Musings about Work, Equality, Social Justice and Capitalism: Human Capitalism

This is a Guest blog post from Jeff Cherry, Founder and Managing Partner of The Conscious Venture Fund and Founding Partner of The Laudato Si Startup Challenge. He is a tech CEO and mentor, investor, philanthropist, and community builder.

 

What comes next?

I recently listened to a thought-provoking episode of the TED Radio Hour on NPR entitled What We Value. Its premise was that this economic and societal crisis in which we find ourselves is accelerating the move towards a new set of values when it comes to the practice of capitalism. Those of us in the social impact and Conscious Capitalism space are heartened to see this discussion gaining momentum, but the question remains: How will capitalism change now that the unhealthy state of business and our major societal institutions have been laid bare?

There are many indications that this shift was in the offing far before the onset of the coronavirus pandemic. Although late to the game, the statement released by the Business Roundtable in August 2019 signaled a transformative move away from the outdated notion of shareholder primacy and towards a more human and effective form of business. It certainly garnered the attention of the press. And others in the business mainstream who had been either unaware or hostile to the market forces driving this change, are now finding it hard to ignore discussions of stakeholder management and whether business should have a broader role in society.

These ever-expanding discussions about the purpose of business in society are now taking place in the context of what does a return to “normal” look like in the economy. And a growing sentiment that the normal we were experiencing — where greed, inequity, declining living standards, crony capitalism, rent-seeking, regulatory capture, share buy-backs, corporate welfare and environmental depletion were the norm — isn’t in fact normal. Nor a state of being for which we should collectively yearn. As you might imagine, I agree.

The challenge we face now then, is how do we actually execute on this new idea? Many people talk about business for good and changing the purpose of the firm. But in the real world of competitive advantage, pricing models, customer needs, shareholder demands, supplier, employee and community relationships, knowing what to do is hard. We speak to entrepreneurs all the time who are philosophically aligned with a new narrative about business. They can cite anecdotes about others who have been successful, and they lack a cognitive frame that they can use to build an organization that embodies this day-in and day-out.

I’ve written at length about why I believe a focus on stakeholders in business and capitalism needs to replace the old story. In this article, the first of a two-part series, I’ll describe a framework to begin the journey to business as an institute of societal well-being: Or Human Capitalism.

Photo by Koushik Chowdavarapu on Unsplash

The New Narrative of Business in Society: Human Capitalism
What does a new story about the practice of business and capitalism look like in practical terms?

In order to fully bring this new narrative to life, I believe we need to re-define the purpose of business as a societal institution. Then, we need to translate that definition into tools that real entrepreneurs and executives can use every day to guide how they formulate strategy, individual decision making and implementation.

When a new cohort of the Conscious Venture Lab convenes, I ask a question to frame the work we’ll be doing over the ensuing 16-weeks: “What kind of world could we create if investors, executives and entrepreneurs cared as much about people as they care about profit?” It isn’t a question I expect any of the teams to answer outright. It’s a rhetorical challenge to think about how these ideas impact their businesses and the broader society.

Over the last few months, I’ve reframed that question: What kind of world could we create if we decided our first duty in business was to simply care for each other? This is the essence of Human Capitalism.

This version of the question doesn’t pit people against profit, which I believe is a false construct. Instead, it captures the meaning we’re all experiencing in this moment: can we be a complete society if the overarching purpose of business is only to increase profits and not primarily to improve the human condition? Both of these questions are variations of the age-old investigation of “What is a business for?” Academics, economists, politicians, social scientists and businesspeople have been asking this question for decades, if not longer.

Liesel Pritzker Simmons, co-founder of the impact investing firm Bluehaven Initiative, has said, “A crisis gives us an excuse to have conviction earlier.” What we are experiencing in this moment has emphasized how interconnected we are as a society and as a world. It has emphasized the importance of health as a public imperative. The importance of economic, community and personal resiliency as interdependent societal imperatives to which individuals and all societal institutions, even businesses, need to contribute. This crisis is bringing along those who may not have reached a level of conviction to move to a more human form of capitalism had things stayed … normal.

In this new reality it’s clear that the question about what type of world we want to create can no longer remain abstract or rhetorical. The coronavirus pandemic has exposed the truth, that a focus on our interdependent well-being is necessary for society’s survival. Succeed together or fail together the choice is ours, but we can no longer hide behind a narrative that separates individual financial self-interest from our mutual survival.

In the post-COVID world, the new narrative of business in society is a narrative about authentic caring, societal resilience and collective well-being.

Practical Ways to Integrate Human Capitalism
Herb Kelleher, the legendary founder of Southwest Airlines, once said, “The business of business is people — yesterday, today and forever….” But what does it actually mean to structure your business around people? What can you do tomorrow to transform the structure of your business, respond to this new reality and become the type of leader that society needs?


Caring is Job 1:
Above all there is one thing leaders must do first in order to be successful in this new world: They must actually care! To be clear, leaders who embrace the idea of caring for stakeholders as a core value and primary motivation for running a business will be well-positioned to succeed in this new world. They’ll be more able to execute on the ideas described later in this article and more likely to attract talent, customers and investors in a post-COVID world of business as a vital instrument of society.

At first this seems obvious and perhaps, some would say, no different than the status quo. But the nuance of authentically treating employees, suppliers, customers and communities as individuals deserving of your care for their own sake, as opposed to primarily as fodder for creating returns is critically important. Not only to how your company will be perceived, but authentic caring — or the lack thereof — will have a tremendous impact on your competitive performance. People understand instinctively if you are treating them fairly simply as a form of manipulation for other ends. And, unless you’ve created a true culture of caring in your organization, you’ll be tempted to abandon that care when it comes into conflict with your “real goals.” The best leaders however will understand this simple truth: how we think about creating financial value is now, more than ever, clearly tied to the way we create societal value. Authentically caring is a key component of this new narrative.

What wins in the marketplace is that you are responsible for taking care of everyone who encounters your organization” Tom Gardner: CEO and Co-Founder, The Motley Fool

With that as our foundation, there are two things that every leader can do to build caring into the operational DNA of their business:

First, adopt a specific set of guiding principals about what it means to care for each other in service of societal well-being. And second,

Institute a practical business operating system that provides a framework for living into those guiding principals.

Here in Part-1, I’ll discuss a set of guiding principles we’ve created at the Conscious Venture Lab to help entrepreneurs execute upon these cultures of caring.


Guiding Principles: The Five Promises of Collective Well-Being
In order to seed this new culture of caring into the DNA of your operations, it is crucially important that you articulate and codify a set of guiding principles that the entire company can use to organize your thought processes and create operating norms, policies, procedures and metrics that will keep your culture on track in good times and in challenging times…like during a pandemic.

Companies that will lead us into a more effective model of capitalism and a future of broadly-shared prosperity have structured their business to deliver on what I call The Five Promises of Collective Well-Being, through which we vow to use business to make the world:

  • More just,
  • More joyous,
  • More equitable,
  • More sustainable and
  • More prosperous for all.

Let’s examine each principle:

Business as a path to a More Just society:
Leaders who are best at this will work to create social justice by structuring their organizations to level the playing field and authentically create access to opportunity for all those in their ecosystem who want to contribute.

Conscious Venture Lab and SHIFT Ventures portfolio companies Hungry Harvest and R3 Score have built this promise into their business models, which drives impact and returns.

Hungry Harvest creates a more just world by providing fresh food to communities that wouldn’t otherwise have access to it and dignified work opportunities to people in need. As a result, they create scores of “Harvest Heroes” who loyally buy wholesome food from the company that otherwise would have gone to waste. In the process they have increase sales by more than 34,000% over the last 4 years.

R3Score creates a more just world by providing a dignified return to civil society for millions of formerly incarcerated Americans and allowing banks a way to engage with people they would otherwise ignore. Thereby expanding the banks’ customer base, putting financial assets to work that would otherwise lay fallow and giving the 1-in-3 Americans with a criminal record the opportunity to build a new life.

Business as a path to a More Joyous life:
Leaders who bring more joy into the world will do so by focusing on a combination of the quality of the human interactions in their operations, eliminating misery as a core aspect of their business and/or creating products that bring authentic joy to more lives.

One of my personal favorite companies, Union Square Hospitality Group, uses a culture of caring and enlightened hospitality to bring joy to employees, customers and suppliers alike.

Startup Aqus Water, that was a part of the Vatican Laudato Si Challenge in 2017, has created a product that puts “three years of clean water in the palm of (the) hand(s)” of people in places where lack of clean water has been causing extreme hardship for centuries. With more than 780 MM people in the world lacking access to clean water, bringing joy will undoubtedly bring prosperity to many.

Business as a path to More Equitable communities:
When leaders focus on creating a mutual exchange of value between all stakeholders, they move their organizations away from the negative consequences of shareholder primacy and create more equitable communities for everyone. Paradoxically, an equitable approach to business, or removing the shareholder blinders, often creates new paths to greater value for shareholders.

Greyston Bakery in Yonkers New York is a pioneer of open hiring. They create a more equitable world by focusing not on the tyranny of weeding people out in the hiring process but by providing the dignity of work to anyone who wants it.

Here in Baltimore, Jacob Hsu and his company Catalyte have created an entirely new way of identifying undervalued individuals who have the aptitude to become exceptional engineers. Creating new paths to equity and unleashing massive financial potential for communities, his clients and the company.

Business as a path to a More Sustainable world:
The winning leaders of the new narrative think and plan for the long-term. They understand that sustainability in every sense is the key to enduring organizational health. They establish a circle of growth for the planet, the people who serve or are served by the organization and the organization itself.

Billion-dollar clothing company Patagonia has rejected the world of “fast fashion” by creating high quality, long-lasting products and offering a repair and reuse program to discourage customers from buying things they don’t need.

Orsted, a $9BB energy company based in Denmark was named the Most Sustainable Company in the World by Corporate Knights in 2020. The company has transformed itself from a fossil fuel company to a total green energy juggernaut, significantly outperforming its peers, the European stock indices and returning over 42% ROI over the last 12 months.

Business as a path to a More Prosperous existence for us all:
The best leaders view value creation with a polarity, or both/and mindset. They actively look to create real wealth for employees, customers, communities, suppliers and shareholders. They work to manage the polarity of creating value for all stakeholders by asking themselves questions like: “How do we simultaneously achieve the upside of paying our employees as much as possible, and, the upside of creating great returns for shareholders?” This is in contrast to shareholder value leaders who see all stakeholder relationships as tradeoffs that need to be solved for the benefit of shareholders.

Starbucks has fed more than 10 million people through its FoodShare program, redoubled its commitment to eliminate gender pay equity gaps, and committed to becoming “… resource positive — storing more carbon than we emit, eliminating waste and providing more clean fresh water than we use …” — all while rewarding shareholders handsomely — even during the coronavirus pandemic.


Why Human CAPITALISM?
In Part-2 of this series I will discuss how the tenets of Conscious Capitalism and stakeholder management will allow organizations to clear the clutter and build these principles into everyday operations.

For now, a note before we end to my main audience: The Skeptics:

I spend the majority of every waking hour thinking about how to support entrepreneurs who have previously been neglected and who are creating world changing companies despite the immense hurdles they face. I also spend a majority of that time thinking about how to invest on behalf of my limited partners in a way that will create exceptional returns. I am a capitalist who believes capitalism can and should be practiced in a way that unleashes its power to elevate all humanity. That we can create a more humane form of commerce and human cooperation. What I am suggesting is that capitalism, like any man-made system, must evolve as society evolves. To paraphrase my friend and mentor Ed Freeman, professor at the Darden School at The University of Virginia, the alternative to capitalism as we know it today is not socialism, but a better, more human form of capitalism.

For those who would push back on these ideas as leaving shareholders behind and giving away profits I would simply ask you to suspend disbelief for a bit. Take a few minutes to think not about what you might lose, but about what you might gain. What kind of world could we create if we decided our first duty in business was to care for each other? Look around…I think that time has come.

 

Jeff Cherry, is CEO and Managing Partner of SHIFT Ventures, and Founder & Executive Director of Conscious Venture Lab, an award-winning and internationally recognized early stage accelerator. He is also Founder and Managing Partner of The Conscious Venture Fund and Founding Partner of The Laudato Si Startup Challenge. Jeff is a pioneer in conscious capitalism and double bottom-line investing. He can be reached at jcherry@consciousventurelab.com.

“Can you help me find a job in VC?”

 About 18 months ago, I was cold called by a young, ambitious MBA student who wanted some advice and guidance on something very very difficult to do: breaking into the venture capital business. Relative to huge demand, there are very few entry level VC positions available in the Washington, DC region.

Since his initial cold call, I have met him a few times at various events around town. I had not heard from him in several months until today when, in response to an email announcement my company sent out, he responded that he was still seeking my help in landing a VC job.

I emailed him my response:

Here’s how I may help, with some (free) advice:

YOU have to HELP you. The buck stops with you!

You have to create true value for your customers and constituents (boss, coworkers, investors, friends, etc).

You must give 110% every single hour of every single day, and MAKE SURE all of this is recognized.

Network like a machine. You should be out every night going to 2-3 events per, and genuinely HELPING others – Thats how you build YOUR brand!

Work 80 hours per week. There’s no substitute for hard work.

In this market, the ideal job does not come to you.
YOU have to attack and make it happen.
And the tools you need are contacts, credibility and expertise, all of which you will develop by following the advice above.

Pursue your dream and never give up!! It may take a month, year, or 10 years, but the persistent person ALWAYS wins…eventually!!

All the best,
Tien

That’s advice I would give to my kids, the students I work with at Georgetown or Maryland, and anyone looking to land any kind of job, especially a high-demand job.

Bottom line: you have to help yourself, and there are no shortcuts. Buckle up because the road will be long and bumpy,

I welcome your thoughts and comments. Thanks!

Internet Legend Doug Humphrey and Sid Banerjee, CEO of Clarabridge Featured at Big Idea CONNECTpreneur Fall, 2014 Forum

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The next Big Idea CONNECTpreneur FORUM is coming up this Thursday, September 11, 2014 in Tysons Corner, Virginia.
 
Doug Humphrey, CEO of JETCO Research and Founder of DIGEX and Cidera, will moderate the Panel of Venture Capitalists and Angel Investors.
 
Sid Banerjee, Founder and CEO of Clarabridge, will talk about his company’s story, growth, and bright prospects for the future.
 
The Big Idea CONNECTpreneur Forums are quarterly gatherings of 300+ of the DC Region’s TOP Entrepreneurs, Business Leaders, CXOs, Angels, and VCs.
 

The event is regarded by many as “The Best Networking Event in DC.” InTheCapital calls CONNECTpreneur a “NETWORKING JACKPOT” of the DC Region’s TOP Entrepreneurs, Business Leaders, CXOs, Angels, and VCs.

CONNECTpreneur events are “essentially the be-all-end-all of networking events in the city” 

The “premier networking event in DC tech and investing”, CONNECTpreneur is “networking on steroids”

The Big Idea CONNECTpreneur Forum is a “Networking Jackpot.”

Presented by appnetic, Tech 2000 and LORE Systems, this UNIQUE EVENT is like NONE OTHER in our region, because of the high quality of its attendees, speakers and presenters.

And YES, the networking is unprecedented!

 
 
Program Highlights:
 
  • We expect 300 business leaders, includng 175+ CEOs & Founders, as well as 60+ angels & VCs
  • Conversation with Sid Banerjee, Co-Founder and CEO of CLARABRIDGE
  • All-Star Panel of INVESTORS
  • SHOWCASE of Emerging tech companies
  • Heavy NETWORKING before, during, and after the event
 
The venue is the Tysons Corner Marriott in Tyson’s Corner, Virginia.  A plated breakfast is included.  CONNECTpreneur is a quarterly networking mashup, which has been attended by over 2500 business leaders in the past 3 years. We expect another SELL OUT crowd, so there will be no on-site registration.
 
All attendees MUST BE pre-registered.  Register now!
 
 
And visit our Website.
 
 
DATE:  SEPTEMBER 11, 2014
 
AGENDA
 
7:00–8:15 am – REGISTRATION / NETWORKING
 
8:15 – 8:20 am – WELCOME
 
8:25 – 9:15 am – FIRESIDE CHAT with SID BANERJEE,Co-Founder and CEO of Clarabridge
 
9:15 – 10:15 am  –  COMPANY SHOWCASE
 

10:15 – 11:15 am –  ALL STAR INVESTOR PANEL:  LATEST TRENDS IN VENTURE CAPITAL AND EARLY STAGE FINANCING

 
Introductions: JEFF REID, Founding Director, Georgetown Entrepreneurship Initiative
 
Moderator:  DOUG HUMPHREY, Serial Entrepreneur, Angel Investor, Internet Pioneer, President of JETCO Research; Founder and CEO of DIGEX and CIDERA.
 
JOHN BURKE, General Partner, True Ventures
JIM PASTORIZA, Managing Partner, TDF Ventures
 
11:15 am – NETWORKING
 
 
EXPECTED INVESTOR PARTICIPANTS (partial list):
 
We expect 65+ angel and VC investors including Core Capital, Grotech, Novak Biddle, New Atlantic Ventures, Revolution Ventures, True Ventures, Edison Ventures, Amplifier Venture Partners, SWaN & Legend Venture Partners, RLMcCall Capital Partners, Multiplier Capital, Updata, Saratoga Investment Corp., DFW Capital Partners, Farragut Capital, NextGen Angels, CIT GAP Funds, New Markets Venture Partners, BluVenture Investors, Leeds Novamark, Maryland Venture Fund, TEDCO, 1776 / K Street Capital, Fortify Ventures, Acceleprise, US Boston, VentureCross Partners, Berman Enterprises, Dingman Center Angels, Neuberger & Co. Ventures, McLean Capital, Angel Venture Forum, Exhilirator, National Capital Companies, Enhanced Capital, MTECH Ventures, Mosaic Capital, Opus8, Starise Ventures, Blue Heron Capital, Duncaster Investments, Private Capital Network, Next-Stage Development Group, Lancaster Angel Network, Harrell Partners, Stanford Venture Advisors, MD Center for Entrepreneurship, Conscious Venture Labs, Great Falls Capital, Hafezi Capital, and Keiretsu Forum.
 
 
EVENT PARTNERS:
 
 
 
 

Seth Goldman of Honest Tea headlines CONNECTpreneur Fall Forum

Seth Goldman, Co-Founder and TeaEO of Honest Tea

The Big Idea CONNECTpreneur FALL FORUM will be held on September 10, 2013 at the Tysons Corner Marriott in Tysons Corner, Virginia.

Seth Goldman, TeaEO of Honest Tea will do a fireside chat to discuss his new book, Mission in a Bottle: The Honest Guide to Doing Business Differently – and Succeeding.

The Big Idea CONNECTpreneur Forums are quarterly gatherings of 250+ of the DC Region’s TOP Entrepreneurs, Business Leaders, CXOs, Angels, and VCs.

InTheCapital says CONNECTpreneur events are “essentially the be-all-end-all of networking events in the city”

Presented by LORE Systems and Tech 2000, Inc., this UNIQUE EVENT is like NONE OTHER in our region, because of the high quality of our attendees, speakers and presenters.

Program Highlights:
  • We expect 250 business leaders, includng 150+ CEOs & Founders, as well as 60+ angels & VCs
  • Conversation and BOOK SIGNING with SETH GOLDMAN, Co-Founder and TeaEO of HONEST TEA
  • Attendees will receive a COMPLIMENTARY copy of Seth’s brand new book,Mission in a Bottle
  • All-Star Panel of INVESTORS
  • SHOWCASE of Emerging tech companies
  • Heavy NETWORKING before, during, and after the event
The venue is the Tysons Corner Marriott in Tyson’s Corner, Virginia.
A plated breakfast is included.
CONNECTpreneur is a quarterly networking mashup, which has been attended by over 1200 business leaders in the past 18 months.  This event promises to be our best one yet!
DATE:  SEPTEMBER 10, 2013
 
AGENDA
7:00–8:15 am – ARRIVAL / NETWORKING
8:15 – 8:20 am – WELCOME
S. TIEN WONG, CEO of Tech 2000, Inc. and Chairman of Lore Systems, Inc.
8:20 – 9:05 am – ALL STAR INVESTOR PANEL – “State of the Capital Markets”
 
MODERATOR:  JOHN BACKUS – Founder & Managing Partner, New Atlantic Ventures
 
EVAN BURFIELD – Managing Partner, K Street Capital; Co-Founder, 1776and Chairman, Startup DC
 
JOE BURKHART – Managing DIrector, Saratoga Investment Corp.
 
DOUG GILBERT – General Partner, DFW Capital Partners
9:05 – 10:15 am  –  COMPANY SHOWCASE
APPNETIC
CONSCIOUS VENTURE LAB
10:15 – 11:05 am – FIRESIDE CHAT with SETH GOLDMAN, Co-Founder and “TeaEO” of HONEST TEA;  Co-Author, MISSION IN A BOTTLE, The Honest Guide to Doing Business Differently – and Succeeding
11:05 – SETH GOLDMAN BOOK SIGNING and NETWORKING
Attendees will receive a complimentary copy of MISSION IN A BOTTLE
 
EXPECTED INVESTOR PARTICIPANTS (partial list):
We expect 60+ angel and VC investors including Grotech, Novak Biddle, Core Capital, New Atlantic Ventures, Edison Ventures, Updata, Saratoga Investment Corp., DFW Capital Partners, Farragut Capital, Revolution Ventures, CIT, New Markets Venture Partners, Leeds Novamark, Maryland Venture Fund, TEDCO, DFW Capital, BluVenture Investors, 1776 / K Street Capital, Acceleprise, US Boston, VentureCross Partners, Berman Enterprises, Dingman Center Angels, Neuberger & Co. Ventures, Saratoga Investment Corp., Multiplier Capital, McLean Capital, Angel Venture Forum, Endeavor DC, National Capital Companies, Enhanced Capital, MTECH Ventures, Mosaic Capital, Opus8, Starise Ventures, Blue Heron Capital, Duncaster Investments, Private Capital Network, Next-Stage Development Group, Lancaster Angel Network, Harrell Partners, Stanford Venture Advisors, MD Center for Entrepreneurship, Great Falls Capital, Hafezi Capital, and Keiretsu Forum.
EVENT PARTNERS:  
 

“The Best Networking Event in DC” – Big Idea CONNECTpreneur Summer Forum, June 6, Tysons Corner, VA

LORE SYSTEMS is pleased to host our quarterly Big Idea CONNECTpreneur Forum, one of the most exciting angel and entrepreneurship networking forums in the DC Region on June 6, 2011 at the Tower Club in Tysons Corner, VA.

InTheCapital calls this Forum “The Best Networking Event in DC.”

Please come out!  CLICK HERE to Register via the Eventbrite link.

EVENT IS NEARLY SOLD OUT!!

The Big Idea CONNECTpreneur Summer Forum is a “NETWORKING MASHUP” of 165+ of the DC Region’s TOP Entrepreneurs, Business Leaders, CXOs, Angels, and VCs.  Most of the attendees are “INVITATION ONLY,” and we are limiting service provider participation in order to maximize the experience for our Attendees and Sponsors.

Presented by LORE Systems, this UNIQUE EVENT is like NONE OTHER in our region, due to the high quality of our attendees and participants, as well as our program and unprecedented networking.

Come see what happens when you put a group of “A List” business leaders and entrepreneurs in one room for a few hours!

Program Highlights:
  • “TURBOCHARGING Entrepreneurship” Discussion
  • “ART OF THE PIVOT” with “UBER” technology entrepreneur Reggie Aggarwal of CVENT
  • 9 Emerging tech companies seeking funding will briefly tell their stories
  • Networking sessions before, during, and after the event
The venue is the Tower Club in Tyson’s Corner, Northern Virginia’s premier private business club.  A plated breakfast and unlimited coffee are included.
AGENDA
7:00–8:00 am – ARRIVAL / NETWORKING

8:00 – 8:05 am – WELCOME

8:05 – 8:45 am – SESSION 1 – “TURBOCHARGING ENTREPRENEURSHIP IN THE DC REGION” with Uber entrepreneur and angel investor Doug Humphrey, CEO and Founder, CIDERA;  Co-Founder, DIGEX

8:45 – 9:20 am  –  SESSION 2 – “THE ART OF THE PIVOT” with Uber entrepreneur Reggie Aggarwal, Founder and CEO of CVENT
9:20 – 9:45 am – NETWORKING BREAK
9:45 – 11:30 am – SESSION 3 – COMPANY PRESENTATIONS (all confirmed)
AthleticMD
DeviceCloudNetworks
Glimpulse
HITCH
11:30 am – NETWORKING (ATRIUM)
EVENT SPONSORS:  

InvestMaryland Wins Big, Raises $84 million for VC program

Last week, the State of Maryland became the first state in the USA to use an online auction to raise funds for a venture capital program.  The auction yielded $84 million, a whopping 20% more than the original forecasted goal of $70 million.  On September 24, 2011, I wrote a brief summary of the InvestMaryland program.

InvestMaryland will invest in the State’s promising start-up and early stage companies, as early as this summer.  The $84 million raised was generated through an online auction of premium tax credits to 11 insurance companies (including Hartford Insurance, New York Life, Chubb, GEICO, and Met Life) with operations in Maryland.  The inaugural round of investments will be made in innovative companies this summer through several private venture capital firms and the State’s successful Maryland Venture Fund (MVF),

Said Governor Martin O’Malley, “Our State is well-positioned to be a leader in the new economy as a global hub of innovation – a leader in science, security, health, discovery and information technology. That’s why last year, together with business leaders from across the State and the General Assembly, we chose to invest in our diverse and highly-educated workforce and the skills and talents of our people for the jobs and opportunity of tomorrow.”  

The InvestMaryland program is being implemented through the Maryland Venture Fund Authority, on which I am very proud to serve, as well as the Maryland Department of Business and Economic Development (DBED).

Earlier this year, the Authority selected Grant Street Group to prepare for and run the tax credit auction and also recently selected Altius Associates, a London-based firm, to oversee the selection of three to four private venture firms to invest the InvestMaryland funds. The private venture firms will be responsible for investing two-thirds of the funds, which will return 100 percent of the principal and 80 percent of the profits to the State’s general fund. The remaining 33 percent will be invested by 17-year-old Maryland Venture Fund (MVF).  The Maryland Small Business Development Financing Authority (MSBDFA) will also receive a portion of funds for investment. Returns on the funds invested through the MVF will be reinvested in the program.

InvestMaryland has the potential to create thousands of jobs in Innovation Economy sectors – life sciences and biotechnology, cyber security/IT and clean/green tech and attract billions of follow on capital.

Maryland has an outstanding infrastructure to support an Innovation Economy. The Milken Institute ranks Maryland #2 in the nation for technology and science assets. According to study results, while Maryland received high rankings in human capital investment, research and development inputs, technology and science workforce, and technology concentration and dynamism, it lagged behind other states in risk capital and entrepreneurial infrastructure, demonstrating the need for InvestMaryland and other programs.

How will Altius select the Venture Capital firms?  Altius will be evaluating venture capital funds based on management experience, firm experience, investment performance and criteria defined in the legislation.

When will the firms be selected?  Venture capital firms will be selected starting June/July 2012 for a projected18-month period and make first round of investments in summer 2012.

What is the investment return to the State? The selected venture firms will return 100 percent of the principal investment by the State before taking any distribution of profits and will then pay 80 percent of the profits to the State.  Any returns on investments made through the Maryland Venture Fund go back into the fund for an evergreen program.

What is the projected average investment with venture capital companies? Investment will likely range from as low as $250,000 upwards to $10M.

Is there investment funding available from MVF?   Maryland Venture Fund will continue to invest in early stage companies (tech, biotech, clean energy) from $50,000 to $500,000 as initial investments.

Maryland Venture Fund Authority (MVFA) will perform a monitoring role to ensure that  investments and reporting meet the legislative guidelines.

In summary, as a member of the MVFA, and as a resident and business owner in Maryland, I am very excited to see this InvestMaryland program being implemented:

  • This program brings great benefit for taxpayers.  It helps create the jobs and companies of tomorrow and builds an economic climate where the most promising ideas and innovations have a chance to mature.
  • This is a win-win for all constituencies within the State of Maryland. Through this initiative, we can:
    • Infuse much needed capital into our seed and early stage companies
    • Recapitalize the State’s successful Maryland Venture Fund
    • Ensure no up-front cost to taxpayers
    • Provide a tax benefit to insurance companies who bid today, who can begin claiming credits in 2015.

Thanks for reading.  I’d appreciate any Comments or feedback you may have on InvestMaryland.

Featured image courtesy of Anosmia via Creative Commons.

Big Idea CONNECTpreneur Spring Forum, March 7, Tysons Corner, VA

LORE SYSTEMS is pleased to host one of the most exciting angel and entrepreneurship networking forums in the DC Region on March 7, 2011 at the Tower Club in Tysons Corner, VA.

Please come out!  Here’s the Eventbrite link:  http://connectpreneur1.eventbrite.com

The Big Idea CONNECTpreneur Spring Forum is a 1/2 day “NETWORKING MASHUP” of the DC Region’s TOP Entrepreneurs, Business Leaders, CXOs, Angels, and VCs.

Come see what happens when you put a group of “A List” business leaders and entrepreneurs in one room for a few hours!

This UNIQUE EVENT is like NONE OTHER in our region, due to the high quality of our attendees and participants, as well as our programming and unprecedented networking.

The Big Idea CONNECTpreneur Forum is an exclusive “mashup” of 170+ of the DC Region’s top entrepreneurs, business leaders, CXOs, angels and VCs.
Most of the attendees are “INVITATION ONLY,” and we are limiting service provider participation in order to maximize the experience for our Attendees and Sponsors.
Program Highlights:
  • “Hypergrowth – Zero to $500 million in 8 years” discussion
  • “Entrepreneurs with a Higher Purpose” panel
  • 8 Emerging companies seeking funding will briefly tell their stories
  • “Disruption, Disintermediation, and Destruction” luncheon discussion
  • Networking sessions before, during, and after the event
The venue is the Tower Club in Tyson’s Corner, Northern Virginia’s premier private business club.  A plated brealkfast and plated lunch are included.
AGENDA7:00–8:00 am – ARRIVAL / BREAKFAST / NETWORKING

8:00 – 8:05 am – WELCOME

8:05 – 8:45 am –  “HYPERGROWTH – ZERO TO $500 MILLION IN 8 YEARS!” – a conversation with Tony Jimenez, Founder and CEO of MicroTech
8:45 – 9:30 am  –  “ENTREPRENEURSHIP WITH A HIGHER PURPOSE”
Jim Cheng, Secretary of Commerce, Commonwealth of VA; Founder and CEO, Computer Hi-Tech Mgt, “Entrepreneur Turned Public Servant”
Dr. John Holaday, CEO, QRx Pharma, an ex-Army officer, Professor, and serial entrepreneur who has founded and taken 3 companies public, “Entrepreneur Seeking a Cure for Cancer”
Seth Goldman, Founder and TeaEO, Honest Tea, beverage industry innovator, “Entrepreneur  leading the Green Movement”
9:30 – 9:45 am – NETWORKING BREAK
9:45 – 11:30 am – COMPANY PRESENTATIONS
Fresh Tax
Pixspan
11:30 – 11:45 am – NETWORKING BREAK
11:45 – 1:15 pm – LUNCHEON DISCUSSION – “DISRUPTION, DISINTERMEDIATION, AND DESTRUCTION”
Duke Chung, Founder of Parature, CRM industry pioneer
Mark Walsh, Founder and CEO, GeniusRocket;  Chairman, DIngman Center for Entrepreneurship;  Chairman of the Board of Trustees, Union College;  Founder and CEO, VerticalNet
John Backus, Managing Partner of New Atlantic Ventures, Founder of Draper Atlantic Venture Fund, former CEO, InteliData
1:15 pm – MORE NETWORKING AND DEALMAKING
CONFIRMED PARTICIPANTS (partial list):
Over 110 Entrepreneurs and CXOs, plus another 40+ angels and VCs including Core Capital, Novak Biddle, New Atlantic Ventures, CIT, Capital Source, NEA, Maryland Venture Fund, MAVA, MTECH Ventures, Maryland DBED, Ruxton Ventures, Opus8, VentureCross Partners, McLean Capital, National Capital, Starise Ventures, Dingman Center Angels, Blu Venture Partners, Blue Heron, Washingon DC Archangels, Fortify.vc, Endeavor DC, Private Capital Network, APPTEL, Stanford Venture Advisors, MD Center for Entrepreneurship, SunWalker Group, Skada Capital, Keiretsu Forum, CADRE.
EVENT SPONSORS:  


InvestMaryland, Winning by Fueling Innovation + Creating Jobs

The State of Maryland is creating a $70 million investment fund to deploy into venture capital funds to stimulate innovation, spur economic growth, and create jobs.

This initiative is called “InvestMaryland,” and I am proud to have been appointed by Governor Martin O’Malley as a Member of the Maryland Venture Fund Authority, which will provide guidance to and oversight of the program.

This is a groundbreaking effort by the State of Maryland, and I applaud all of the various business and political constituencies who made this happen.

The State plans to raise at least $70 million by auctioning off tax credits to insurance companies.  About 2/3 of these proceeds will be invested into private venture capital funds, and 1/3 will be given to the Maryland Venture Fund, which will in turn invest in emerging companies in industried such as information technology, clean energy, and life sciences, among others.

Maryland is not the first state to employ this idea.  Eleven other states already have programs similar to InvestMaryland.  The expected benefit from InvestMaryland, according to some, is the creation of 2000+ new jobs while supporting at least 200 businesses.

Here is the the link to Gazette.net’s article in February, 2011 which covers the announcement of the program.

I am encouraged by these kinds of initiatives and would love to see more states embrace these kinds of public-private efforts to stimulate capital formation, and help create jobs and nurture new technologies and emerging companies.

Thank you for reading.  Let me know your thoughts about the InvestMaryland program or other ways in which technologies and small businesses can be supported.  And please sign up for my Blog!

Featured image courtesy of sidewalk flying licensed via creative commons.

12 Most Critical Questions for Raising Capital for Your Startup – 12most.com Guest Post

Stack of 100s at 12most.com

This was my August 16, 2011 Guest Post on 12most.com.

Right now – RIGHT now – is the BEST TIME to start a business, and there’s never been a better time to start raising capital. I firmly believe this. Why?  Because tough economic times cause tremendous dislocation in almost every market. Established companies are playing defense, trying to figure out where the economy is heading, laying off people, cutting costs, and trying to protect their turf. Fear is in the air.

Fear spells opportunity for new startups that can compete because they are small, nimble and agile.  Using creativity and resourcefulness, entrepreneurial startups can improve the way things have been done in the past, or attack brand new markets with new technology.  Startups are not encumbered by the baggage of their larger competitors.

However, raising money in tough economic times is, well, tough!  Angels and VCs seek to cherry pick the very best ideas, those that are most likely to succeed.  Money is still available for the best ideas and teams, but you have to be tuned in to what these investors need in order to make an investment in your startup.

Based on my experience as an entrepreneur, mentor, angel, VC fund LP, and board member, here are the 12 most important questions you need to answer when raising capital for your startup:

1. Money

How much do you need and what is the use of funds?

Investors want to know that you have thought through your capital requirements and where the money will be put to use.  Is it for product development, marketing, building out your sales team, etc.?  You must be ready to justify this request, and talk about how this gets you to the next stage in your startup’s development, as well as how much more money you may need in the future.  Know what kind of deal structure (preferred stock, convertible debenture, common stock, etc.) and valuation you are proposing to your investors.

2. Pain – What pain are you fixing?

Your product or solution must fix somebody’s pain, whether it’s making life easier, saving money, or making a customer more efficient.  Talk about the severity of the pain you are addressing, as well as how much money your customer will pay for it.  Show some basic market research, ROI analyses, and, ideally some 3rd party customers who are already happily using your product or service.

3. Raising Capital for Your Solution: What is it, exactly?

Exactly what product or service are you offering and how does it work?  Too many times, I have seen wishy washy descriptions of the solution because the idea is being matured, or in Alpha mode.  I have seen many super smart engineers with grand plans that are completely unfocused trying to be everything to everybody. Few have been funded.   Investors want to see certainty and simplicity in your proposed solution to the above-mentioned pain.

4. Customers – Who, exactly, is your customer?

You need to know WHO will be buying from you.  Are you selling B2B, B2C, B2G, all of the above?  Are your targets Fortune 500 companies, SMBs, NGOs, the Federal government, etc.  At what level are you selling (CEO, CFO, VP of Marketing, etc.)?  What kinds of situations will they need to be in to absolutely must buy from you?  The more precise the better.  And bring some testimonials or anecdotal evidence from these targets.

5. Execution Plan – What’s your plan for selling and delivering?

One of the biggest questions and concerns investors have is HOW you plan to win customers.  What’s your strategy, who’s leading the sales effort, and so on. Be prepared to discuss not only your marketing & sales plans and customer acquisition strategy, but also your customer retention strategy.

The Angel on Your Shoulder

6. Raising Capital, as a Team – Who are the players and what are their backgrounds?

Angel investors are not only investing in an idea or a market space.  We are investing in a team of people with, preferably, a strong and experienced founder.  Talk about your key executives and your advisors too (lawyers, accountants, Advisory Board members), anyone who is adding considerable value to your venture.

7. Culture – What kind of culture are you building?

Culture is the DNA of every organization, and good culture is a requirement for success.  Culture can even be a differentiator against your competition.  The best investors know this.  Talk about your culture, your approach and philosophy towards business operations, leadership development, hiring, customer care, product development, and other key parts of your business.

8. Competitors – Who are they and how will you compete?

Competition is one of the most important questions to answer.  I have met with countless entrepreneurs who claim that they have “no competition.”  This is a particular pet peeve of mine, because every company has competitors, and all customers have choice.  Believing that you don’t have competitors is not only naive, it is a recipe for disaster.  So talk about all your competitors, both direct and indirect, and show how you are better and how you will beat them.

9. “Moats” – How are you special and what are your differentiators?

Warren Buffett likes to invest in companies with high barriers to entry, or “moats,” as he calls them.  Startups are risky enough for investors, and they want to invest in ventures which have a higher probability of success.  Moats include IP, patents, unique skills or knowledge, proprietary methods, unique brands, unique culture, etc.

10. Raising Capital for Pivotability – What will you do if your Plan “A” fails?

One thing is absolutely certain in a startup: your original plan will not happen the way you initially envisioned it.  Investors want a team that’s resourceful, agile, and creative enough to pivot, if necessary.  A sailboat in a regatta does not go from Point A to Point B in a straight line.  It gets there by “tacking, ” or making a series of rapid and opportunistic turns in order to maximize the wind in its sails.  Startups have to do the same thing, and investors want to see that you have thought through your contingency plans.

11. Commitment – How much money did you personally invest? Is this a full time job for you?

The best investors take a “partner” approach to investing, and they want to invest alongside their entrepreneurs.  I’m not so much looking for huge sums of cash invested, but rather whether the amount invested is a “significant” percentage of the entrepreneur’s net worth.  If a founder has put a good chuck of her net worth into the company, or taken out a second mortgage on her home, the investor will feel more comfortable about the founder’s putting her money where her mouth is.  As for working “full time,” this is essential.  I have never seen a startup succeed that didn’t have full time (80 hours a week) commitment from its founding team.  Be ready to field questions about how much your team is willing to sacrifice in order to win.

12. Exit – How are you going to make your investors money?

Investors are not looking to put their money in forever.  You have to paint the picture of how they will get their money and profits out within their expected timeframe (generally 4-7 years).  Be ready to talk about how you’re going to exit (for example via IPO, sale, recap, or refi).  How is the market for your proposed exit options?  Talk about recent deals in your space and get some data from the experts (M&A specialists, deal lawyers, etc.).

I hope this helps you as you think through your approach to pitching angels and VCs.  If you believe in your startup, then be persistent. Don’t give up!  If you can’t get funded initially, then prove out your business model by getting traction, i.e. happy customers, and figuring out other creative ways to raise the capital you need, whether it’s by getting equipment leases, vendor financing, customer deposits, or even money from “FF&F” (friends, family and fools).

Good luck out there!  It’s a great time to pursue your dreams!

Photo courtesy of amagill. Some rights reserved; used under creative commons license.

Scaling a Hypergrowth Enterprise – Part 5 of 5 (Capital)

photo

This is the 5th and final installment in my 5-part series on the five elements of Elements of Scaling a hypergrowth enterprise.  I was the co-founder and CEO of CyberRep, a hypergrowth CRM and call center enterprise which grew annual revenues from $500,000 to over $1.6 billion over a 17 year period.   That’s revenue growth of 320,000% (3200x).

So what are the 5 elements of scaling a hypergrowth company?  Part 1 of this series talks about PeoplePart 2 discusses Culture, Part 3 examines Scalable Customers, and Part 4 delves into Process.  The 5th element is Capital, which is the necessary fuel that every hypergrowth company must have.

While many startups can be bootstrapped with limited capital, the Hypergrowth Enterprise absolutely needs capital.  In order to put in place the foundation for hypergrowth, you need the money to build and perfect your product or service, to hire your awesome talent, and for working capital as you book revenue.

Two Essentials for Raising money are to 1.  Raise money from a Partner, not just an investor and 2.  Raise more than you need, but not too much.

THE INVESTOR PARTNER

To fuel our growth, we raised $20 million in mezzanine capital (subordinated debt with warrants) and $1 million in equity from one partner, Allied Capital, a Washington, DC-based, publicly traded business developement company (BDC).  We did 3 separate rounds over a 4 year period for expansion of facilities, working capital, and the acquisition of 2 complementary targets.  We had multiple term sheets from VCs, mezz investors, and private equity firms.  We chose Allied because, in our opinion, they were more than a capital source, they were a Partner.

A Partner has Deep Pockets – Our partner had a $5 billion portfolio with an average deal size north of $20 million.  While we only raised $4 million in our initial round, we knew we would need to go back to the investor for more money as we grew.  Therefore, we needed a partner who woud readily put more capital into our business.  Raising money is VERY time consuming and disruptive to your business, so by having a deep-pocketed Partner who could fund additional rounds quickly, we avoided having to spend tons of time shopping for new investors for our 2nd and 3rd rounds of funding.

A Partner Understands Your Space – Having made numerous investments in the business services and information services space, including a company directly in our space, our partner brought to us expertise and experience which, inside and outside of the boardroom, proved to be very valuable.  If your investor knows your space deeply, they won’t waste your time with stupid questions and uninformed opinions. Instead, they can focus on the nuances of your industry and add true value.

A Partner Has Operational Experience – Our partner owned outright many of the companies in their investment portfolio. As the owner of these businesses, they had an operational focus on all of their portfolio companies including ours. This was invaluable to us, as we were quite inexperienced and needed all the help and guidance we could get. Too many professional investors have no operating experience, and have never had to hire people, fire people, make a payroll, or close a sale.  Lack of practical experence puts these investors at a disadvantage and, worse, the advice they give you could put you out of business!  Conversely, professional investors who have started and built companies are the best kinds of partners to have because they can share their knowledge and experience with you. They know firsthand how super hard it is to build a business from zero, and they can relate better to you.

HOW MUCH MONEY SHOULD YOU RAISE?

Raise more than you need, but not too much.  What do I mean by this? Whatever amount you think you need to raise, raise a little more.  I know I am generalizing, but in the VAST majority of requests I see, the entrepreneur does not ask for enough money.  Who knows why.  Maybe she’s trying to minimize dilution, or maybe she thinks this current round gets her to a milestone where she can get a higher valuation with the next round.

Regardless, the key thing to keep in mind is that capital is the FUEL for your growth.  If you’re driving from New York City to DC, do you fuel up your car every 50 miles, or do you put enough fuel in your tank to make the entire trip?  Same thing with raising money for your growth.  Be less concerned about dilution and equity give-up and more concerned about having the fuel to reach your destination.  Raising money is a big distraction from company operations, and it’s a real time killer.  Founders need to be focused on wowing their customers and building an amazing team, NOT being in constant fundraising mode.

So how much do you really need?  Think through your scenarios, be conservative on your projections (sales always take longer than you think), and get advice from seasoned pros and advisers as to the appropriate amount.

As for raising TOO MUCH money, this is also a problem.  Why?  Because having the security of a fat bank account can make a startup SOFT and too comfortable. They lose their edge, the bootstrap mentality which is necessary for creativity, scrappiness, and resourcefulness.  Look at all the Dot Com failures that raised too much money, and then wasted it on pricey office space, expensive furniture, ridiculous marketing, etc. because they couldn’t find a better use for that precious resource.  They got soft, then couldn’t be self sufficient when the VC market dried up.

So….raise more money than you need, but not too much.

Thanks very much for reading.  I hope this 5-part series was informative.  What do you think?  I’d love your feedback and thoughts, so please Comment below…and please sign up for my Blog too!  (See the Signup box on the sidebar of my Home Page)

Featured image courtesy of Asthma Helper licensed via creative commons.