The Path to Funding Social Enterprises Beyond Infancy

March 25, 2015

By Jen­nifer Walske & Laura D. Tyson

In our research, we took a deep dive into eight suc­cess­ful social enter­prises in order to iden­tify the crit­i­cal ele­ments of their success.

To read the full blog, visit Berke­ley Haas Insti­tute for Busi­ness & Social Impact.

Call­ing all Ven­ture Capitalists

Rev­o­lu­tion Foods, which pro­duces high qual­ity school lunches and con­sumer prod­ucts, got its ini­tial boost by plac­ing first in the Berkeley-​​Haas Global Social Ven­ture Com­pe­ti­tion. The prize money pro­vided co-​​founders Kristin Groos Rich­mond and Kirsten Saenz Tobey with a small amount of prize money, but more impor­tantly it led to a $50,000 invest­ment from angel investor, Dick Beers, and then to a $500,000 invest­ment from DBL Investors.

Those invest­ments allowed Kirsten and Kristin to get a truck, lease kitchen space, and hire four addi­tional employ­ees, includ­ing an exec­u­tive chef, two prep cooks and a dri­ver. That in turn enabled them to run a pilot pro­gram, which pro­vided the proof of con­cept for their busi­ness model and paved the way for addi­tional investors. Nancy Pfund, founder of DBL Investors, told a recent Berkeley-​​Haas col­lo­quium on social finance that she quickly saw the poten­tial for Rev­o­lu­tion Foods, lead­ing her to sup­ply mean­ing­ful early stage funding.

I met Kristin and Kirsten at Haas, and imme­di­ately saw the value of their idea,” Pfund said. “Pro­vid­ing large amounts of early cap­i­tal is extremely impor­tant for founders who are prov­ing the field.”

Another key les­son from Rev­o­lu­tion Foods is the value of seek­ing fund­ing from tra­di­tional for-​​profit ven­ture cap­i­tal firms. Rev­o­lu­tion Foods began as a for-​​profit enter­prise, though one with social goals, but it raised money from both kinds of investors. The social ven­ture cap­i­tal firms included DBL Investors, Cata­mount Ven­tures, New Schools Ven­ture Fund, Physic Ven­tures, and the Westly Group. But they also gar­nered sig­nif­i­cant financ­ing from tra­di­tional VC firms, led by Oak Invest­ment Part­ners. Rev­o­lu­tion Growth, the ven­ture cap­i­tal fund cre­ated by AOL founder Steve Case, recently invested $30 million.

One hur­dle for social ven­ture cap­i­tal investors is the lack of stan­dard­ized met­rics for assess­ing social impact. Accord­ing to Kirsten, Rev­o­lu­tion Foods devel­oped its own met­rics rather than rely­ing on frame­works devel­oped by its investors. And, now that Rev­o­lu­tion Foods is B Lab cer­ti­fied, which pro­vides some stan­dard guide­lines for social impact, the process of social impact mea­sure­ment has become even easier.