Tuesday’s Investors’ Circle conference in San Francisco kicked off with a panel discussion on the prospects for social enterprise, bringing in voices from policy, academia, journalism and socially responsible investing (SRI).
Jerry Engel from Berkeley’s entrepreneurship program, who served as moderator, voiced the opinion that social investing is mainstream and all ventures are social ventures. He described SRI in three segments — negative screens (avoiding bad companies), positive screens (rewarding good companies) and shareholder activism (reforming companies from within). We are at the inflection point, where social investors are no longer unique. Despite its growing popularity, Engel stated bluntly “Right now we’re in a world of hurt. New venture investing is at its lowest in 11 years. Even healthcare and greentech are in the toilet.”
“We’ve been here before,” stated David Crane, special advisor to California Governor Arnold Schwarzenegger for Jobs and Economic Growth, “For those of you who remember 1973 oil embargo.” Investment surged in clean energy, but then oil prices dropped and it all went by the wayside. And 35 years later we are in worse shape than before. According to Crane, we need to create policies that build massive, long-term demand for sustainable products “no matter who’s in office and no matter what the economy is doing.” This is Schwarzenagger’s No. 1 goal, Crane explained.
Concern over exit options were voiced throughout the panel. IPO’s are a rare breed, more and more companies exit via mergers and acquisitions. It takes longer for initial investors to get out of deals and make new ones. And early stage investors are diluted significantly. An audience member voiced her concern: “I manage a small fund, and I can’t invest in you because your brethren have not exited, not because I’m greedy.”
Cheryl Smith, chair of the Board of the Social Investment Form and president and senior portfolio Manager at Trillium Asset Management Corp., stressed the need for developing a framework of transparency and disclosure. “We haven’t had a framework that encourages disclosure … If we know what we are doing, we have a better chance of not dropping off the edge of a cliff.” Smith also voiced her optimism for the opportunity we are faced with today — a call to action.
Smith also noted that social/mission investing is on a longer time frame. “When you look at the long term time frame and health and viability, the focus a mission based organization has is related to long term return on investment because … they are focused on sustainability and building community, which is incorporated into the thinking.” When asked about quarterly returns and measurements, Smith advocating that social ventures should be evaluated on their five-year plans and their missions, rather than quarterly numbers.
“Lasting impact can’t be built on quarterly returns,” Smith said. To cause this change in the financial markets, the cost of transactions must increase, so people can’t buy and sell so easily.
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