Less than a year ago, I asked a prominent figure in Chicago’s startup community about local investors’ interest in the social enterprise model.
She told me flatly, “No one cares.”
Well, they care now. Since Impact Engine’s Investor Day in December 2012, five of the eight members of the initial cohort have closed a round of funding. If you’re keeping score at home, that’s 62.5%, compared to 6% or less for startups in general.
(Paying attention, #socent startups? The deadline to apply for Impact Engine’s next class is June 30th.)
Six months ago, I wrote that the Impact Engine pitches from the first cohort—which all rated among the best startup presentations I’d seen anywhere—“proved profit-driven innovation can create solutions to some of the world’s most dire problems.” I also rated each startup on Awesomeness (purely subjective “wow” factors) and Fundability (an educated guess at how investors would project the profit potential of the business model).
And guess what? The ones I rated highest for Fundability got funded—but so did one I ranked near the bottom.
What I missed about Portapure
Portapure builds individual water treatment devices for developing nations. Considering the devastation water-borne diseases cause, I applauded the mission, but doubted the company’s fundability because “water treatment is a boom industry with players at every level. “
Yet, Portapure recently closed angel funding worth potentially $300K. What did I miss?
“Other filtration technologies aren’t specific to developing countries’ needs and environment,” says founder George Page. “They are high-end products developed for the first world, some with pumps that require electricity or batteries. They’re useless in developing countries. Portapure units work on gravity, with no complex mechanisms. Anyone with a 2nd grade education level can understand how to use them.”
Page explained that Haitians, who on average earn less than $1,000 a year, can spend as much as $3.50 a week on drinking water—but can buy a Portapure unit with a microfinance loan and pay it off in 4-5 months with the savings. With more than 4 million Haitians lacking access to clean water, that’s a promising market.
Before Impact Engine, Page says he was offered $50,000 for half of his company. It’s now valued at $4 million. He thanks Impact Engine “for access to folks who understand that sustainable social impact is a true value-add, at the forefront of changing how business works.”
Legitimacy for the whole social enterprise space
I ranked Collaborative Group and ThinkCERCA as the most fundable startups at Investor Day—and they did not disappoint, closing on funding worth $550K and $490K, respectively.
Their models and missions couldn’t be more different. Collaborative Group connects retail brands with artisans in the developing world—for example, a line of Rachel Roy/FEED handbags sourced from India. Founder Kathleen Wright describes the impact such projects create: “We’re employing five artisan groups, and they’re all now sending their kids to school. It really enables them to have different dreams for their kids and themselves.”
But it’s not all social impact—Wright projects that her revenues will double this year.
ThinkCERCA launches its platform—curriculum and tools that teach the critical thinking and literacy skills essential to the new Common Core State Standards—this August. It will reach more than 5,000 students between grades 4 and 12 in both city and suburban school districts. “It helps teachers and kids collaborate and construct new knowledge,” says founder Eileen Murphy, “because you just can’t teach someone to write with multiple choice questions.”
Aside from its “feel good” vibe, Murphy points out a concrete advantage of the social enterprise model in the tech community: “The social impact focus makes a big difference competing for engineers.”
Regarding Impact Engine, Wright says, “Chuck’s Templeton’s guidance—how can you put a price on that? It gives legitimacy to the whole social enterprise space.”
Murphy adds, “Their energy, intelligence, support and influence can’t be replicated, no matter how brilliant you are or how hard you work.”
Who’s next? Applications are due June 30th
Two more members of Impact 1 have secured funding. Azadi, which markets inexpensive feminine hygiene products in rural India, has since moved back to India to build and train its sales network of 100 female entrepreneurs. And Pangea—which, for reasons unstated, didn’t even pitch on Investor Day—has closed on more than $1 million to finance its multiplatform, worldwide money-transfer solution.
Three other members—Effortless Energy, Light Up Africa and Raise 5—are still seeking funding—but, hey, it’s only been six months.
Which also means it’s time to select the members of Impact 2. Elizabeth Riley, impact Engine Program Manager, says faculty will select 30 semi-finalists “based on the originality of their ideas, their team members, the potential impact of their concepts and potential profitability.”
Riley recommends applying startups read the FAQs, and stresses, “We don’t accept companies with a ‘buy-one, give-one’ business model,” which donate to charity every time someone makes a purchase.
That’s not the social entrepreneurship model. A true social enterprise creates its social benefit from the exact same business activity that generates its sustainable revenue. It’s a model that’s gaining credibility and winning converts, and the eight members of Impact 1 are establishing Chicago as one of the world’s top social enterprise centers.
So—who’s next? Applications are due June 30th.