Impact Esq No. 5

Welcome to the weekend. It was great to see many of you at the Impact Investing Legal Working Group conference a few weeks ago!

This week I’ve been spending a lot of time with the new Echoing Green fellows. I was particularly struck by Rachel Johnson-Farias a fellow that runs Esq. Apprentice, which creates a no-cost pipeline to legal careers for low-income youth of color. To meet this goal, participants will complete a four-year course of part-time study, which emphasizes legal writing and research. Esq. Apprentice will improve the employability and lives of youth by creating meaningful opportunities to obtain legal skills and employment.

Social Enterprise

  • B Corps & Investors. With the poor post-IPO financial performance of Esty (a certified B Corp) and a change in CEO, there has been some questions about how investors are reacting to B Corps. A particularly critical Bloomberg article noted “Public-market B Corps are rare because investors hate them.” Nothing could be further from the truth according to Rick Alexander, Head of Legal at B Labs. Since nearly all B Corps are privately held companies, it would be reasonable to start by asking if venture-capital firms invest in B Corps. They do. In fact, at this point, nearly every major Silicon Valley venture-capital firm has invested in a B Corp. On the other hand, as the article states, public-market B Corps are rare. Of more than 2,100 B Corps around the world, there are only four traded on major exchanges: two in the U.S. (Etsy and Laureate Education), one in Brazil (Natura), and one in Australia (Silver Chef). A fifth public-market B Corp, Rally Software, was acquired for $480 million in 2015. BlackRock’s Chairman, in a recent letter to CEOs, articulated an investment philosophy that embodies that very ideas that B Corp certification and benefit corporation governance put into practice:We look to see that a company is attuned to the key factors that contribute to long-term growth, sustainability of the business model and its operations, attention to external and environmental factors that could impact the company, and recognition of the company’s role as a member of the communities in which it operates. Learn more at B The Change (6 minutes).

  • Shaking the Money Tree. Echoing Green and Enclude just released the results of a survey about fundraising as a social enterprise. Here are 4 key takeaways: (1) In total, the 49 entrepreneur respondents reported raising USD 92.8 million—USD 21.5 million of which was grants, and USD 71.4 million was investment. The total capital raised by for-profit and hybrid organizations was USD 57.5 million and USD 35.3 million, respectively. (2) In total, the 49 respondents reported seeking USD 252 million in the next two years. Of this, USD 45 million was grant funding and USD 206 million was investment. The total equity sought was USD 101 million; debt, USD 90 million, and convertible debt, USD 15 million (40%, 36%, and 6% of total funds sought, respectively). (3) Respondents reported variable levels of success in past fundraising. Those in the Growth Segment who had raised capital reported the highest application-to-funding average success rates at 47%, closely followed by the Seed Segment at 46%. Entrepreneurs in the Early Segment reported the least success, with an average rate of 27%. (4) Respondents noted their greatest barrier to accessing funding was finding a funder willing to “take a risk at this stage.” Not surprisingly, this was more prevalent at seed stage. (5) On average, hybrid enterprises reported USD 1.4 million more in current funding than for-profit enterprises. Hybrid enterprises reported more equity and grant funding on average than for-profit enterprises in the first three Segments. However, Fellows running hybrid enterprises said it was difficult to communicate with investors about how their for-profit and nonprofit entities worked in tandem. Learn more at Echoing Green (17 minutes).

Impact Investing

  • GIIN Impact Investor Survey 2017. I was on hand at the Impact Investing Legal Working Group keynote when GIIN announced the findings of its 2017 survey. Here are 6 key takeaways: (1) The median Assets Under Management for impact funds is USD 97 million. (2) The greatest share of impact capital was allocated to microfinance, energy, housing, and other financial services. (3) The greatest share of AUM was allocated to mature, private companies (45% including outliers) and growth-stage companies (26%). At the same time, though 74 respondents (45%) reported at least some allocation to seed-/ startup-stage enterprises, only 3% of total AUM was allocated to such businesses. (4) Nearly universally, respondents measure their social and/or environmental performance, using a mix of proprietary metrics, qualitative information, and IRIS-aligned metrics. (5) The overwhelming majority of respondents reported that their investments have either met or exceeded their expectations for both impact (98%) and financial performance (91%). (6) The majority of respondents believe the entry of large-scale financial firms into impact investing will professionalize the market and bring in much-needed capital, but most also believe there is a risk of mission drift or impact dilution associated with this trend. Learn more at GIIN (25 minutes).

  • SEEDIIT. With 30 years of experience of the Echoing Green team, input from a diverse group of social entrepreneur fellows running for-profit and hybrid organizations who have successfully raised investment, and the expertise of Sullivan & Cromwell LLP, Echoing Green created the Seed Impact Investment Template Note, or “SeedIIT,” to empower emerging social entrepreneurs. The SeedIIT is designed for a debt investment into an early-stage social enterprise by investors who are primarily concerned with advancing the social or environmental mission of the company and not with earning a speculative financial return on their investment. It offers social entrepreneurs an alternative to traditional debt financing terms. Check out the template documents and an easy-to-read Q&A at Echoing Green (18 minutes).


Impact Esq. is a monthly email summarizing the best articles on social enterprise and impact investing law edited by Kyle Westaway – author of Profit & Purpose, Managing Partner of Westaway and Lecturer on Law at Harvard Law School. Thanks for being a member of the Impact Esq community. I truly enjoy curating this email every month and love hearing your thoughtful insights. Feel free to shoot me an email with any feedback or suggestions. If you like what you’re reading, I’d be honored if you share it with other social impact attorneys. Have a restful and thoughtful weekend.