In September ClearlySo celebrated its 5th anniversary. By coincidence, it was also five years since Lehman Brothers collapsed, nearly bringing down the entire western financial system. As someone who spent years writing about Lehman as an analyst, and then six more years working there (I left in 1994), and started fund-raising for ClearlySo the very day Lehman fell, it is fair to say that these reflections have a particularly strong influence on me (see a recent blog).
It is no secret that within the social finance sector we see ourselves as being on the end of the spectrum that is closest to the mainstream. Some might even say we are not a social business at all, as we operate as a for-profit company (though we have yet to make a profit!) and, although we have a clause in our “Mem & Arts” which stipulates that we exist primarily for social purpose, we have no asset lock or dividend pay-out restrictions. This has meant that we have been funded differently than many other sector players (most of our capital has come from angel investors) and we one day expect there could be an “exit event”.
Putting ourselves to the side, it is true that of the 20 social businesses we expect to raise capital for this year, most (but certainly not all) will look like ClearlySo—some people call such companies “profit with purpose companies”. For us to connect with such firms and help them raise capital, feels quite natural—we are advocating a type of company that we ourselves represent. It is also feels normal for us to reach out more regularly to the investment mainstream. We expect that, over time, most of the money we raise for social entrepreneurs and impact investment funds will come from angels and mainstream financial institutions, rather than a few dedicated impact investors.
But we recognise that there are notable risks in doing so. Many in the sector are suspicious of the mainstream and take a dim view of “supping with the devil”. There are also undeniable dangers for social entrepreneurs considering this path. How far is one permitted to go? I was once told by the CEO of A4e that her company was the largest social enterprise in the UK—many feel they went too far down the commercial path. The Body Shop was highly criticised when it decided to sell out, at a very attractive price, to L’Oreal and Innocent was frequently judged as less than innocent in their commercial approach—a view encouraged by the subsequent sale to Coca Cola.
But a commercial approach and structure can offer advantages:
- Structuring as a Company Limited by Shares enables access to vaster pools of capital
- Stock options are available to incentivise staff in cash-starved early stage enterprises
- Commercial structures will be more familiar to counterparties
I believe both approaches have their place and perhaps my own background “in the dark side” meant that this is the course I was destined to take in founding ClearlySo. And my experience in Chairing Justgiving in the 2003-2006 period was formative in how I came to see the social business world. But of course I worry that in this pursuit of the middle ground there will be a tendency to veer in a Lehmanesque direction. I count on colleagues and the sector to keep us honest.
First Published in Third Sector in September 2013.
