Meet DBL Partners, a VC Firm Seeking Better World, Returns

"If you're blowing up traditional ways of doing business, the right side of a social trend is a good place to be."

GreenBiz.com
April 19, 2013

A tremen­dous pro­file of our firm, as told by Michael Potts, pres­i­dent and CEO of Rocky Moun­tain Insti­tute.  He does a fan­tas­tic job of cap­tur­ing the spirit of DBL and his con­ver­sa­tion with man­ag­ing part­ner Nancy Pfund per­fectly cap­tures our com­mit­ment to impact invest­ing.  The full story from Green​Biz​.com is here, and reprinted below.

Step into the offices of DBL Part­ners in San Fran­cisco and it may seem as if you’ve entered a run-​​of-​​the-​​mill ven­ture cap­i­tal (VC) firm. Eight staffers scurry from office to con­fer­ence room, refin­ing their spread­sheets, pound­ing out emails and chat­ting on cell phones about their port­fo­lio of excit­ing start-​​ups and growth companies.

logo

There’s lit­tle to sug­gest that this finan­cially dri­ven hus­tle and bus­tle is out of the ordi­nary. At first glance, DBL looks much like any other firm dri­ven by dol­lars. VC invest­ing tra­di­tion­ally has focused on finan­cial returns at all costs; it can be a sin­gu­lar, unwa­ver­ing goal. As the con­ven­tional wis­dom goes, if you serve more than one mas­ter, returns will suffer.

But as it turns out, man­ag­ing part­ner Nancy Pfund and her DBL col­leagues are not that kind of ven­ture cap­i­tal­ist. They’re VCs of a dif­fer­ent stripe, who — in addi­tion to mak­ing money — want to do some good in the world. The firm’s name high­lights their empha­sis on the dou­ble bot­tom line: yield­ing top-​​tier finan­cial returns and deliv­er­ing social, envi­ron­men­tal and greater eco­nom­ics ben­e­fits through its port­fo­lio of investments.

Is it pos­si­ble for a VC firm to deliver strong returns while cre­at­ing a bet­ter world at the same time? Pfund thinks so.

We believe we can do both, and that one does not suf­fer because of the other,” she explains. “I don’t see it as a ter­ri­bly thought­ful posi­tion: peo­ple say­ing that any kind of social invest­ing will have infe­rior returns. If you look more closely, you’ll find great impact invest­ing and not so great, and you’ll find that for any asset class.”

Just con­sider DBL’s track record: Its first fund placed in the top quar­tile com­pared to other funds of that vintage.

Increas­ingly, there are investors who want more than a finan­cial return,” she says.

DBL Managing Partner Nancy Pfund

DBL Man­ag­ing Part­ner Nancy Pfund

Pfund, pic­tured, is one of them.

In some sense, DBL’s invest­ments do obey the law of finan­cial return, just like their con­ven­tional VC coun­ter­parts. First and fore­most, DBL’s invest­ments “need to meet tra­di­tional invest­ment cri­te­ria,” says Pfund. “If we fund a bunch of com­pa­nies that don’t go any­where, we’re not help­ing anyone.”

What dif­fer­en­ti­ates DBL is what hap­pens next: incor­po­rat­ing the sec­ond bot­tom line value into the investment.

Pfund’s brand of VC, and arguably VC in gen­eral, is a story of Davids going up against Goliaths. Small, start-​​up dis­rup­tors go up against large incum­bents. Think of the eco-​​friendly clean­ing prod­ucts com­pany Sev­enth Gen­er­a­tion fac­ing off against the likes of Tide and All. Or more recently, con­sider Tesla Motors and its EVs — part of DBL’s port­fo­lio — going up against the fossil-​​fuel-​​burning auto­mo­tive giants of Detroit.

DBL’s port­fo­lio is a tes­ta­ment to peo­ple– and planet-​​friendly dis­rup­tors. In the world of clean tech, the port­fo­lio includes SolarCity, Tesla Motors, eMe­ter, Bright­Source and Pow­erLight. In con­sumer prod­ucts and ser­vices, there are Rev­o­lu­tion Foods, Eco­logic, Eco­scraps and View, among oth­ers. Such com­pa­nies’ prod­ucts and ser­vices range from energy effi­ciency soft­ware and solar PV installers to com­post made from food waste and pro­vid­ing healthy food and nutri­tion edu­ca­tion in schools.

Those impact­ful upstarts are find­ing solid trac­tion in the mar­ket­place. Motor Trend named Tesla’s Model S its 2013 Car of the Year. SolarCity is the No. 1 installer of res­i­den­tial solar in the U.S., and Fast Com­pany named it one of the world’s 50 most inno­v­a­tive com­pa­nies. Bright­Source Energy’s solar ther­mal sys­tem will power some 200,000 homes with clean energy. DBL is see­ing con­sumers swap plas­tic bot­tles for Ecologic’s molded paper fiber pack­ag­ing and pur­chase Eco­Scraps’ food waste-​​based com­post rather than the petro­chem­i­cal alternative.

But it’s about more than busi­nesses that inher­ently do good via their prod­uct or ser­vice, in which a pos­i­tive impact in some sense is the prod­uct or ser­vice. It’s also about com­pa­nies that extract sec­ondary or par­al­lel social and envi­ron­men­tal angles to their work.

We believe that almost any com­pany can have a dou­ble bot­tom line,” explains Pfund. “Are you born with it? Or can we bring it out and nur­ture it?”

Wit­ness Pan­dora, the pop­u­lar music stream­ing ser­vice and another mem­ber of DBL’s port­fo­lio. In 2000, the same year Pan­dora was founded, the unem­ploy­ment rate in Oak­land, Calif., was 50 per­cent higher than Alameda County, of which Oak­land is the largest city, accord­ing to the county’s pub­lic health depart­ment. Yet Pan­dora delib­er­ately sited its head­quar­ters in Oak­land, a place that would ben­e­fit from greater employ­ment oppor­tu­ni­ties and com­mu­nity revi­tal­iza­tion. Today, Pan­dora boasts more than 500 employ­ees in Oakland.

Con­sider it VC as job cre­ation in and for a com­mu­nity vs. VC as siloed wealth cre­ation for a company’s founders and investors. Later, when Pan­dora learned of a school in a nearby low-​​income neigh­bor­hood that had its music bud­get cut, Pan­dora and its employ­ees stepped in to adopt the school and vol­un­teer teach­ing music classes.

In some sense, this harkens back to an era when busi­nesses invested heav­ily in their com­mu­ni­ties, such as spon­sor­ing local lit­tle league teams.

But if — with some excep­tions — every com­pany can have a dou­ble bot­tom line pro­file, as Pfund con­tends, what sets DBL’s fla­vor of impact invest­ing apart? Is it mere mar­ket­ing fluff to bol­ster a company’s reputation?

Pfund would argue not. Rather, it’s a mat­ter of tap­ping into inher­ent but unre­al­ized poten­tial to do good. Oth­er­wise, “green­wash­ing” a com­pany does no one any favors.

It’s an inclu­sive approach, one starkly dif­fer­ent from say, socially respon­si­ble invest­ing, in which com­pa­nies are screened accord­ing to an estab­lished set of cri­te­ria and then are either in or out. With DBL Part­ners, every­one is poten­tially in. The chal­lenge becomes a mat­ter of cul­ti­vat­ing the impact side of the invest­ment. When a business’s pur­pose is not inher­ently the social and envi­ron­men­tal good, it becomes a more sub­tle mat­ter to tease it out.

Mean­while, just as the impact side of a company’s pro­file can affect the com­mu­nity and greater world, so can such impact affect the com­pany. Here are some ways the com­pany can benefit:

Mar­ket intelligence

Pfund believes that an authen­tic con­cern for social val­ues can help com­pa­nies iden­tify and jump on valu­able trends.

If you’re blow­ing up tra­di­tional ways of doing busi­ness, the right side of a social trend is a good place to be,” says Pfund.

Some trends that point to a bet­ter world, such as accel­er­at­ing con­cern about com­bat­ting cli­mate change, also can lead to expan­sion for socially respon­si­ble prod­ucts, such as alter­na­tive pack­ag­ing for home clean­ing products.

For exam­ple, Eco­logic — head­quar­tered in an enter­prise zone in Oak­land, Calif. — has cre­ated and com­mer­cial­ized America’s first molded paper bot­tle. The inno­v­a­tive bot­tle con­sists of an outer shell made with 100 per­cent recy­cled card­board and news­pa­pers, inte­grated with a thin inner pouch, made with up to 70 per­cent less plas­tic than tra­di­tional plas­tic bot­tles. After use, the outer shell can be com­posted or recy­cled with paper, and the inner pouch can be recy­cled with plas­tic bags. Com­pared to rigid plas­tic bot­tles, the company’s 2.6 mil­lion eco.bottles pro­duced to date have diverted 180 tons of plas­tic from land­fills and oceans, avoided 369 met­ric tons of CO2 emis­sions and saved 3.4 mil­lion kWh of energy.

Local incen­tives

DBL works hard to iden­tify and cash in on oppor­tu­ni­ties for its port­fo­lio com­pa­nies where a city or county will pro­vide tan­gi­ble busi­ness incen­tives to attract the com­pa­nies that will cre­ate jobs and revi­tal­ize the com­mu­nity. For exam­ple, DBL might intro­duce a com­pany to par­ties that can help site a new plant in a strug­gling com­mu­nity, which helps them get a grant for man­u­fac­tur­ing, tax waivers or obtain a low-​​interest loan for equipment.

Again con­sider Eco­logic. DBL worked hard to help the com­pany site its new man­u­fac­tur­ing facil­ity in Man­teca, Calif., in a low-​​moderate income area and enter­prise zone (the local unem­ploy­ment rate is more than 15 per­cent while 16 per­cent of res­i­dents live in poverty). The DBL team met with San Joaquin and Stanis­laus coun­ties’ eco­nomic devel­op­ment agen­cies to iden­tify poten­tial sites and asso­ci­ated finan­cial incen­tives, such as enter­prise zone tax incen­tives, hir­ing tax cred­its and sales and use tax cred­its on machin­ery and machin­ery parts. Eco­logic expects to cre­ate more than 100 jobs at the new man­u­fac­tur­ing facil­ity over the next five years.

Recruit­ment and retention

Com­pa­nies that do some mat­ter of good in the world sub­stan­tially improve the morale and cohe­sion of their team. For exam­ple, at Rev­o­lu­tion Foods, which serves 200,000 healthy meals per day and has cre­ated more than 1,000 jobs nation­wide, 75 per­cent of which are entry level, DBL brought finan­cial edu­ca­tion to entry-​​level employ­ees and pro­vided free tax prepa­ra­tion. Part­ner­ing with orga­ni­za­tions such as One Paci­fic­Coast Foun­da­tion, the pro­gram pos­i­tively impacted employee reten­tion in an indus­try with high turnover rates.

Arguably the most durable employee reten­tion perk a com­pany can offer is a busi­ness ori­en­ta­tion that acts on val­ues, ones that deeply con­nect with team mem­bers who share those val­ues. Many peo­ple with great tal­ent also have great pas­sion to cre­ate a bet­ter world, so they will stick with a com­pany that allows them to do so.

These effects can be hard to mea­sure, but Pfund is con­vinced that they are real. Enough so that she puts it to prac­tice at DBL, even when an employee walks in the door with a more tra­di­tional focus on the finan­cial side of things.

The desire to have social impact is impor­tant,” she explains. “But if you have the inter­est and the will, those are teach­able, more so than some of the finan­cial invest­ment skills.”

In other words, just as a com­pany can pro­vide an explicit social and envi­ron­men­tal good, or a more sub­tle pos­i­tive impact that requires cul­ti­va­tion, so too can employ­ees come to a com­pany dri­ven by mis­sion or get swept up in mis­sion once they’re there.

Either way, the invest­ment — in a good com­pany or good employee — is a given. The impact is what remains to be seen. But that’s what Pfund is there for.

Rather than the vanilla ver­sion of VC, we want to accom­plish social good as well,” she says. “We believe the pos­si­bil­i­ties are endless.”