The Long Game. The benefit corporation could be a useful tool to help create value for long-term shareholders and for society. Danone may be able to repel unwelcome acquisition energy coming from Kraft Heinz partly because, according to an analyst from Credit Suisse: “In addition [to other likely demands by Danone’s board], Kraft Heinz would have to make a credible commitment to the company’s mission as a public-benefit corporation to produce intrinsically healthy products for consumers in an environmentally sustainable way.” This is big news. The Credit Suisse analyst is saying that the use of a relatively new corporate governance structure, called the benefit corporation, may offer public companies some protection from the storm surges that often arise from activist hedge-fund activity. Forbes (2 minutes)
When & How to “B”. Conversion into the benefit corporation or social purpose corporation should be effected at a time and in a way that maximizes the potential for social enterprises. This decision should be based on many factors, including: 1) Support from current and anticipated future investor base; 2) Timing for exit and potential impact on valuation; 3) Timing for next equity or debt financing (as it is usually much better to convert as part of a financing); 4) Plan to handle process and potential costs of shareholder appraisal rights (it is important to note that there have been shareholders who have exercised appraisal rights for companies converting into forms of benefit corporation, requiring the companies to buy them out as opposed to converting); 5) Impact on any current, pending, or threatened litigation 6) Impact on employee relations; 7) Any regulatory approvals (for example, in specific industries like FinTech); 8) Consultation with D&O insurance providers, given potential increase in risk and liability. Mofo Impact (4 minutes)
Deal Room. There is a severe lack of seed funding in the social enterprise sector. I know this from my day-to-day work with social entrepreneurs and it’s confirmed every annual report by the GIIN – 3% of all impact investment goes to seed stage companies. Rather than bemoan the “lack of dealflow” as most impact investors do, ADAP Capital is doing something about it. Based on their “4-hour due diligence” process, they are going to invest $75,000 in a couple social enterprises at the SOCAP conference this year. Here’s the deal: 5-10 companies will present to the team on Tuesday October 10th and by Friday October 13th ADAP will be cutting $75K checks to the winning social entrepreneurs. If you’re an early stage social enterprise (pre- Series A) that has some traction, you definitely should apply. In addition to the $75K investment, I’ll be contributing a year of legal services to the winner. I’ll also be a part of the selection team. Let me know if you have any questions. If you know anyone that would be a good fit, they should apply here.
Marginalized Returns. According to the prevailing view, the achievement of both social impact and market-rate financial returns is the norm—not the exception. Here’s the reality: The most impactful and successful of social enterprises in emerging economies—even in developed countries—are likely to generate only low-single-digit financial returns. This is hardly surprising. Most promising enterprises do not meet the risk-return criteria of today’s impact investors, which gets reported as “lack of pipeline.” To solve this gap, we need to shift from the false binary of grants with no financial-return expectations, on the one hand, and investments seeking net-15-percent-or-greater return, on the other. This requires philanthropists and donors to deploy more long-term funding in the form of program-related investments—which have a primary objective to maximize impact while accepting some associated level of return of capital—to build a robust and diverse new generation of social enterprises. Only in this way will such enterprises meet the risk-return objectives of most impact investors. SSIR (8 minutes)
BitPesa. Amid rapid growth, African payments company BitPesa has raised a round of funding led by Greycroft Partners. Started by some of my friends in Nairobi, Bitpesa’s Bitcoin blockchain helps move money internationally with much less friction and at a lower cost. Their clients include small, mid-sized and some of the largest African companies, particularly in the industries of travel, ecommerce, digital advertising and marketing as well as other digital businesses. BitPesa charges a percentage-based transaction fee that’s about a third of what such companies would pay using traditional payment services, while also completing the transactions in an hour compared to days or weeks. Forbes (4 minutes)
IntelleGrow launches $31 million social enterprise debt fund. Companies require long-term working capital and long-term debt, not just for working capital needs, but also to finance their equipment, plant and machinery which has a longer gestation period. In such cases, a debt fund is helpful because it is more attuned to their pay-out structures. The first fund will be $31 million, but plan to raise to raise $156 million total. IntelleGrow has backed more than 180 startups in agriculture, healthcare, sanitation, and other social sectors. e27 (5 minutes)
TrustLaw 2 Day Training. On 12-13 September 2017, the TrustLaw team brings its successful Social Enterprise and Impact Investing Training back to New York City for a two half-day, CLE-accredited course. The training explores key legal issues and trends in social entrepreneurship and impact investing. It also provides lawyers and other professionals with the skills they need to advise different stakeholders in the sector. Learn more here.
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.