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When talking with people inside the “base of the pyramid” (BoP) community, I often hear strong opinions about how BoP ventures should be set up. Some people strongly support registering these ventures as for-profit entities, while others maintain that BoP activities can start out as non-profits and transition into formal businesses later.
There is no one answer, and this is not a straightforward discussion. The legal and financial implications of a for-profit vs. non-profit organization are myriad, and I don’t claim to understand them all by any means.
Thankfully, a new article in the Stanford Social Innovation Review explores the tension between for-profit, non-profit and hybrid structures. The Funding Gap - written by Jeff Hammaoui, Eliot Jamison and Michael Chertok - explores the social enterprise capital market and how the BoP community can address recurring legal, financial and funding issues associated with it.
Of course, the authors aren’t writing solely about BoP ventures - the funding gap applies to all social enterprises. I found this to be a particularly strong piece (usually I have at least one complaint about journal articles) due to its strong analytical background and minimal reliance on anecdotal evidence.
It is also timely, at least for me. As a new Acumen Fund employee, I have been participating in an extensive on-boarding process with various senior staff, during which the new hires learn what the various functions and people do around here. Typical for any job, I suppose, but Acumen is deliberate and effective, and they deserve some credit for having a good HR system in place.
In any case, I ran across this article on the same day that Ann MacDougall gave her on-boarding presentation. Ann is Acumen Fund’s Chief Administrative Officer and General Counsel, which makes her responsible for everything from administration to finance to IT to legal - it’s impressive what she manages to get done on a day-to-day basis.
She’s also responsible for managing Acumen Fund’s legal/financial status. Acumen Fund is a registered 501(c)3 non-profit in the United States; our India, Pakistan and East Africa offices are all different but affiliated. According to Hammoui, Jamison and Chertok, this makes us a hybrid enterprise.
Then again, we’re also a funder to other social/BoP enterprises, which may have their own non-traditional setup. Even more, we partner with funders whose status is non-traditional as well. In short, it can be messy - making me appreciate the difficulty of Ann’s job!
All this messiness is why this topic - legal and financial status - is so important. I first heard about it at the StartingBloc Institute for Social Innovation, when Pace University’s Jeff Trexler spoke about the legal difficulties facing social enterprise startups. In the year since, not much has changed - but at least we’re talking about it.
Back to the article - it’s more than just talk. The authors provide concrete recommendations - like setting up a social enterprise incubator - that will help our sector get over this hump. Whether you’re a social entrepreneur, BoP investor, non-profit guru or businessperson, check out this article. These down and dirty details may not lead to easy stories, but they are critical pieces in the drive to create successful BoP ventures.
3 Comments so far
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Rob-
Glad you are highlighting “The Funding Gap” article in SSIR. I’d encourage us all to remember, as we seek to develop Venture Gapitalism, that money is a result, not a cause. The preconditions to money are an idea and a team that can get ‘er done.
Now that you work for a funder, I have two questions:
1) does Acumen provide more than funding to new ventures? (of course you do,as so the good VC’s)
2) why isn’t Acumen doing more deals? There are so many big problems… Is it lack of money or lack of deals with those 2 preconditions? (yeah, I thought so…)
Social entrepreneurs are special. I know. But they aren’t SO special that they deserve money without having an idea and a strong team.
It will not help the sector in the long run if we can’t pull together the ventures that will make the money actually go to work. I am not convinced that the funding gap isn’t really a talent gap. What really good deals aren’t getting funded?
Paul
Further thoughts on this topic, after last year’s Skoll Forum: http://bopreneur.blogspot.com/2007/04/some-thoughts-on-capital-and-investing.html
What I’m interested in is the opportunity for entrepreneurial investors to “make stuff happen”. Investors aren’t passive. They create deals as much as they simply invest. What opportunities are there to take more action, as investors, to produce opportunities to invest in social entrepreneurial ventures?
Comment by Joseph Steig 03.28.08 @ 11:25 amPaul, Joseph -
You’re spot on. One of the reasons that Acumen has committed $10 million to our ‘talent’ pillar in the next 3 years is that, as a social investor, we recognize the huge talent gap that exists here. We see it acutely in our investees, who often have a hard time finding and then retaining top-quality talent. A visionary entrepreneur isn’t enough - he/she needs a great team to implement their ideas!
As far as being an active - not passive - investor, you’re also right. Acumen plays a very active role in our investees, often taking a seat on their boards and dedicating significant portfolio staff time to managing the investee/investor relationship. Sometimes, the result of this close relationship is the identification of a new investment opportunity for our pipeline.
Comment by Rob Katz 03.31.08 @ 3:09 pmLeave a comment
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