our investment approach
We’ve discovered that many investors tend to think that making a social impact and making money are contradictory. With our approach, we would like to prove that social investing and making a significant return on investment are complimentary and go hand in hand.
Because traditional venture capital usually requires the sale of a company for the investor to make money, it is not a good fit for most social enterprises that aim to stay in the game for the long haul and stick by strong guiding principles. If the company is sold, these principles become vulnerable and are often lost. There are numerous examples of organic food companies who sold out to bigger companies, and the parent companies now lobby against labeling of GMOs or for weakening organic standards. As a result, most enterprises with strong social principles either reject traditional venture capital or just cave in and sell out at some point.
For this reason, we have taken a novel approach that is just beginning to gain traction in some Angel investing communities. Our revenue based approach rewards investors with significant multiples of their original investment without giving us pressure to sell. We are happy to share the rewards with our early investors. In fact we want to be as generous as possible and still stick with our guiding principles.
In many instances, to get a 10x return, an investor would need to put in over $1,000,000 to begin with. Our minimum for a 10x return is only $100,000. The multiple drops with the amount of the investment, down to 2x for a $1000 investment. In our opinion, this is an incredible return even on a $1000 investment.
Despite the seductive appeal of a 10x return, another aspect of venture capital needs to be mentioned. Fewer than 1 in 10 companies that VCs back in their quest for the 10x return even make money at all. The other 9 out of 10 lose money and they get nothing back. In fact, the average VC return is negative! (link to that article Jenny sent.) if you look at some pretty macro data.
Within the social economy and sustainable economy, rates of return are typically lower, around 5%. Yet their longevity is much, much greater. We don’t have definitive data on this other than the track records of Jenny Kassan’s clients, but our very strong hunch is that these rates are highly typical for social enterprises, not the exception.
And yet, with Prana Foods, we wanted to be extra generous and combine the allure and high ROI of a traditional VC return with the sustainability of a better model.
Take me back to the main investment page.