Sunday, September 11, 2011

SoCap Redux

At the last minute, I was asked to sit in on a SoCap panel on Thursday, along with Will and Arjuna from Omidyar Network and Kelly from Potencia Ventures. The ring master was John Goldstein from Imprint Capital.

The general idea was to talk about our experiences with raising money, or investing it, in social ventures in the developing world. I was asked to speak from the entrepreneur's perspective. 

One thing about not preparing for a session is that it puts you in "improvisation mode"... no time to try new material. I covered my experience in helping raise money for Envirofit International (a non-profit that sells clean energy products in emerging markets) and Inviragen (a for profit that is developing vaccines for infectious diseases in developing world). Both companies have raised over $10 million, including significant grant funding. 

John asked us to share "lessons learned," and I shared a few. First, I like the advice that entrepreneurs should think of "hiring investors." This involves thinking about organizational fit, roles, time commitment, etc. Take off the rose colored glasses and think about who you want on your team when the going gets tough. I have posted on this topic before. I think we hired good investors in both companies. We said "no" to deals that didn't feel good, and those still seem like good decisions. We also have invested significant time with our investors, and have strong, personal relationships with them. I can't emphasize enough how important it is to keep investors "in the loop"; many problems arise when this slips. 

The second, related, point was that the deal has to fit the needs of both the company and the investor, and to question "conventional wisdom" as it is embedded in the law firm templates for different instruments. An example I gave was that at Inviragen, we didn't have a min/max for our first round of convertible notes. We had one amount, $10,000. And we made darn sure that this was perceived as "not much money" by each of our investors. Several people wanted to put in quite a bit more, but we said "no." The idea was that this was high risk (others had tried and failed at making a dengue fever vaccine), and all our investors were people we knew well. We wanted to pass the "Safeway" test- if we lost their money, they'd still say "hi" to us at the grocery store. Similarly, a big reason we formed Envirofit as a non-profit was that we just couldn't come up with a plan we had confidence in that would return money to investors. Since our overall intent was to reduce pollution and improve health, we could fit under the requirements for a charity, and be transparent with our investors (what we always called our donors) about the risks of this venture. 

Part of being a panelist is knowing when to keep your lips zipped, and I had very knowledgable co-panelists. Kelly, Will and Arjuna shared some great learnings, and I will invite them to post their comments below. 

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