1. Approaches for Giving Back
Alternatives and Trade-offs

2. Why Give Back? Satisfaction of having helped
Tax deduction for charitable gift
Financial return
Opportunity to get personally involved

3. Source: Rockefeller Philanthropy
Investment Options
not for profit
for profit
Source: Rockefeller Philanthropy

4. Investor View: Funding Options
Source: Rockefeller Philanthropy
Including Royalty-Based-Financing angel investments
Including equity/convertible-debt angel investments

5. Company View: Funding Over Time
Roughly: $x0, $x00, $xx,000, $xx0,000,000
Venture
Capital
Friends and Family
Angels
IPO
For-Profit
Strategic
Investors
Bootstrap
Crowd Sourcing
Donations and Grants (Philanthropy)
Non-Profit
Loans
Time

6. Contrasting Non-profit and For-profit Social-Impact Start-up Ventures

7. Critical Management Need
Non-Profit Ventures
For-Profit Ventures
Strong board who is well connected to funding sources
Strong CEO

8. Start-up Funding Sources
Non-Profit Ventures
For-Profit Ventures
Philanthropic gifts
Loans
Grants
Preferred equity investment, or debt that converts into equity
Royalty based financing
Also available for both: boot strapping, friends and family, crowd funding, competition prize money

9. On-going Income Sources
Non-Profit Ventures
For-Profit Ventures
Philanthropy
Loans
Grants
Earned income from providing product or service
Revenue from selling product or service

10. Major Challenges – Venture Creation
Non-Profit Ventures
For-Profit Ventures
Need to commit to a service model and secure a grant prior to having operational experience in that area
Grant writing skills
Highly-competitive philanthropy environment
Need to raise funding prior to having operational experience in that area
Investment raising skills
Limited number of social-impact investors

11. Operating Characteristics
Non-Profit Ventures
For-Profit Ventures
Recurring fund-raising
Overreliance on major donors
Requirement to fulfill the detailed requirements of detailed grants (overhead and lack of flexibility)
External focus on overhead metric
Growing revenue and profits
Serving two often disparate masters: revenue growth + social good
The team can be highly flexible and adaptive
Tendency toward mission drift
If funded using equity, getting to an acquisition or IPO within 10 years

12. Hybrid Business Models
Non-Profit
For-profit subsidiary of non-Profit
For-Profit
Operational challenges?

13. Tax Considerations Non-Profit Ventures For-Profit Ventures
Charitable contribution deduction in current tax year
Possible deduction limits
Program Related Investments
Allow foundations to make investments as loans or equity stakes in the hopes of regaining their investments plus a reasonable rate of return
Potential capital gain in future tax year or
Potential ordinary income loss in future tax year
IRS rule 1244 – any losses on first $1M invested in a small company ($100,000 per investor) is treated as ordinary loss, not capital loss

14. Social-impact Angel Networks
Tonnic
IMNPACT
Impact Engine
PIN
Investors’ Circle
SWAN

15. The Angel Experience
You have the opportunity to (but are not required to):
Become friends with other angels
Meet interesting start-ups teams
Mentor start-up teams
​Help with investment due diligence
Make multiple $25,000+ investments per year

16. For-Profit Investment Criteria
High-quality management team
Addresses a societal challenge
Solving a significant customer problem for customers with budgets
Large market, addressable by a start-up
Traction in market
Sustainable competitive advantage
Acceptable competitive threat
Credible financial plan

17. Customers vs. Beneficiaries
May be different
Customers are individuals with a pressing problem and who have a budget to solve the problem Source of revenue
For example:
College admission officers
Urban high-school students

18. Examples of For-profit Ventures
Company
Mission
OneSeventeen Media
Developing a third-generation mobile platform that helps teenagers deal with emotional challenges they may face, and as a result improving educational outcomes
Aiqueous
Working to protecting our water supply by allowing water utilities to more efficiently implement programs for preventing contaminated water from reaching our homes and for water conservation programs
Prepify
Serving low-income high schools by first making high-quality SAT prep free for students, and then introducing students to college admissions officers and scholarship programs
HeraTrack
Developing technology that enables seniors in assisted living centers and in home help-care settings to maintain their independence and quality of life as long as possible by allowing them to safely wander around their communities.