Weighing the pros and cons of 'supping with the devil'

Rodney Schwartz asks how entrepreneurial a social entrepreneur can be

Rodney Schwartz
Rodney Schwartz

Last month, ClearlySo celebrated its fifth anniversary. Coincidentally, it was also five years since Lehman Brothers collapsed, nearly bringing down the entire western financial system. I spent years as an analyst writing about Lehman and then six years working there (I left in 1994), and I started fundraising for ClearlySo on the very day that Lehman fell - so it's fair to say that these reflections have a strong influence on me.

It is no secret that at ClearlySo we see ourselves as closest to the mainstream end of the social finance spectrum. Some might even say that we are not a social business at all, since we operate as a for-profit company (albeit one that has yet to make a profit) and, although we have a clause in our memorandum and articles of association that stipulates we exist primarily for a social purpose, we have no asset lock or dividend pay-out restrictions. This means that we have been funded in a different way from many other sector players - most of our capital has come from angel investors - and we expect that one day there could be an 'exit event'.

Putting ourselves aside, it is true that of the 20 social businesses we expect to raise capital for this year, most - but certainly not all - will resemble ClearlySo. Some people call such entities 'profit-with-purpose companies'. For us, connecting with such firms and helping them to raise capital feels quite natural - we advocate that they should be the type of company that we are ourselves. It is also feels normal for us to reach out more regularly to the investment mainstream. We expect that, over time, most of the money that we raise for social entrepreneurs and impact investment funds will come from angels and mainstream financial institutions, rather than from a few dedicated impact investors.

But we recognise that there are notable risks in doing it this way. Many in the sector are suspicious of the mainstream and take a dim view of "supping with the devil". There are also undeniable dangers for social entrepreneurs considering this path. How far is one permitted to go? I was once told by a chief executive that her public services company was the largest social enterprise in the UK - that firm was A4e, and many feel that it went too far down the commercial path. The Body Shop was heavily criticised when it decided to sell out, at a very attractive price, to L'Oreal. And Innocent, the smoothie drinks maker, was judged by many to be less than innocent in its commercial approach - a view supported by its subsequent sale to Coca-Cola.

But a commercial approach and structure can offer advantages: structuring as a company limited by shares enables access to larger pools of capital; stock options are available to incentivise staff in cash-starved early-stage enterprises; and commercial structures will be more familiar to counter-parties.

I believe that both approaches have their place and perhaps my own background in "the dark side" meant that this is the course I was destined to take when I founded ClearlySo. And my experience as chair of the online fundraising platform JustGiving between 2003 and 2006 was formative in how I came to see the social business world. But of course I worry that in this pursuit of the middle ground there will be a tendency to veer in a Lehmanesque direction. I count on colleagues and the sector to keep us honest.

Rodney Schwartz is chief executive of ClearlySo, which helps social entrepreneurs raise capital

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