with and how they’ve used money as a tool towards good. In comparison to traditional venture capitalism, socially responsible investing (SRI) has distinct differences. Jody explains that investment in a company like PeaceKeeper means the return is often less and often slower, while the risk just as high as with traditional start-ups. However, “planting seeds of change with your investment dollars is the highest use of money,” she proclaims.

Her story is yet another example of a company struggling between the necessity of giving investors what they want in exchange for the dollars required to create more good, but not at the risk of compromising mission. Jody believes that the answer to this dilemma begins with building discourse about recognizing the bigger picture. Return does not necessarily need to be strictly defined by finance, but by how well it addresses your various concerns. Interviewer Thomas White adds in his own beautiful sentiment, “money can disappear, but the good works we do are always with us.”

Jody’s advice for a woman starting her own business?

• Don’t focus on money, focus on your buyer
• Learn finance, or get someone you trust to manage this piece
• Realize launching is going to cost quadruple the amount you originally thought
• Be ready… because your business will take over your life!

Listen to the full interviews here.

Unlikely Revolutionary or New Age Activist?

by Kelsi Boyle, Communications Associate

As I sip my  mug of Salt Spring Coffee this morning, I give a little a nod of thanks to  Renewal/Renewal2 Investment Fund for supporting such an overall responsible company (fair trade, organic, carbon neutral, reforestation programs… the list goes on).  Joel Solomon, CEO of Renewal2 and an Investors’ Circle Member since our inception in 1992, was recently profiled in Vancouver Magazine.  Frances Bula’s article explores the green movement that Solomon has been inconspicuously developing for almost two decades.

Joel Solomon, IC Member

Described as “tall and lanky, with rectangular metal glasses, shapeless black jeans, black runners, and a nondescript suit jacket,” Solomon doesn’t seem to fit the mold of someone driving Vancouver towards sustainable business.  However, that is exactly the revolution he has been building.  With the help of the foundation co-founded with Rubbermaid heiress Carol Newell and an uncanny knack to build enthusiasm around “for-benefit” businesses, he has influenced countless high-net-worth individuals to put capital into just causes.

More than a connector, Solomon also backs his passion with his own dollars, pouring money into enterprises across the fields of organic food, holistic health, eco-consumer products, and more.  His passion for environmental and social justice sets him apart from the business types typically found in Vancouver: “the rich and powerful, who dominate business with a little philanthropy on the side; [or] the earnest and well-meaning, who dominate the social movements and low-income tax brackets.”  Solomon, to me, represents what is possible in our rapidly-evolving and evermore aware capital market.  Sustainability and success can and DO go hand in hand.