Thank you Jessica for bringing up this discussion.

In addition to what you present, I would like to add a couple of points:

1. The size of the issue - this is not small matter, and it impacts more than just social entrepreneurs:
2. 1 -- 99% of entrepreneurs looking for funding is not small matter: The way the process is today actually impacts the majority of entrepreneurs seeking funding. VC will tell you that they look at 1000 companies, to pick 100 for review, then select 10 that they will invest in and in the end 1 will be the big hit that pays for everything else. While it works for the investors, it leaves 990 startups out of the original 1000 without investment. That's 99%, not a small matter. And unfortunately Angels are also typically picking companies that are within the "VC fundable" category: Angels do not have enough money to spend that they can spread themselves over a statistically significant amount of deals, therefore they know they are playing the lottery when investing, and when doing so they tend to pick the companies with the 10x potential return on investment. Plus investing in equity requires that there is a cash event at some point, leaving out all these companies that are viable and will "only" make 30M to 50M in 3 to 5 years (hard to sell, cannot IPO).
3. 2 -- $20B is not small matter: From the angel prospective, we are talking "mad money", money that the angel investor can afford to loose because he knows investing in startups is a risky proposition. So nothing really critical for the Angels, but then cumulatively, we are talking $20B every year that Angel are said to invest in deals. Maybe it would be worth managing these $20B differently than through a lottery process.
4. Measurement

One of the beauty of a debt mechanism is that it allows a shift in how you measure success. As you mentioned, when there is an equity investment in a social enterprise there is tension between the measure of financial return and the measure of impact of the community or the environment. And it is hard to balance these requirements: how do I measure the real philanthropic cost? Was the social impact worth the diminished return on investment? With debt, the measure of success is whether or not the company was able to pay off the loan. So as long as the loan is paid with a reasonable rate of return (which can and the general focus of the company was to improve the community or the environment, everyone can be happy, no second thoughts.

The Entrepreneur Commons is a blueprint, and we are getting started here, but the model can (and should) be replicated anywhere, so the potential is huge.

And while I see a lot of efforts helping entrepreneurs in developing countries, I think that it would be worth also helping the entrepreneur next door. There are a lot of social entrepreneurs in Silicon Valley for example, let's hope we can find a good process for them to grow and prosper, it is beneficial for all of us in the end.

Thank you again for starting a conversation on this matter.

I am currently researching different ways in which social enterprises (particularly new ones) can be funded in a long term, sustainable fashion so I was very interested to read about the entrepreneur commons concept. However I have been focusing recently on how the stock market can be utilised in some way, either through a partial or full share flotation, to generate funds without losing strategic control to the shareholders. It seems to me that market mechanisms being as efficient as they are would, conceptually, offer up the best opportunity for financial growth should the right model (and the right opportunities for returns) be available.

A couple of examples I have been looking into are the CafeDirect and Traidcraft models in which shares have been floated but without loss of control to those seeking to maximise returns at any cost. In the case of Traidcraft a Foundation holds a guardian share which is used to preserve the social function of the enterprise. In the case of CafeDirect the share flotation allows the growers and producers they buy from in developing countries to control a stake in the company.

Is anyone aware of any other instances in which this sort of approach has been succesfully utilised? Is this something that the entrepreneurs commons takes into account as well as debt repayments? From what I gather this is an underesearched, embryonic but potentially lucrative model. I am not convinced that social and financial return are two mutually exclusive concepts.

Hi, Adam. Thanks for a helpful post. The concept of a guardian share is very interesting.

Social and financial return are directly related. Social assets are intangible assets that are necessary (but not sufficient) to the future creation of financial return.

Further, different types of assets (social, financial, intellectual, natural) provide risk management services for one another. A coral reef protects beachfront hotel and tourism; high degrees of trust in a work environment enable much faster processes as well as the ability to bring up difficult work issues.

In fact, people within a company will "get" the non-financial assets intuitively if not analytically, while people outside the company

investors -- won't have nearly as much information. This creates a knowledge asymmetry, which can have negative repercussions for the market in general (cf. Baruch Lev's work).

The problem I see with the stock market is that it comes with a lot of requirements, so even if you retain the control of the company in theory, having shares on the market mean extra legal costs (I am told at least $150K just to get listed, then yearly fees of at least the same amount). Then there is also the fact that the management team of a public company has fiduciary duties, and therefore is limited in what they can do regardless of how much stock is out there. Stock holders can decide to sue if they feel their interest was not taken into account, so even though you retain majority, you still have to deal with the risk. Which brings us back to the issue of measurement: who will decide what is success? I am not convinced the public market is a good option...

Hi Jessica and Marc,

What comes to mind immediately is Chris Cooks Open Capital nodel, described on opencapital.net as "the concept of partnership finance through the sharing of risk and reward. Risk is shared through a guarantee society or clearing union, where trade credit between buyers and sellers is subject to a mutual guarantee. Revenues are shared through co-ownership of a productive asset by the investors and investees."

We had quite a discussion about it on the Omidyar network a while back and I have confidence that Chris will be here to tell more.

Then there's our own model, a profit for social purpose paradigm which was pitched at the US president in his 1996 re-election campaign. it's the model we deployed in the UK when P-CED cam here in 2003/4. Soon after in 2005, UK government introduced something similar in the Community Interest Company.

Our People-Centered model prescribes that at least 50% of profit is delivered to community or social purpose and our Department of trade and Industry considers that to be one form of social enterprise model, whereas the CIC works on similar lines to charitable organisations in that a Regulator oversees that community purpose is adhered to.

http://www.p-ced.com/about/history/

So, I run a software development business, which funds advocacy for poverty elimination and childcare reform in Eastern Europe. Our activism, and in particular the strategic plan for social enterprise development, we delivered to their goverment in 2006 was funded from revenue derived from serving UK corporations who have no knowledge of this activity.

Jeff

The significant amount of foreign aid, philanthropy, and even remittances flowing from the developed countries to the emerging markets (much of them targeting the Base of the Pyramid -BoP), has renewed interest in measuring the impact these that investments generate. Straight-forward metrics as such the Total Capital Disbursed or the ratio of Administrative Expense versus Capital Disbursed are not longer enough. Investors’ interest in optimal asset allocation adds to the ethical pressures other stakeholders have to optimize the “bang” of “help dollars” aimed to the poorest of the poor. A wealth of money, brains and institutions are focused on the investment efficiency issue. Their approach feeds on two distinct sets of knowledge: the program evaluation tradition and classic financial project evaluation.

Philanthropy, welfare and social investment Philanthropy and social investing at a large, societal scale is a relatively recent development in human history. First, Philanthropic investing occurs in wealthy economies: it requires societal savings big enough to be disposed trough it. This was a situation mostly off-limits for the European nations prior to the Industrial Revolution. Second, on the political side, social and philanthropic investing benefits from the existence of a representative government, for the most part inexistent in the western hemisphere until 18th century (England abolished slavery in 1772, Russia abolished serfdom in 1861) When the citizenry and middle class gained a voice in the state matters, the care of the less fortunate gained space in the political agenda as a government issue. In the U.S., large-scale social policies and interventions during the nineteenth and twentieth centuries were financed by the U.S. taxpayers. This wave of public financing called for public scrutiny of the results and this, in turn, required a systematic, scientific program evaluation approach. Funds from the fiscal budget went to respected universities to develop a large part of the social science as we know them today -disciplines based in the scientific method. Social Sciences, once considered the poor daughter of the unlikely marriage of Philosophy and Science, and with the pragmatism of William James as a backdrop, became a Scientific endeavor, and an empirically oriented-discipline. The rise of program evaluation All this funding aimed to resolve questions of impact: Did the intervention actually work at all? Did the intervention or policy have the impact predicted? If it worked, how did it work? Is there a cause/effect relation? Were other factor implicated? How this intervention compares with others? Sophisticated, complex, and expensive research methods were used to increase validity of the answers and to attempt to isolate the causal variable. The famous random double-blind clinical trials became the golden rule of validity. It was possible to compare two –or more- of projects or programs, and, based on their evaluations decide which was more efficient. (For example, what’s best for the same population: $1000 invested in give-away mosquito nets or $500 invested in nets and $500 invested in training on their use? The “Randomistas” Isolating causality is a major goal of science, and the new social science disciplines were no exception. B.F. Skinner wrote that his goal was to describe, understand, predict and control human behavior… which would be achieved by the use of appropriate research methods and a detailed understanding of causality. The complexity of the social scenario, where isolation of independent variables is extremely difficult due to the nature of the subject -humans- made experimental designs like the Random Clinical Trial (RCT) elusive for Social Scientists (Developmental Psychology, given its most common subject –single infants and animals- has benefited the most from the RCT as a method.) On the other side of the spectrum, Sociology and Economics have just recently been able to use the RCT with some degree of success, with special emphasis in Microeconomics research. The nascent fields of Behavioral Finance (Nobel 2002) and Mechanism Theory (Nobel 2007) will likely benefit from the RCT as a research method as they evolve. The research methods used in Economics have gravitated towards the less attractive outcome of correlation, instead of causality and Finance has used the well known “discounted cash flows” analysis and techniques to assess and compare alternative capital allocation alternatives. A tale of entrepreneurship, interest rates and project evaluation. In 1490 when Columbus was given venture capital to finance his adventure, the court advisors didn’t consider how the presumptive future gold payments would fare against the current investment: gold today and gold tomorrow were for all practical purposes, the same. Interest was banned by law and church. Selecting among different projects was subjective since there was not a proven technique to rank projects with different durations and different benefits (cash flows). The decision was left to the judgment of the Queen, but not for long. In 1494 Venice was one of the busiest trade ports in the world, connecting Europe with the Middle and Far East. The accounting challenges posed by such complex international trade, along with the familiarity of algebra (imported from the Middle East) and the Greco-Roman mathematical knowledge provided the foundations for the Venetian Lucca Paccioli’s cornerstone achievement: “Summa de arithmetica, geometria, proportioni et proportionalita”. In his treatise, he presented the modern accounting methods, and provided significant contributions to geometry. But most important he, the notions associated with the discounted cash flow including the concepts of Internal Rate of Return (IRR) and Net Present Value (NPV), likely the most used metrics in the field of financial project evaluation in the last 500 years. The merits of the Net Present Value were immediately recognized by investors worldwide: it allowed them to compare different exclusive projects, regardless of their size (whether big and small), with different durations (days, years), with different benefits over time (upfront versus delayed benefits) in a systematic, quantitative way. It allowed ranking different projects in order of interest under one single metric. Finally, the world could compare apples to apples. The world would never be the same. In words of the revered philosopher of sciences Thomas Kuhn, it was a Scientific Revolution, changing the paradigm of capital allocation models. With this method, Finance has achieved a major feat: it has generated a standard, agreed-upon set of procedures and techniques to compare different capital allocation projects and rank them (further refinements of the NPV approach have permitted comparing projects that are non-exclusive, projects subjects to capital rationing, or potential gains to be obtain upon success of prior phases –e.g. Real Options-). Evaluating social investments, 2008 As of July 2008, I have found close to 40 different initiatives and methods to assess/prioritize social investments. The shadow of the two traditions discussed cast over these initiatives: the lab-like sophistication of the program evaluation discipline and the sharp financial approach. Evaluating program evaluation The program evaluation approach is particularly useful when the policy maker/investor faces the dilemma between two or a limited set of interventions and a limited set of populations: Here, prior program evaluation can illustrate the decision making process with unmatched clarity. Unfortunately, the Global Social Investor faces a much more complex dilemma: multiple disparate interventions in disparate latitudes with different durations and different benefits. The investment options are globally limitless and present dilemmas like: is it better to invest in malaria nets in Mali, or in a microfinance project in Nepal? As much as the social investor acknowledges the value of program evaluation, this method does not provide information that will allow investors to rank global alternatives of capital allocation. The question still holds: How can we decide if the dollar invested in microfinance in Nepal is more “effective” than a dollar invested in malaria in Mali? Which will provide more “bang” from each unit of input? The problem becomes clear; this is a problem of capital allocation optimization. Adding a “social line” into the Balance Sheet? Triple bottom line? Paradoxically, many of the new impact assessment efforts try to provide a framework for measurement while also relying on the assumption that much of the impact “cant be measured”. The rationale might go something like this: “how can we put a price on a human life! (…or whatever other outcome we are targeting). Human life is invaluable, and thus, a new set of measures should be put forward. The balance sheet of social enterprises should have a “social impact” line.” The problems with this approach are several. First: we are doing social and philanthropy investing because we think it is valuable. If it is valuable, why are we resistant to value it in the way we tend to value other assets: that is through the social convention of price? Consider that: the U.S government has a “statistical price of a human life” metric agreed upon for years now. Can we do the same for, let’s say, our Mali citizens using bed nets? Second: we want to measure it but we do not want to use the standard measurement techniques. This approach presents a totally different challenge -not only we want to provide a plausible, and credible measurement to rank different investment alternatives; we also want to create a new knowledge paradigm. Certainly a daunting task with no minor intellectual pretensions! Unless we find our own twenty-first century Lucca Paccioli, is unlikely that a new revolution of knowledge in metrics will occur anytime soon. On the more practical side: this approach might have serious consequences as the efforts in creating new metrics could be counterproductive given that mainstream society is reluctant to “buy” them and, therefore, the philanthropic effort fails to attract even more resources, due its lack of credibility and reporting transparency. Finally, since these approaches are far from compliant with GAAP regulations, even in the most successful endeavors, they will be off-balance sheet for ever. Not good if we are planning on growing the initiative trough financing from where financing comes: the highly overseen, regulated, “rulefied” competitive capital markets. Metrics 2.0: Muhammad Yunus meets Milton Friedman. The existence of economic outcomes (both good and bad) outside the main enterprise is not a new idea in the field of Economics, and is called “economic externalities”. A closely related concept is the Social Enterprise – the idea that through process and product innovations there is money to be made providing the Base of the Pyramid and, at the same time investors are served with market comparable returns. From the Global Social Investor perspective regardless of our intention (creating social enterprise, positive externalities, or simply alleviating suffering) the issue is one Optimal Capital Allocation. A successful metrics framework would be increasingly effective if it has widespread credibility among the society at large. Any approach involving “esoteric” metrics has a double challenge: creating the metric and convincing the rest of society of its validity. Building on the shoulder of giants, a successful framework for Capital Allocation Optimization might gain more traction if -informed by the program evaluation advances- builds on current financial standards on project evaluation (NPV, IRR) and capital allocation optimization. How would this approach include all the soft issues (human lives saved, or increased education access for woman, or village income lift)? A credible approach would require computing at market prices –in money, old fashion style- all the externalities, benefits and liabilities generated by the initiative and consolidating them into a pro forma financial forecast to be discounted to the present. If we value them, let’s count them proudly. Your accountant friends will love you, and you certainly will be able to generate more resources for your philanthropic initiative.

From the blog www.nextlogics.wordpress.com

Hi Investor,

There's a couple of things out there which may be of interest from what I read above. First Peter Burgess' work at the Transparency and Accountability network (tr-ac-net.org) who uses the mosquito net issue from his time at the World Bank, to illustrate what his work in social business metrics, is now all about.

For an example of development aid funding deployed as investment capital, you'll find a proof of concept project described on our website. It leveraged development aid funding to create a microfinance bank and 35 associated social projects in Russia and resulted in 10,000 new businesses, more than 80% started by women, to return all investment over 5 years ending in 2005.

http://www.p-ced.com/projects/russia/

Jeff

Finding good metrics would indeed be one route for help drive investment, and I like the idea of measuring the Gross National Happiness instead of Gross National Product as they want to do in Bhutan and a few other countries. There are attempts to measure this while staying away from ideology, to come up with an Index that would allow the benchmarking of countries or regions. But while it is certainly worth pursuing, this is not something that will become a standard anytime soon. Meanwhile I like the "interest rate" and "sustainability" of a venture as a measure of what is reasonable for an investor compared to other options, and then I think that each investor will have its own interest in one area or another. The Entrepreneur Commons is not going to help pure non-profit, who will still need measurement on the impact of donations, but I also like the idea of empowering people so that they can grow to become independent on their own, which is what microfinancing and social entrepreneurship does. And if it works, people will be able to buy their own mosquito nets instead of having to rely on donations from other parts of the world. This is the concept that Muhammad Yunus pushes in his book "creating a world without poverty", and I believe this is a better way in the end.

Hi Jessica!

The last 6 months I have been in Finland. For at least 5 years before that I have been talking to various Finnish entrepreneurial groups, government officials in Finland, Austria, Belgium and the EU about the issue of capital for startups. I got to know many "social angels" and some real ones as well over the years and agree 100% with Marcs assement. I am going put a couple of things out here that I have come across and do not intend them as a criticism of the idea or do I pretend that my observations have any special privilage.

Finland and other small Euopean countires have developed patterns of social realtions where large industries are protected and have been around for quite a while. In Finland, 80% of the people would rather get a job at a big company than start their own, and thinking of the risk/reward it makes a lot of sense for the individual. The governments are worried about this because it is not unheard of for technological change to devistate an industry. An example is the US tire industry which was nearly completely killed by the introduction of the radial tire from France. They are trying to figure out ways to help fund companies and not remove the incentives to gain customers. The idea of loaning money is one, and, in fact, it is one that is now being required in some circumstances by the EU, which has the same concerns for Europe as a whole.

One thing that I was interested to hear is the problems of company growth that are endemic. It is, at this point, almost impossible for there to be Google like growth for companies (hockey stick). Skype and MySQL are exceptions, but this growth is blocked by two things: 1. the lack of appropriate fund sources, little European VC and small funds, 2. the terms and conditions that created by early investors. It seems important for the hybrid model to look at both of these thing. There is no reason that the terms could not be set up in a way that is attractive to future investment. It seem that a responsibility of the fund managers would be to help with the growth paths of the companies and develop relationships for additional capital as the company grows.

One element of the process in many European countries that is widely criticized is the process of selecting companies. I can't tell you how many lectures I heard on the "innovation process." The innovation process is to find good ideas, turn them into products, manufacture them as in a pipe. I saw many slides of funnels where many good ideas are vetted and the good ones slected. But who does the vetting? Many people I met felt that the system paid people to design products that would never be used in the market. Ultimately, the consumer decides. No matter how good the experts are at selecting the appropriate ideas, some of them will fail. Even Microsoft and Apple have had many failures. Perhaps adding some sort of auction to the projects where they are vetted by the "Wisdom of Crowds" would be a way to do market research, but at this point it is just an idea.

In any event, a good part of a product is the meaning that is ascribed to it and how that meaning is created. It seems there are other advantages to a larger, hybrid organizatin like this in terms of marketing.

Good point on the issue of selection of the projects. This is where the Social Network comes into play. The idea with the Entrepreneur Commons is that the investment fund itself is managed by the not-for-profit social network of entrepreneurs. To get a loan, you will need to be "voted in" by a quorum of investors (weighted to represent 51% of the votes) and entrepreneurs (weigthed to represent the other 49%). This way the selection is made by many who are accredited investors (successful at what they do enough that they could reach this status) or entrepreneurs themselves (currently in the trenches working on their venture and with a very sharp idea of what it takes to do the work day in day out). My take is that this selection process will be just as good if not better than the traditional review by a "management team" which is somewhat more limited in scope of expertise.

Thanks Jessica for forwarding me this discussion link. I am developing a Social For-Profit Enterprise called Maine Creates, www.mainecreates.com. The community, currently 80 members represents the creative people of Maine. I am looking for resources and or models concerning "how to" set up a profit sharing plan and or a member based ownership model for our online community members. I will be looking to raise capital this Fall from Angel investors as well.

My goal is to help increase the standard of living for the creative people of Maine and to facilitate the connection of our people, products and services to the world. The community is currently an online community with social networking features. Members will be selling through their online stores this Fall. I live in one of the poorest states in the U.S. Our self-employed people, crafters, artists, small producers and farmers are limited to a realistic 2 month market (seasonal) as we sell mainly to the tourists. Selling online under a community brand will enable our small producers the opportunity to sell year round.

I believe that the future of online communities will shift to ownership based communities. I believe that the sellers in the community I am building should have an ownership or stake in the success of the company. I am having trouble finding any research and or current business models that I can associate with.

Thanks Jeff, Hernan, Don, Matt - and of course Marc!

This week, I'll do daily summaries with all the links that come up during the day, so :: it would be helpful if you can put any links in your post at the very end as well, so that I don't inadvertently miss something. ::

At the end of the two weeks

Monday, Aug13 -- I'll collect them all.

Entrepreneur Commons looks like an interesting model from what I have seen. I think we are also dealing with a different dynamic at play when venturing for good in the context of increasing systemic instability and reconfiguration. Increasingly I think successful ventures are going to be built using very open principles and approaches which are more dependent on social capital (relationships) than financial capital. I think this will lead to smaller deals and the use of social dynamics to reduce risk (like peer lending). This is clearly coming through in these models and I'm interested to see the conversation develop here. Particularly good to see people moving past the 'let's apply the conventional vc model to the social domain'. It's been a bit of distracting red-herring in the past years.

Cheers!

I've been working in Scotland with Nordic Enterprise Trust - a Scottish Company Limited by Guarantee (aka "Not for Profit") - part funded by Innovation Norway, which is a Norwegian government agency.

We have developed two "peer to peer" partnership-based financing options using the UK Limited Liability Partnership ("LLP") as a framework - not an organisation. In the US the closest to a UK LLP is an LLC.

Firstly we have the "Guarantee Society".

This is a mutual guarantee framework for bilateral "Peer to Peer" trade credit. This credit is interest-free, but not cost free, in that a provision is made to cover system and service provider costs (provided by a service provider formerly known as a Bank), and also an amount is paid into a "Default Fund".

Settlement of trade credit may be made by the trade buyer in either money or also - with the sellers' consent - in "money's worth" ie barter. If the buyer defaults, the default fund pays and collects from the buyer - if possible - in money or money's worth.

The outcome is essentially dis-intermediated and "Not for Loss" banking where the bank no longer puts its capital at risk by creating credit based upon it, but instead acts purely as a service provider. There is also an element of community currency there.

Secondly, we have developed the "Capital Partnership" whereby production, or the revenues from the sale of production, of a productive asset are shared between the "Investor" member, and the User of Investment (which can be an entity of any type or legal form).

This allows the "Unitisation" of production or revenues in a simple new way. "Shares" but "not as we know them, Jim", ie proportional shares with no "par" value.

By way of example "The Art of Flirting LLP" was a framework for a film of that name.

The actors all received "Units"; I got 5%, and the producer got the rest. However, we needed £10k for lights, cameras etc, and the producer sold 20% of his share of gross revenues (if there are any) in exchange for the £10k.

The result was "Equity" funding within the LLP framework, and extremely tax efficient, because as is optional with US LLC's (I understand) UK LLP's are tax transparent or "pass through" and the investors may offset their £10k loss against other income.

In this model, the function of banks will be to bring investors together with investments in the gross revenues or production of productive assets. ie Investment Banking.

For affordable housing, we believe this model wipes the floor with any other, since there is no capital repayment, and we aim for an index-linked rental which is then unitised. This rental may be set at a rate below bank rates. For renewable energy, we can finance the average wind turbine simply by selling maybe 40% of its future production to investors either as proprtional shares or even in redeemable Kilowatt Hour "Units" (not unlike "Deli Dollars").

It's not Rocket Science, but it is relatively new (the LLP has only been around since 2001) and it does not involve conventional Companies or Corporations.

Professionals and consultants paid by the hour are not too keen on it because they tend to have a vested interested in conflicts and complexity, and this model has neither.

Thanks to Marc for inviting me.

I have a particular concern, which is that entrepreneurship is being divorced more and more from capitalism, that innovation is becoming social, and that more and more innovation is done through open design communities forfeiting intellectual property. As in free software, this model has entrepreneurs working for free (or mostly with forms of indirect income) for a commons, but this commons enables for-profit companies (or cooperatives for that matter), to create added value around it for the market.

In this context, funding has to be such that it does not destroy the voluntary and non-reciprocal contributions to the commons, and if we can learn from the Linux economy, what we see is that the companies benefitting from the companies are developing not profit or revenue sharing, but benefit-sharing plans, that provide general and unconditional income for programmers to work on the commons, and other types of benefits. But private benefit-sharing is always hapharard, and I believe we need public polities to fund and support this kind of social innovation.

Here is a tripartite scheme for the support of such social innovation commons:

a set of 3 interlocking institutions, each with its own complementary mission and objectives:

1) Institute for the Protection and Development of the Commons

This is an institution that effectively supports the creation and maintenance of the commons,

A) by diffusing knowledge about the legal and institutional means of creating and protecting them.

B) by creating a supportive infrastructure of cooperation that facilitates the creation of commons-oriented initiatives by those who have more difficulties accessing such necessary infrastructure

Example: the policies of the French city of Brest, led by Michel Briand

C) by maintaining relations with, and supporting the operation and maintenance of the for-benefits institutions that are most often associated with commons oriented initiatives

2) Institute for Open Business

This institution supports the creation of market value in cooperation with the Commons, in ways that are compatible and do not deplete commons-based value creation. Typically, this is the kind of Institution that would support open source software businesses, open textbook publishers, etc.. and support young and starting enterpreneurs who want to engage in such.

Example: the OSBR.Ca in Toronto

3) Institute for Benefit-Sharing and Commons Recognition

This institution focuses on patronage and various forms of support that do not destroy the peer to peer logic of voluntary contributions.

A) It creates a priori prizes, awards, bounties to support individuals involved in commons-based value-creation

B) in cooperation with the companies (stimulated by previous open business institute), it stimulates benefit-sharing practices from companies that profit from commons created value. It acts as a meta-regular for such practices, identifying weak spots and stimulating solutions for them.

C) it creates a posteriori patronage arrangements for individuals with a proven record in commons-based value creation

D) it studies and proposes policies for the overall stimulation of commons-based value creation

More Information:

• the proposal is explained at http://blog.p2pfoundation.net/public-surpport-for-value-creation-through-the-commons-4-principles-and-3-institutions/2008/07/17
• the emergence of open design communities for physical production is monitored at http://p2pfoundation.net/Category:Design
• funding mechanisms are monitored through 2 tags: http://del.icio.us/mbauwens/P2P-Funding and http://del.icio.us/mbauwens/crowdfunding
• various kinds of new metrics, such as "Open Value Metrics" can be found through this link here at http://www.p2pfoundation.net/P2P_Metrics

Here is another reference to a company and funding model.

At the last PASS conference in the Vatican, I met various representatives of social-catholic teaching, see http://blog.p2pfoundation.net/?s=Vatican. One tradition that is relevant is the Economy of Communion model of the Focolare movement, see http://blog.p2pfoundation.net/pursuing-the-common-good-4-luigino-bruno-on-the-economy-of-communion-and-charism/2008/05/11

I'm not sure about funding, but they have a particular corporate governance model which states that one third of the profit have to go to the poor (the social environment), one third to the personal development of the workers, and only one third can be business profit. My understanding was that there are hundreds of such companies, but especially in Brazil.

There is interesting activity in Brazil - in particular Celso Grecco's effort to connect investors with social ventures - it is a donor model that allows informed decisions.

"[Celso Grecco] offered his answer to the directors of Bovespa, the São Paulo Stock Exchange: why not create a kind of good-works trading space, where carefully screened civic groups in need of cash could connect with concerned investors? In other words, allow the marketplace to make informed decisions about which projects to fund.

... the world's first "social stock exchange" opened for business in 2003. Since then, private donors making online pledges (there is no trading floor) have contributed more than $5.5 million to 71 philanthropic enterprises, from helping island dwellers to prepare for the ravages of climate change, to rescuing slum children from drug gangs."

The Rockefeller Center is looking into a true social stock market in the UK. They donated $500,000 (£249,900) to back research into a social stock exchange for UK social enterprises. The same questions are being asked in this discussion are being raised here too:

"Mike Gidney, director of policy at Traidcraft, said: "It's very interesting, but there are some practical challenges. One of the big questions would be how would you value a social enterprise?" Gidney added that safeguards would need to be included so that investors did not prioritise financial returns over social outcomes."

Of interest to Adam who discussed Guardian shares earlier in the conversation, the article went on to say: "Jonathan Bland, chief executive of the Social Enterprise Coalition, said a social stock exchange could improve the financial stability of the social enterprise sector in the long term. "A number of our members have successfully raised capital through share issues," he said."

(Sources: Brazilian stock market article http://www.newsweek.com/id/139436, Rockefeller article http://tinyurl.com/6h2af8, Questions on UK stock exchange http://tinyurl.com/6yrmbn)

Ok then, last intervention for the day, a budding encyclopedia of alternative funding and capital mechanisms:

Blended Value, http://www.p2pfoundation.net/Blended_Value

Capital Commons Trust, http://www.p2pfoundation.net/Capital_Commons_Trusts

Cooperative Capital, http://www.p2pfoundation.net/Cooperative_Capital

Good Capital, http://www.p2pfoundation.net/Good_Capital

LLP's, http://www.p2pfoundation.net/Limited_Liability_Partnership

Open Capital, http://www.p2pfoundation.net/Open_Capital

Patient Capital, http://www.p2pfoundation.net/Patient_Capital

Trusts, http://www.p2pfoundation.net/Trusts

Venture Communism, http://www.p2pfoundation.net/Venture_Communism

Workers Capital, http://www.p2pfoundation.net/Committee_on_Workers_Capital

Interesting subject, although the proposed solution is not based on a real problem, but on a set of problems that not always occur at the same time. I have been in angel investments in Europe for 15 years. I now help SME's in developing countries get access to equity on the European Angel market.

Segmentation on the entrepreneurial side and on the investor side is very important. What kind of businesses are we talking about, what do the need, grand, loan or equity and who can supply the necessary funds.

On the entrepreneurial side, any business needs to make money, otherwise it is not sustainable. If you make a profit you live forever. If you are not making money you need philanthropy and philanthropy, although a good thing, never lasts forever.

On the funding side, you should really understand the market. Hardly anybody does. Who are the investors, what do they really want and what are they good at. Hardly anybody is willing to look at it in a practical way. You have managed money and angel money. Angels invest their own money and they can do what the like. Experienced Angel Investors are very successful. Three out of four of their seed investments becomes a success, whereas three out of four similar investments by funds fails. Big difference. Investors want to make money. Its what they do. But the already have money so it is usually not their main motive to invest. All investors I know take into consideration social and environmental aspects. They will not necessarily invest in the proposition that is the most profitable.

Altough we talk about a capital market, it is hardly a market. It is very differentiated, almost on the level of individual investors. So it is hard to generalize about investor. Money is not a commodity and it is not the money that brings the success.

If you look at the new emerging markets as I like to call them, there is shortage of funds, but they are there. Micro finance loans are readily available, also for SME's, upto 300.000 dollars, which is hardly micro anymore. In East Africa entrepreneurs pay about 30% interest on these loans (based on dollars) It is the going rate. 95% of the entrepreneurs who take out these loans are able to pay them back on time. These are good companies.

What if a business does not make enough money to pay the interest? Do we subsidize them? If one business has access to "cheap" money it will crowd out companies who are not able to access this cheap money, so I am totally against introducing cheap money for businesses. It has never worked in practice.

There is another problem however. There is no equity available in countries like Uganda and Tanzania. Plenty of dept, but no equity. If you want to build an empire you can't do that with loans that you have to pay back in 18 month or go broke. In Europe equity is readily available and og good quality, so why make thinks difficult if you can make use of an existing sophisticated financial system?

Conversation Summary

Marc Dangeard pointed out that the scope and impact of this market is large: the number of entrepreneurs, the amount of investment capital, and the oppportunity for developing sustainable success metricts.

Adam Ashcroft mentioned the concept of a different type of equity security, a "guardian share," available in the CafeDirect and Traidcraft models.

Marc Dangeard brought up issues with a publicly traded equity associated with the start up costs and ongoing fiduciary duties related to measurement.

Jeff Mowatt noted Chris Cook's Open Capital model and his own people-centered model . He mentioned similar work regarding the Community Interest Company in the UK, where a hefty chunk of the profit goes directly to social enterprise and charitable organizations. He then gave the example of his own software company.

Hernan Pisano provided a considerable amount of background regarding the historical narrative in this space. A more readable version (there were formatting issues) is available on his blog

Jeff Mowatt added Peter Burgess' work at the Transparency and Accountability Network and adds a proof of concept at his site

Marc Dangeard pointed out again the issue of metrics, and suggested the Gross National Happiness scale in lieu of GDP (for example). He suggested "interest rate" and "sustainability" for a venture for measurement and mentions his agreement with issues brought forward in Yunus' book, Creating a World Without Poverty

Don Steiny relates his experience in Finland and Europe. He mentions entrepreneural individualism has lower degree of cultural acceptance, and cites a lack of capital and initial T&C as mitigating factors prohibiting rapidly accelerated growth. He describes an incremental project selection / innovation process that appeared to him to be disconnected form market dynamism.

Marc Dangeard responds that project selection in the Entrepreneur Commons approach that is more closely connected to the market and entrepreneurial process.

Michael Lewkowitz comments that applying the traditional VC model to the social milieu seems a "distracting red-herring." He is looking towards approaches more dependent on social capital, such as peer lending.

Chris Cook jumps in with a clear and detailed description of his current experience. He offers two "peer to peer" partnership-based financing models, both based on UK's LLP. The first is a mutual guarantee society: "This is a mutual guarantee framework for bilateral Peer to Peer trade credit. This credit is interest-free, but not cost free, in that a provision is made to cover system and service provider costs (provided by a service provider formerly known as a Bank), and also an amount is paid into a Default Fund." The second is a "Capital Partnership whereby production, or the revenues from the sale of production, of a productive asset are shared between the Investor member, and the User of Investment (which can be an entity of any type or legal form)."

Mike Bauwens raises the concern "that entrepreneurship is being divorced more and more from capitalism, that innovation is becoming social, and that more and more innovation is done through open design communities forfeiting intellectual property." and explains a systemic proposal to address this, including links to his website.

Mike Bauwens then adds many helpful links, which I've summarized here:

More Information:

• His proposal is explained at http://blog.p2pfoundation.net/public-surpport-for-value-creation-through-the-commons-4-principles-and-3-institutions/2008/07/17
• the emergence of open design communities for physical production is monitored at http://p2pfoundation.net/Category:Design
• funding mechanisms are monitored through 2 tags: http://del.icio.us/mbauwens/P2P-Funding and http://del.icio.us/mbauwens/crowdfunding

Models:

• Blended Value
• Capital Commons Trust
• Cooperative Capital
• Good Capital
• LLP's
• Open Capital
• Patient Capital
• Trusts
• Venture Communism
• Workers Capital.
• One tradition that is relevant is the "Economy of Communion" model of the Focolare movement:http://blog.p2pfoundation.net/pursuing-the-common-good-4-luigino-bruno-on-the-economy-of-communion-and-charism/2008/05/11

*For those who are interested in formatting here, please see this formatting documentation *

Other social finance resources on Social Edge:

Hybrid Business Model http://www.socialedge.org/features/issue-areas/hybrid-models/

Venture Philanthropy http://www.socialedge.org/resources/edge-wiki/VenturePhilanthropy

Opportunities http://www.socialedge.org/features/opportunities/topics/social%20finance including “Banking on Social Change” Changemakers Competition and the conference Social Capital Markets 2008

Jobs http://www.socialedge.org/features/job-listings/topics/social%20finance including openings with New Profit, GivingWorks, Ashoka UK, Oxfam

These terms, both appear in 20th century English to describe that which existed on one hand as trust and giving between family, friends and communities, on the other a form of business serving a community purpose. The former probably existing before language and the latter in our Western culture at least demonstrated by the Quaker businesses and Co-op pioneers of earlier times. Neither of these are totally absent from the present way we do business. Nor are they illegal within the constraints of how a business may operate by law. In fact according to UK Companies Laws of 2006, company directors are now obliged to consider the effect of their decisions on local community and environment.

Speaking on behalf of the P-CED founder, whose capacity to contribute is limited by his field location and equipment, what he set out to do was to propose a business model which made people, their economic, social and cultural rights the core objectives of the business. Muhammad Yunus led the way with the Grameen peer group model of microcredit, by which means social capital builds group trust.

For our own efforts this moral collateral form of lending takes on primary role. In the first application of P-CED it was requested in a strategy paper to leverage investment for a development project in Siberia. Central to this a micro-finance bank and the insistence that moral collateral based lending is perhaps the only way to create new business for poor people, rather than feed into existing and perhaps corrupt infrastructure. Clearly the social capital is very much focussed on the target location. The case for doing it, also social capital, perhaps in the Robert Putnam sense, of promoting enlightened self interest to demonstrate that targeted economic development could succeed where trickle-down had not.

The result being 14,000 loans with 10,000 new businesses created, of which more than 80% started by women and full cost recovery by the end of the project in 2005.

In 2002/3 the enlightened self-interest strategy was proposed for a Islamic community, the repatriated Tatars of Crimea where inter-ethnic conflict bore the risk of developing into another Bosnia. In this case the ROI made a stronger case by direct comparison with Tomahawk Cruise missiles to the same value as microfinance investment. Due to local issues, this project has yet to be deployed.

P-CED launched in the UK in 2004 as a profit for social purpose software business, just before the Community Interest Company model was brought into law. The social purpose in this case being to fund the development of a national scale strategy. Four main components were specified -childcare reform, broadband deployment, microfinance and a social enterprise foundation and faculty. In terms of Yunus's writing around this time, a mix of more than to less than full cost recovery, together representing a nil overall cost strategy. It was delivered to Ukraine's government in October 2006, as social capital itself.

Jessica, Dan, et al, I love what you've done with direct micro-finance online and this great blog-net! The Entrepreneur Commons is a great concept - and it will work nicely with my Global Community Development Association nano-loan/micro-venture network system. It is also designed to act as a valuable source of funding for Kiva.org as well. It's new born, so feel free to nurture and cultivate it or suggest improvements and revisions. You can check it out at >> gcdanet.ning.com and www.webjam.com/gcda << I'll be deeply honored to receive your blessings and endorsements. Yours Truly, Michael

Conversation Summary

Marc Dangeard pointed out that the scope and impact of this market is large: the number of entrepreneurs, the amount of investment capital, and the oppportunity for developing sustainable success metricts.

Adam Ashcroft mentioned the concept of a different type of equity security, a "guardian share," available in the CafeDirect and Traidcraft models.

Marc Dangeard brought up issues with a publicly traded equity associated with the start up costs and ongoing fiduciary duties related to measurement.

Jeff Mowatt noted Chris Cook's Open Capital model and his own people-centered model . He mentioned similar work regarding the Community Interest Company in the UK, where a hefty chunk of the profit goes directly to social enterprise and charitable organizations. He then gave the example of his own software company.

Hernan Pisano provided a considerable amount of background regarding the historical narrative in this space. A more readable version (there were formatting issues) is available on his blog

Jeff Mowatt added Peter Burgess' work at the Transparency and Accountability Network and adds a proof of concept at his site

Marc Dangeard pointed out again the issue of metrics, and suggested the Gross National Happiness scale in lieu of GDP (for example). He suggested "interest rate" and "sustainability" for a venture for measurement and mentions his agreement with issues brought forward in Yunus' book, Creating a World Without Poverty

Don Steiny relates his experience in Finland and Europe. He mentions entrepreneural individualism has lower degree of cultural acceptance, and cites a lack of capital and initial T&C as mitigating factors prohibiting rapidly accelerated growth. He describes an incremental project selection / innovation process that appeared to him to be disconnected form market dynamism.

Marc Dangeard responds that project selection in the Entrepreneur Commons approach that is more closely connected to the market and entrepreneurial process.

Michael Lewkowitz comments that applying the traditional VC model to the social milieu seems a "distracting red-herring." He is looking towards approaches more dependent on social capital, such as peer lending.

Chris Cook jumps in with a clear and detailed description of his current experience. He offers two "peer to peer" partnership-based financing models, both based on UK's LLP. The first is a mutual guarantee society: "This is a mutual guarantee framework for bilateral Peer to Peer trade credit. This credit is interest-free, but not cost free, in that a provision is made to cover system and service provider costs (provided by a service provider formerly known as a Bank), and also an amount is paid into a Default Fund." The second is a "Capital Partnership whereby production, or the revenues from the sale of production, of a productive asset are shared between the Investor member, and the User of Investment (which can be an entity of any type or legal form)."

Mike Bauwens raises the concern "that entrepreneurship is being divorced more and more from capitalism, that innovation is becoming social, and that more and more innovation is done through open design communities forfeiting intellectual property." and explains a systemic proposal to address this, including links to his website.

Mike Bauwens then adds many helpful links to information and models, which I've summarized here:

More Information:

• His proposal
• the emergence of open design communities for physical production is monitored here
• funding mechanisms are monitored here and here

Addional Models:

• Blended Value
• Capital Commons Trust
• Cooperative Capital
• Good Capital
• LLP's
• Open Capital
• Patient Capital
• Trusts
• Venture Communism
• Workers Capital.
• One tradition that is relevant is the Economy of Communion model of the Focolare movement

Addition

Jill Finlayson of Social Edge adds several market- and equity-based approaches, and includes three links. The Brazilian Stock Market Rockefeller article and Questions on UK stock exchange)

Another post by Jill lists Social Edge resources:

• Hybrid Business Model * Venture Philanthropy * Opportunities * and she lists Jobs

Nils de Witte brings up the idea of a market analysis of investors. He points out, "Money is not a commodity and it is not the money that brings the success." He continues discussing emerging markets and how microfinance might be providing too much debt and too few equity opportunities. He also raises the issue of "bailout" or default components of the debt market. Finally, he raises a comment that it appears to him that Europe at least has readily available equity of good quality, and "if it ain't broke, don't fix it."

Jeff Mowatt gives a nice lesson in the origins of the terms Social Capital and Social Capitalism that culminates: "Speaking on behalf of the P-CED founder...what he set out to do was to propose a business model which made people, their economic, social and cultural rights the core objectives of the business."

Michael Monterey mentions his ning forum Global Community Development Association and here

(For those who are interested in formatting here, please see this formatting documentation)

Nils de Witte commented earlier on the state of debt and equity funding in a few regions. I'd like to pick up on his ideas and point that in a different direction:

What investors do you perceive can't find the right "vehicles" to enter certain markets, or are frustrated with the process? Maybe they can't find the kinds of opportunities to invest in that they are looking for, or maybe they feel that the investment/lending process isn't working for them.

What entrepreneurs do you find who you feel have all but a few pieces of the resource puzzle (whether the resources are financial, skill, or connection related)? Do you find specific stories that are repeated?

Comments on the previous topics are still welcome, of course!

Jessica, The stories of frustration I have heard from the Investor side are related to the process and the relationship that was established more than being able to access certain markets. Angels I talked to tell me how they cannot make a good deal: - first there are bad deals which are due to something that was missed during due diligence (do you do background check on the entrepreneur? do you know the field enough that you can have a good feel for how viable the business is? did you audit the accounting reports?). Because you were purchasing stock, part of the decision came from your feelings on how you think you could drive the business rather than just looking at it from the outside trying to really evaluate the entrepreneur, his level of expertise and how he will be able to execute on his plans. With a loan, you are not buying anything, you are trusting the entrepreneur that he will be able to pay you back, and this is a different prospective at the time of selection. - a second possible case is one where you did things right, weighted the pros and the cons, and you feel there is good business to be made. But the entrepreneur needs help and does not accept the input from the investor. Or he does but only halfway, which means the startup cannot completely turned over to do what the investor feels should be done, and therefore the relationship goes sour. In this case, I see the investor as an entrepreneur himself who is trying to drive next to the other entrepreneur. Except there cannot be 2 drivers behind the wheel, and therefore it does not work. The frustration comes from the process by way of the relationship that was established. The investor is also an owner, and it gives him the feeling that he could drive next to the original entrepreneur, which is the wrong setting. With a loan, you know clearly that you do not own a piece of the business, so it reduces the temptation to get involved directly rather than through support and coaching of the entrepreneur. Again it gives you a different prospective on what can be achieved and how. - a third case is that the deal is good, and then the entrepreneur goes for a second round of funding. In that case, the next group of investors will renegotiate the original equity deal to fit their own requirements, and the angel is getting squeezed. In this case, the original deal might have been good, but the fact that it was not enough money to go all the way to cash flow break even ruins it. The new comer really rules, because without him the company cannot make it, so you have to take his requirements. I have also seen situations where one of the original investors block the second round and ruins the deal by refusing to fold to the new investors requirements. In both cases, a good deal turns no so good. This problem is a process issue in the sense that investors expect that there might be several rounds of funding, but they do not always foresee the implications of doing that. Or even if the investor does know what will happen, the entrepreneur may have in mind that if he got money from selling stock once, he can go for more later. So the focus is on executing the plan rather than really thinking about bringing cash through customers, which would give you market validation sooner rather than later. With a loan, the beauty is that as soon as the entrepreneur receives the money he (and the investors) know that the clock starts ticking. And the focus is not to keep executing on the plan and figure out that you can go for more money later if you need it, but rather becomes trying to figure out how the debt can be repaid, which means thinking about bringing cash from customers rather than selling more stock. The difference between investing in equity or through debt is huge in the impact on the relationship and on the strategy that results from one setting or the other. And when I look at how Microfinance is performing, I am convinced that it is worth trying. The default rate cannot be worse than what you see with the existing process, and if you see something closer to what microfinance gives you otherwise (the results from these poor entrepreneurs in developing countries who were getting no credit from anybody before Muhammad Yunus decided to give them a chance), then you have a real winner.

Marc, you are very well informed. Those are the exact complaints of investors everywhere, even in Europe. There are many reasons for these complaints, and they are mainly true, but not always and there are ways around it.

First let me state, there is no substitute for real equity. I am just back from Jordan and they have similar issues as in East Africa. When you need to invest and you have insufficient collateral, you need equity and not any wealthy individual will do. There are plenty wealthy Iraqis in Jordan, but the are really horrible investors.

Your first objection to equity is easy to overcome. I work with local partners who know the entrepreneurs quite well. They conduct practical Due diligences under our supervision.

Your second objection is right as well and far more difficult to solve. Its a cultural issue. Entrepreneurs do not value a good relationship with there investor and a good relationship, build on trust is what you need see a equity investment through to the end. These issues played a major role during the dotcom hype and they have been overcome in a few years.

Your third objection is true for every angel investment in any country, thats why Angel Investors don't like VC's that much. One of the solutions the Angels use is to use there own networks for further finance and not to invest in businesses that need enormous amounts of second round capital.

Also the investor should never take place in the drivers seat. Its not done. It doesn’t work. Not in the developed world and not in the new emerging markets. If you can’t trust the entrepreneur you should not invest. You can´t replace trust with control. Many investors try but they are bound to fail. Its up to the entrepreneurs to get their act together and convince the investors that they are going to be successful and that they are ready for an investment. Its quite a long way to go, I admit, but if you don't start now you will never get there. And I can assure you, the time is right.

Our small foundation is setting up networks of local service providers to guide the entrepreneurs and to support the investors with due diligence and mentoring and monitoring entrepreneurs after investment. In Amsterdam we maintain a network of experienced angel investors who are really interested in investing in the new emerging markets. They don't mind the obstacles. The returns are above average so far.

Nils, thank you for addressing Marc's assertions directly.

As someone who subscribes to a portfolio perspective, though, I "never say never" and feel there are certainly times when debt is the appropriate financial approach to investment.

For one thing, debt can provide cash flow whereas equity investments are illiquid.

On the other hand, I am glad to hear that your foundation is able to provide equity investment, particularly because of course there are many entrepreneurs for whom a debt-based capitalization structure would be inappropriate.

Dear Jessica,

Of course you are right. Debt has its benefits. Most problems can be solved with debt instruments. However not all problems. Take a look at Uganda. Debt is available in large amounts through the many micro finance institutions. However the effective interest rate is 30% p.a. on dollars. You can't build long term growth with short term money. The more promissing SMEs are suffering and there is no solution. Even the local banks see that and acknowlage there is a strong need for true equity, which they can not supply.

So I really wonder whether what is going to contribute more to economic growth in developing countries, more debt or more equity.

From the Entrepreneur side, what I see most is that the good entrepreneurs try to stay away from investors as much as possible. So the best deals are not even necessarily visible to investors. The entrepreneur will take the friend and family money, and then will try to bootstrap from there. Only when they have no other choice will they consider getting investment from people they do not know, as they realize that the money comes with constraints. People today offer notes to investors as a way to stay in control, and if the entrepreneur is a friend or if the deal looks so good that you can't let it go then some investors will agree to that. So I think that with debt you will have access to good deals that you would not see otherwise. Because even when it is possible to bootstrap, it could be easier if money was available, as a way to stabilize the situation for the employees for example. And so good entrepreneurs, while not interested in equity deals, have told me they would use the extra comfort that debt would give them. And definitely they would use the help coming from peer support as provided by the social network of entrepreneurs around the Entrepreneur Commmons.

Thank you for the interesting conversation. Currently I am trying to raise funds to establish a Social Enterprise & Culture Guild. I have looked at the type of corporations available and how each model raises capital. One, aspect that is not often discussed is a cooperative. Cooperatives allow investment and liabilities are limited to the value of your shares. In our case I am thinking of using a cooperative model to raise capital as I think I can find investors with “mad money” in the range of $5,000 to $15,000. The cooperative may then incorporate an L3C in Vermont but operate as Delaware company. http://www.sec.state.vt.us/corps/dobiz/llc/llc_l3c.htm

Raising small amounts of ‘mad money’ and pooling them will then generate sufficient equity for the L3C to obtain market capital.

My suggestion is look at the types of corporations and their legal parameters for raising capital in your country. Select a model that helps you balance control and funding issues. Don’t be afraid to change the standard corporate charter by-laws to reflect your social goals. For example changing decision making from a votes by the number of shares to consensus or other forms of decision making that are more participatory and equitable.

Carlos, that's a very interesting structure, particularly because of the nominal cost of entry, and I like your exhortation to approach by-laws as something that can be approached in different ways.

One of the things I like in particular about Marc's Entrepreneur Commons model is that addresses is the downside financial risk through the mutual guarantee. I would love to hear more about how the cooperative model might manage their periodic financial losses, including redemptions (asking for their money back).

If you have that online, or more thoughts on this structure, please comment with your link(s). I will be posting a final summary of this discussion on Monday.

In terms of redemption, it would be handled by setting a side a portion of the capital as a reserve. The reserve would be used to pay for redemptions and manage other risks.

The terms for redemption would be based on two factors; one, the use of funds and the ability for repayment; two, the term in which that particular use can be liquidated. For example, a one thousand dollar investment could be redeemed in one year’s term, however, a five thousand dollar investment may have a two year term before redemption.

There may reason for a humanitarian exit clause, for example a medical emergency. Making these types of accommodations are necessary since we are likely to be dealing with a larger pool of investors of moderate-income investors.

Sorry, I don’t have our corporate by-laws online. The way we modified the by-laws was to use a consensus model as the first decision making process, if it fails it can then go to a voting by shares process.

I am still working our website. Perhaps I can email you a link so you post it at a later date.

Thanks, Carlos.

I am one of those people who is caught between the rock and the hard place in trying to finance a hybrid venture. If successful the income of women and their families who live in the mid-hills of Nepal (1,200 to 3,000 meters) could increase by as much as ten times, from a current average income of well below $1/day. Many of these families are victims of our (I'm American but this is my home) ten year Maoist insurgency.

We need about $250K for the not just for profit marketing and sales company and about the same amount for the non-profits (I/NGOs) who will assist the producers in preparing the product. After three years we will be completely self-sustaining and will already have generated nearly $500K in income for these families. No matter where I turn it seems my story is not just right. Or not pulled together enough, but I need to earn a living while I pull it together. The numbers are too small, too big.

I find LOTS of analysis on the net and much of it is very interesting. This discussion, for example. But it gets me no closer to helping transform the lives of tens of 1,000s Nepali families.

Is anyone able to offer me some advice? I looked at BidNetwork a few months ago but just returned to see that we might qualify for investor matchmaking. I'm open to any and all ideas.

Thanks so much and keep up all the good thinking, Ellie

Dear Ellie,

Please check www.bidnetwork.org and file your proposition. Its what we do. Find funding for social/commercial ventures in developing coutries. We focus on equity, but used all kind of sources for funding.

Nils

Hi Nils. My post is completely legit. I've been to bidnetwork and will go back RIGHT NOW. I can't seem to figure out how to file without being in one of your targeted countries but I'll give it another shot. Thanks for replying to my question. Namaste Ellie

I am restarting my socialedge blog on fundraising next week and thought I would note that the foundation world and NPOs are still viable models, although they are ot businesses. Itis becoming incresingcommon for NPOs to operate like they were FPO's and even to create an LLC that attracats capital. Granted - Marc's point that they do not usually fit the needs of VCs or Agnels and cannot IPO, this is still an investment opportunity fro social investors who are more concerned with social output than profit.

Additionally, as a member of an angel invstment group and an organizations that invests in independent films in teh $1M - $5m range, I see quite a few deals that are not $30M to $50M tht do get funded.

Patrick O'Heffernan

Patrick,

Thank you for the feedback. You are right that some companies within the group I am trying to help (Social businesses or other FPOs with less potential than the ideal 3x to 10x VC/Angel targets) are getting funding, but I have not seen a reproducible process for this, it seems to be more the result of who you know (so back to the Friends and Family model) than a mechanism that opens opportunities for anybody with a viable business project. Films in this area are a different animal as the cash event is more clear, coming from theater ticket sales and DVD sales, without having to wait for an IPO or other cash event. This is where the Entrepreneur Commons comes into play.

I will take this opportunity to mention that a good place to check out what is happening in this area of social investment will be Socap2008 (http://socialcapitalmarkets.net). I am happy to share that the Entrepreneur Commons was invited to participate and present its story as a case study of what can be done. The conference will bring together investors, social entrepreneurs and whoever is interested in the matter, so it should be a good venue to evaluate and confirm options.

Filmmakers have more opportunities to market their picture, such as, digital age. The tough area for new good script writers/producers is building a strong business relationship with the investor team. I do agree that most independent filmmakers are not asking for $10 million; nevertheless, some investors that I have called are still seeking $10 million budgets in order for them to invest.

Information is quite confusion, I have come to one decision, a good script, proper budget, a forecast of a great potential ROI and a good marketing plan will work and the picture will be successful.

Going to film finance workshops, I find that there are many new filmmakers today. It really is about the script and how you put the casts and crew together. However, the talents will not commit 100% without the funding.

Lynne

What are the procedures for filmmakers and their team to approach investors to build a strong business relationship? When an investor looks at an independent film, what is the first consideration going through their minds for investing? Is it a good script? The budget? A fantastic PowerPoint presentation? How the marketing plan is for the picture? The professional approach of the writer/producer and the team? All all of the above?

Lynne

Great discussion guys ... Just read this article which will add to the conversation: http://www.ssireview.org/articles/entry/money_to_grow_on/ (from Standford Social Review)

Just for your further reflection, a way to invest capital, create social good, positive returns and create companies committed to socially responsible practices:

An Investment Fund and 501c3 Partner that Invests in Socially Responsible Companies and Produces Market Rates of Return

Strategy: An investment fund and an affiliated non-profit organization (501c3) work together to invest in and advise high growth for-profit companies on how to produce positive returns to all the company's stakeholders:

+ investors earn profits (benchmarked to the Russell 2000), + directors and managers evaluate and adopt (as appropriate) "best practices" for socially responsible companies, + employees work for competitive wages, profit-sharing, training, and health care (benchmarked to company performance goals), + customers purchase well made, fair trade and (emerging) green products and services, and + community groups partner with company resources and people to help solve local issues of importance to the community, the company and its employees.

The fund manager earns standard management and incentive fees and the non-profit affiliate earns a portion of the fund manager's fees for its consulting services. The non-profit also invests in the fund (directly and via PRI from foundations) and becomes self-sustaining via the fund's profits. The non-profit organization's overall charitable and educational purpose is to promote the teaching and adoption of ethical and responsible business practices, e.g., the Principles of Corporate Responsibility, consistent with the goal of producing market rates of return for invested capital.

The fund's and the non-profit organization's directors and officers are senior and well regarded business and community leaders and the fund is managed by successful hedge fund and private equity executives. The organizers now are seeking a lead investor or donor to help finalize the program's objectives and legal organization.

Just for your further reflection, a way to invest capital, create social good, positive returns and create companies committed to socially responsible practices:

An Investment Fund and 501c3 Partner that Invests in Socially Responsible Companies and Produces Market Rates of Return

Strategy: An investment fund and an affiliated non-profit organization (501c3) work together to invest in and advise high growth for-profit companies on how to produce positive returns to all the company's stakeholders:

+ investors earn profits (benchmarked to the Russell 2000), + directors and managers evaluate and adopt (as appropriate) "best practices" for socially responsible companies, + employees work for competitive wages, profit-sharing, training, and health care (benchmarked to company performance goals), + customers purchase well made, fair trade and (emerging) green products and services, and + community groups partner with company resources and people to help solve local issues of importance to the community, the company and its employees.

The fund manager earns standard management and incentive fees and the non-profit affiliate earns a portion of the fund manager's fees for its consulting services. The non-profit also invests in the fund (directly and via PRI from foundations) and becomes self-sustaining via the fund's profits. The non-profit organization's overall charitable and educational purpose is to promote the teaching and adoption of ethical and responsible business practices, e.g., the Principles of Corporate Responsibility, consistent with the goal of producing market rates of return for invested capital.

The fund's and the non-profit organization's directors and officers are senior and well regarded business and community leaders and the fund is managed by successful hedge fund and private equity executives. The organizers now are seeking a lead investor or donor to help finalize the program's objectives and legal organization.

Investing in motion picture is a great potential for ROI with great credential credits to add to an investors portfolio. However, it is the writer/producers responsibility to present a top notch commercial business plan, budget, LOI and A-list cast along with a good marketing plan.

There is a lot of opportunities out there for investors, it is as I receive in my email from another source - It is all about the market and having a good marketing plan; know your market.

Lynne