Social Venture Financing
Best Practices Survey
Survey created by:
Capital Missions Company
W2897 High Road – Elkhorn, WI 53121
(262) 642-8753 www.CapitalMissions.com
Description and Executive Summary
Over the last 12 years,
Capital Missions Company has helped create 10 networks of socially-responsible
investors. The first, Investors' Circle, brought together the leading
practitioners of social venture capital to create an efficient marketplace
for this new niche of finance. Nurtured by the Circle, a number of social
venture capital funds sprang up and most have now prospered.
Early in 2001, Capital
Missions Company (CMC) conducted qualitative interviews with these leading
practitioners, asking this question:
What are the best
practices you have actually used with your portfolio companies which have
most enhanced your "triple bottom line" returns (financial, environmental
Their answers are
included in a 24-page report available from Capital Missions Company by
email at www.CapitalMissions.com. Loosely summarized, the operating principle
underlying these values is: "A deal is a good deal when it is good for
However, this executive
summary has been created from the full report by CMC President Susan Davis,
Nth Power Managing Director Nancy Floyd and UV Partners Co-Founder Jim
Dreyfous. It was formally presented at Private Equity Roundup 2003 in
Scottsdale, Arizona Jan. 29, 2003.
The costs of this
survey were underwritten by Solaria Corporation, a solar company with
breakthrough solar technology which desired to exemplify social financing
best practices. Solaria has closely followed the principles identified
by these industry leaders and is serving as CMC's Alpha project. CMC's
Alpha intends to illustrate that establishing a formal template of shared
values between investors and management serves to reduce risk and enhance
Social Venture Financing Best Practices Survey
of interviews with 26 leaders of venture capital best practices.
1. A deal is a good deal when it is good for all concerned. In particular,
treat seed investors fairly for having taken the early risk.
2. Do business only
with people with absolutely the highest level of integrity.
3. Be patient—entrepreneurs
need time for the team and business strategy to jell.
4. Don’t string
entrepreneurs along or make them sign “no shop” provisions
or term sheets before the due diligence is done.
5. Insure before investing
that the entrepreneur(s) want professional managers brought in.
6. Have entrepreneurs
do due diligence on your venture fund and design the process collaboratively.
7. All employees get
stock options for common stock, while all investors of cash get preferred
stock with anti-dilution and veto rights.
8. Venture investing
is an interpersonal game, not an intellectual one—not just a way
of working, but a way of being a person.
9. All parties are
proactive in telling each other bad news and are generous in designing
10. The optimal composition
of boards for early stage companies is a balance between inside directors,
investors and independent experts.
11. Institute socially-responsible
practices including code of ethics, disclosure policy, information sharing,
mission statement, diversity, progressive personnel practices, stock options
for all, recycling, progressive environmental practices, and fair investment
terms. Monitor adherence to these principles. Consider adopting the Earth
12. Discontinue using
excessive liquidation preferences; they may be common today, but they
demotivate management teams.
13. The largest business
opportunities of the millennium spring out of its largest social problems.
14. Private equity
firms should voluntarily operate in the spirit of Sarbannes-Oxley and
the new stock exchange listing requirements as follows:
a. Boards and their
committees (specifically the audit committee) of portfolio companies should
be filled by qualified independent individuals.
b. Audit Committees
must understand the financial reporting process of the portfolio company
and the internal control process.
c. The audit committee
must understand the implication of key accounting policies and their impact
on the reported results.
d. Use of auditors
for non-audit services should be carefully reviewed.
e. Private equity
firms must understand that failing to comply with Sarbannes-Oxley and
listing requirements could limit their future financing and exit strategies.
Most principals named below were founders of their funds:
Broadbent - Avana Capital Corporation
Gina Domanig - Sustainable Asset Management
Mark Donohue - Social Capital Partners, Inc.
Nancy Floyd - Nth Power Technologies
Harry George, Henry Newman, and
Fred Bamber - Solstice Capital
Dick Grafer - Private Investor, Investors’ Circle Member
Liz Harris - UNC Partners, Inc.
Peter Heller - PerEnergy/Canopus Foundation
Alan Kay - Technology Investor, Investors’Circle Member
Jeff Leonard - Global Environment Fund, LP
Audrey MacLean - Challenger Venture Consulting
|John May -
New Vantage Partners
Steve Moody - Calvert Group
Willy Osborn - Commons Capital Management LLC
Nick Parker - Parker Venture Management
Ann Partlow - Rockefeller & Co., Inc.
Noel Perry - Baccharis Capital
Vin Ryan - Schooner Capital Corporation
Barbara Santry - Capstone Ventures
Markus Schmid - Ecos.ch
Bob Shaw - Arete Corporation
Wayne Silby - Calvert Social Investment Fund
Joel Solomon - Renewal Partners/Endswell Foundation
Sona Wang - Inroads Capital Partners
Peg Wyant - Isabella Capital
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Social Venture Financing Best Practices Survey
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