We’re fortunate. Our social enterprise, Dobility, celebrates its fifth anniversary this year. As we mark the milestone we have thousands of users across nearly 150 countries, an expanding global team, and a healthy “rainy day” fund. Dobility’s financial structure is also simple, owing to our decision to bootstrap the firm’s growth since incorporating in 2012. Given our good fortune—luck that includes launching in the early years of an extended economic recovery—we have an outsized responsibility to help smooth the fundraising path for future social enterprises.
As the social enterprise sector grows, one of the more exciting vectors for innovation is financial. Coalitions such as the Impact Terms Project and organizations like Echoing Green are sharing resources and promoting new structures for funding double-bottom-line entities. Yet the impact investing, legal, and philanthropic communities don’t have sole responsibility to drive innovation in this space. Social enterprises like ours, which have the breathing room to explore alternative financing instruments, also have a responsibility to help expand the set of options for the sector overall.
We operate in a field where social enterprises have historically hired teams of grant writers, and competed with each other for support from foundations. Although pursuing grant funding would have allowed Dobility more breathing room (and would have permitted us to sneak in a few vacations), we’re proud to have never applied for a single grant. The philanthropic sector is responsible for life-saving work, and we firmly believe that philanthropic dollars are better spent elsewhere than in software development—a field where the breathing room that grants provide has the perverse effect of decelerating technological improvements. A development project that might take a scrappy social enterprise four months and $250,000 can easily balloon to a $1.1 million, 18-month project with grant funding.
Rather than invest a dime in the zero-sum game of competing with our own users for charitable dollars, we are committed to exploring alternative investment structures for our first broad fundraising round. For example, Dana Brakman Reiser and Steven Dean have proposed FLY Paper as a debt instrument that mutually commits impact investors and social entrepreneurs to their shared social mission. If a social entrepreneur were to “sell out” after taking on FLY Paper debt, any preferential terms they secured via their impact investment-oriented loan could be wiped out—as the FLY Paper would convert to equity along terms favorable to the impact investor (and unfavorable to the entrepreneur).
Commitment devices like FLY Paper can help expand the pool of capital available to worthy projects, by helping better align incentives between investors and social entrepreneurs. Such tools can meet the financial return and reassurance needs of impact investors, without distorting the behavior of social enterprises that are designed to maximize social contribution (rather than to produce a highly-lucrative exit for venture investors). As a community, we should do everything we can to accelerate the adoption of creative instruments like these. Even if pursuing the financial “road less traveled” is costlier to an enterprise like Dobility than following the well-worn path of pursuing grant funds or traditional equity investors would be, we believe it’s part of our social mission.
If you’re part of a social enterprise that’s also navigating challenges, opportunities, failures, and successes in impact investing, please join us in sharing your experiences with others. This might be through engaging with a local community such as our growing New England Impact Investing Initiative here in the Boston area, on blogs such as this one, or in any other venue. And please reach out to us via @SurveyCTO if you want to learn more about our own journey!
Originally posted on the Impact Terms Blog, part of the Impact Terms Project.