Startups for Social Good

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October 26, 2015 Startups for Social Good A startup for social good is an enterprise that applies market- based strategies to achieve a social goal.

1 October 26, 2015 Startups for Social Good A startup for social good is an enterprise that applies market- based strategies to achieve a social goal. According to Deloitte, 75% of millennials believe businesses are too fixated on their own agendas and not focused enough on helping to improve society. TOMS Shoes pioneered the social good, one- for- one business model, which has become increasingly popular among mission- driven startups. A global socially driven ecosystem has emerged to support startups for social good the system offers funding and community resources to entrepreneurs. DEBORAH WEINSWIG, EXECUTIVE DIRECTOR HEAD OF GLOBAL RETAIL & TECHNOLOGY DEBORAHWEINSWIG@FUNG1937.COM US: H K: CN: Copyright 2015 The Fung Group. All rights reserved. 1

2 Executive Summary In this report, we delve into the somewhat broad and complex discussion of social entrepreneurship. We examine how new ventures can do well while doing good by elucidating what this means for their business models and how running an organization with a social mission is relevant, given an increasingly purpose- driven consumer and labor force. We highlight the proliferation of structures that enable the social good startup model, such as socially driven investment funds and social enterprise coworking spaces and communities, and provide examples of businesses that have succeeded in their mission- driven approaches. Lastly, we list the key learnings from our analysis of social startups, which are applicable to established brands and retailers that often compete in the same space as newly formed, socially minded enterprises. The Startup for Social Good A social good startup is an enterprise that applies market- based strategies to achieve a social goal. Such startups can be either nonprofit or for- profit organizations, but in this report, we focus on for- profit ventures. Why Social Good Startups Make Sense Socially responsible businesses are not a new concept there has been a push for corporate social responsibility, sustainable business practices and corporate philanthropy over the last few decades. But the emergence of the millennial generation as the largest part of the US labor pool and its growing importance as a consumer demographic have put the spotlight on the social good startup model. The reason can be found in the millennial profile itself. As employees, millennials are characterized by seeking meaning and impact over financial gain, and as consumers, they are said to be socially minded and passionate about values. The 2015 Deloitte Millennial Survey states that Millennials overwhelmingly believe that business needs a reset in terms of paying as much attention to people and purpose as it does products and profit. Seventy- five percent of Millennials believe businesses are too fixated on their own agendas and not focused enough on helping to improve society. Figure 1. US Labor Force by Generation: (Million) Source: Pew Research Center 2

3 Given the millennial profile and beliefs, the social good startup model exhibits benefits in three key business aspects: Marketing and sales: The evolving consumer profile means that more and more customers will be paying attention to product and service attributes beyond price and quality. The Nielsen 2014 Doing Well by Doing Good survey showed that 42% of North American respondents would pay extra for products and services from companies committed to having a positive social and environmental impact. Recruiting: Social good startups are able to attract committed talent by virtue of their mission and values. A 2012 report by the nonprofit organization Net Impact showed that 65% of university students expect to make a difference in future jobs and 58% would agree to a 15% pay cut to do so. Company culture: Social good companies tend to build close- knit cultures of like- minded individuals united around a cause that goes beyond financial gain. This translates into higher levels of job satisfaction and talent retention. In the following section, we look more closely into how these advantages translate into actual business models. Social Good Business Models One of the most popular social good companies is TOMS Shoes. TOMS was founded as a startup in 2006 with a one for one promise: the company promised customers that it would give away one pair of shoes to a person in need for every pair of TOMS sold. Since then, TOMS has given more than 2 million pairs of shoes to children living in poverty in more than 51 countries, and the company has moved beyond shoes to offer eyewear, bags and coffee. TOMS pioneered the one- for- one business model, but it has since been replicated in varying degrees by other startups, such as Roma Boots, which sells and gives away boots; NOURI, which donates meals for every energy bar it sells; KNO Clothing, which gives away clothes and donates to shelters; and SoapBox Soaps, which donates a month of water, a year of vitamins, or a bar of soap for every sale. Warby Parker, an eyewear startup founded in 2010, which has raised over $115 million in venture capital to date, has also leveraged the one- for- one model. However, instead of giving away glasses directly, the company donates money to nonprofit partners which then train men and women in developing countries to give basic eye exams and sell glasses to their communities at affordable prices. In this way, the company goes around the main criticism of the one- for- one social venture business model: that it is not an effective tool to solve the cause of social issues in the communities that benefit from the gifted items because by donating goods, companies give people fish, but they don t train them how to fish. To TOMS credit, the company has recognized the shortfall in the one- for- one model and has become engaged in other, more sustainable practices, which it labels Beyond One for One. In its latest giving report, TOMS highlights the following: On their own, shoes have a limited ability to change a life. But when combined with programs run by our Giving Partners, they can become a powerful tool in helping create opportunities for a better future. 3

4 This approach reiterates the company s commitment to having a social impact and shows its flexibility in attaining that goal. The long- term commitment to social good has also paid off financially for the founder: in 2014, TOMS sold a 50% equity stake to Bain Capital for around $300 million. Beyond the one- for- one model, another social venture business concept that has become increasingly prevalent is employing a sustainable supply chain. Two startups noted for this approach are PACT Apparel and Zady. The motto of PACT, an apparel startup founded in 2009, is Change starts with your underwear. With the purchase of PACT underwear, the customer is supporting and encouraging organic cotton farmers, responsible labor practices and the use of sustainable materials through the product supply chain. Zady, an e- commerce apparel platform, markets itself as a lifestyle destination for conscious consumers. The startup pledges responsible sourcing and manufacturing transparency, and has received wide acclaim for its efforts in local sourcing and its commitment to sustainability. Another relevant innovative social enterprise model is the platform model. Startups and nonprofits have leveraged technology to create social networks and crowdfunding sites which promote impactful projects. Three startups that are actively employing this approach are charity: water, Catchafire and DonorsChoose.org. charity: water funds water projects with 100% public funds. The platform allows users to donate online or start fund- raising campaigns for a water project. charity: water then partners with organizations around the world that provide long- lasting water and sanitation services, funding their programs. Catchafire is a social network focused on matching volunteers with organizations. The platform connects professionals who are willing to donate their time and expertise with nonprofit organizations seeking a particular skill set. DonorsChoose.org is an online crowdfunding platform for helping students in need. The website allows public school teachers in the US to post classroom projects that require funding on the site, which works similarly to Kickstarter. Projects on the platform include the supply of books and materials, the funding of field trips, and the supply of sports equipment. Figure 2. DonorsChoose.org: Impact Source: DonorsChoose.org 4

It is fair to say that social good startups have become increasingly popular over the last 10 years and, naturally, a supporting ecosystem has emerged around them.

5 It is fair to say that social good startups have become increasingly popular over the last 10 years and, naturally, a supporting ecosystem has emerged around them. The Social Good Ecosystem Over the last decade, the social good venture ecosystem has developed rapidly in three dimensions: legal recognition of social- driven enterprises, increased funding options for social good startups and development of social entrepreneur communities. Benefit Corporations and B Corporation Certification In the US, a benefit corporation is a type of for- profit legal entity that is committed to having a positive impact on society and the environment in addition to making a profit. Registering as a benefit corporation is one way socially driven startups can identify themselves as social good companies. The benefit corporation structure is recognized in 31 US states, and five states are currently in the process of passing similar legislation. for Social Good Startups Startups also have the option of becoming a certified B corporation, which is different from legally forming a benefit corporation. B Corp certification is performed by B Lab, a nonprofit entity, and Inc. magazine has called the B Corp certificate the highest standard for socially responsible businesses. Prominent ventures that have opted to earn the certificate include Warby Parker and Etsy. B Corps must meet rigorous standards of social and environmental performance, accountability and transparency, and the B Corp website details that there are more than 1,000 certified B Corps, representing 33 countries and over 60 industries. The certificate is not limited to startups; established companies such as Patagonia and Ben & Jerry s have also earned accreditation. According to a report on US sustainable, responsible and impact (SRI) investing trends by the US SIF Foundation, US- domiciled assets under management following SRI investing strategies increased by 76%, to $6.67 trillion, between 2012 and The trend has affected venture and seed capital available for social good ventures globally. Below, we highlight three of the most prominent financing vehicles for social good startups. Acumen Acumen is a nonprofit, global venture fund run by Jacqueline Novogratz. Founded in 2001, the fund raises charitable donations to invest in companies and entrepreneurs who are changing the way the world tackles poverty. Figure 3. The Acumen Investment Model Receive Donaoons Make Equity or Debt Investments Scale Game- Changing Companies Creaong Recycle Returns into New Investments Source: Acumen Acumen has mainly invested in developing- world enterprises that tackle problems in farming, healthcare and access to energy. The fund has recycled $13 million in returns and raised $368 million in follow- on coinvestments for its portfolio companies. 5

6 Endeavor Founded in 1997, Endeavor is a global nonprofit network that supports high- impact entrepreneurs in emerging and growth markets. The mission of the organization is to lead the global movement to catalyze long- term economic growth by selecting, mentoring, and accelerating the best high- impact entrepreneurs around the world. Endeavor offers entrepreneurs access to a global network of resources, including talent and capital. Omidyar Network Omidyar Network was founded in 2004 by ebay cofounder Pierre Omidyar. The investment organization provides financing to both for- profit and nonprofit enterprises as long as they create opportunities for people to improve their lives, their communities, and the world around them. The fund has committed $849 million since inception, $391 million to for- profit ventures and $458 million in nonprofit grants. Apart from Acumen, Endeavor and Omidyar Network, other active socially driven investment organizations include the Knight Foundation, the Case Foundation, Kapor Capital and the Collaborative Fund. Communities The Impact Hub Global network An Impact Hub is a community of committed individuals who collaborate, inspire and develop mission- driven startups for the social good. Hubs provide entrepreneurs with resources, inspiration and collaboration opportunities to grow the impact of their work. The first Hub opened in London in 2005 and over the last 10 years, the concept has multiplied to cover most of the world. Figure 4. Impact Hub Footprint in 2015 Source: Impact Hub 6

The Good Lab is Hong Kong s first social innovation hub. The Lab is a coworking space and a community collectively focused on solving social problems.

It provides a platform where change agents can convene and incubate impactful social ideas.

7 The Good Lab is Hong Kong s first social innovation hub. The Lab is a coworking space and a community collectively focused on solving social problems. The organization was founded in 2012 by seven of the key players in the social innovation ecosystem in Hong Kong. It provides a platform where change agents can convene and incubate impactful social ideas. Apart from providing a physical location, The Good Lab runs educational programs and events, which facilitate cross- sector collaboration between businesses, government and civil society. Coworking Space at The Good Lab Source: The Good Lab Key Learnings The increasing number of social enterprise ventures can be seen as a natural adjustment to the changing demographics of the labor and consumer pool, as well as the impact of the increasing availability of technological solutions, which enable the free exchange of ideas and capital across borders. Startups operating with the promise of social good become attractive workplaces for millennials, who value impactful social causes, and they become aspirational brands for consumers looking for sustainability and transparency. As a result, the companies competing with socially driven startups will need to adjust in order to be able to attract and retain the best talent. We believe that the following behaviors will play a major role in the adjustment: defining the cause the organization stands for; communicating the organizational values clearly internally and externally; showing flexibility in the way the social cause is approached and achieved; and opening up to the external socially minded community. Socially driven startups and social good initiatives by big corporates can benefit society, and we are excited to continue following developments in the sector. 7

TOMS Shoes started by designing and selling shoes based on the Argentine alpargata design.

The company pioneered the one- for- one model by giving an impoverished child a new pair of shoes every time it sold a pair.

Beyond eyecare and shoes, the company s social efforts now include improving access to water, providing safe birth and helping to prevent bullying.

8 TOMS Shoes started by designing and selling shoes based on the Argentine alpargata design. Since its founding in 2006, TOMS has moved on to offer a wider variety of footwear and other products such as bags, eyewear and coffee. The company pioneered the one- for- one model by giving an impoverished child a new pair of shoes every time it sold a pair. Today, whenever TOMS sells a pair of glasses, part of the profit is channeled to organizations that help provide communities in need with access to eyecare. Beyond eyecare and shoes, the company s social efforts now include improving access to water, providing safe birth and helping to prevent bullying. Company Details Year Founded 2006 Key People Blake Mycoskie (Founder) Team Size Los Angeles $300,000 in seed funding (sold 50% to Bain Capital for $300 million in 2014) Blake Mycoskie Direct to consumer The company has given over 35 million pairs of shoes to children in need, has helped restore sight to over 325,000 people and has helped provide over 67,000 weeks of safe water in six countries. Source: TOMS Shoes 8

company Details Year Founded 2010 Key People Team Size 201 500 Neil Blumenthal (Cofounder & Co- CEO) David Gilboa (Cofounder & Co- CEO) Andrew Hunt (Cofounder) New York, NY $215.

9 Warby Parker is an American brand of prescription eyeglasses and sunglasses founded in The company sells eyewear primarily through its online store and a limited number of showrooms in the US. Warby Parker is a for- profit company based on the one- to- one giving model: for every pair of glasses purchased, Warby Parker distributes a pair to someone in need.company Details Year Founded 2010 Key People Team Size Neil Blumenthal (Cofounder & Co- CEO) David Gilboa (Cofounder & Co- CEO) Andrew Hunt (Cofounder) New York, NY $215.5 million General Catalyst Partners T. Rowe Price Tiger Global Management Wellington Management Direct to consumer Warby Parker has distributed more than 1 million pairs of glasses to people in need through its nonprofit partner, VisionSpring. VisionSpring has trained more than 18,000 men and women in more than 35 countries on the manufacture and distribution of glasses. Source: Warby Parker 9

KNO Clothing is working with more than 100 different communities across the US. The company uses fairly traded organic fabrics in its clothing.

10 KNO Clothing is an online, socially responsible fashion company with the goal of ending homelessness in the US. With every purchase, the retailer gives an article of clothing to someone in need and provides funds to organizations that are working to end homelessness in local communities. KNO Clothing is working with more than 100 different communities across the US. The company uses fairly traded organic fabrics in its clothing. Company Details Year Founded 2010 Key People Team Size 1 10 Stephen Caldwell (Cofounder) Anthony Thomas (Cofounder) US N/A N/A Direct to consumer KNO Clothing has partnered with the Bethesda Mission and Community Solutions. Through its partners, the company has helped provide housing to thousands of people. The company s staff has also hand delivered thousands of articles of clothing to people in need. Source: KNO Clothing 10

NOURI was founded by Jared Crooks and Veneka Chagwedera.

donate a meal to feed a hungry child in school.

Crooks Veneka Chagwedera Washington, DC N/A N/A Direct to consumer

11 NOURI was founded by Jared Crooks and Veneka Chagwedera. They created NOURI to provide snacks that are healthy, organic and eco- friendly. The company promises that for every NOURI bar purchased, it will donate a meal to feed a hungry child in school. Company Details Year Founded N/A Key People Team Size 1 10 Jared Crooks Veneka Chagwedera Washington, DC N/A N/A Direct to consumer In 2013, NOURI provided 89,221 meals to children, feeding 205 children in need daily across four continents and 132 retail locations. Source: NOURI 11

Zady is an online shopping platform for apparel, jewelry, household items and office supplies that promotes conscious

Manufacturing transparency, quality and craftsmanship are emphasized, and the curation team personally vets every single

Company Details Year Founded 2013 Key People Maxine Bédat (Cofounder) Team Size 11 50 New York, NY $1.

12 Zady is an online shopping platform for apparel, jewelry, household items and office supplies that promotes conscious consumerism. Manufacturing transparency, quality and craftsmanship are emphasized, and the curation team personally vets every single item sold. Zady also develops apparel collections of sustainably sourced clothing under its own brand. Company Details Year Founded 2013 Key People Maxine Bédat (Cofounder) Team Size New York, NY $1.4 million VegasTechFund BoxGroup New Enterprise Associates Direct to consumer Zady donates 5% of all online sales to The Bootstrap Project to help train new artisans, expand their programming to revive artistic traditions and create meaningful economic development. Source: Prote.in 12

Pact Apparel is a fair trade apparel company that emphasizes the use of non- GMO organic cotton in all of its

The company stands for a supply chain that is clean and responsible, and strives to improve the lives of

Company Details Year Founded 2009 Key People Team Size 11 50 Jason Kibbey (CEO & Cofounder) Jeff Denby (Chief

2 million Revelry Brands (acquired PACT in 2011) Direct to consumer Pact Apparel launched a Fair Trade

13 Pact Apparel is a fair trade apparel company that emphasizes the use of non- GMO organic cotton in all of its products. The company stands for a supply chain that is clean and responsible, and strives to improve the lives of farmers and workers. Company Details Year Founded 2009 Key People Team Size Jason Kibbey (CEO & Cofounder) Jeff Denby (Chief Creative Officer & Cofounder) Boulder, CO $2.2 million Revelry Brands (acquired PACT in 2011) Direct to consumer Pact Apparel launched a Fair Trade certified product line produced in a factory in India. For every purchase, Pact will donate a percentage of the sales to a worker- controlled fund. The workers will vote on how to spend the funds, whether on a disaster relief fund for factory workers, a scholarship fund for workers children, infrastructure improvements in their local communities or a cash bonus. Source: Pact 13

charity: water is a nonprofit organization bringing clean and safe drinking water to people in developing nations.

The nonprofit runs an online crowdfunding platform that allows users to donate online or start fund- raising campaigns for water projects.

Company Details Year Founded 2006 Key People Scott Harrison (Founder) Team Size 51 200 New York, NY $1.

14 charity: water is a nonprofit organization bringing clean and safe drinking water to people in developing nations. All public donations go to charity, and all operating costs are covered by a group of private donors. The nonprofit runs an online crowdfunding platform that allows users to donate online or start fund- raising campaigns for water projects. charity: water then partners with organizations around the world that provide long- lasting water and sanitation services, funding their programs. Company Details Year Founded 2006 Key People Scott Harrison (Founder) Team Size New York, NY $1.7 million (seed) N/A Direct to consumer The organization has funded more than 17,370 water projects in 24 developing countries since When complete, these projects will provide clean, safe drinking water for more than 5.5 million people. In total, the charity had raised over $155 million as of December 8, Source: charity: water 14

Catchafire is a for- profit organization that runs an online matching platform which connects nonprofit organizations with

Nonprofits list a project on the platform and receive volunteer applications from the Catchafire community.

Company Details Year Founded 2009 Key People Rachael Chong (Founder & CEO) Team Size 11 50 New York, NY $2.

15 Catchafire is a for- profit organization that runs an online matching platform which connects nonprofit organizations with professional volunteers based on their skills, cause interest and time availability. Nonprofits list a project on the platform and receive volunteer applications from the Catchafire community. The company is certified as a B corporation. Company Details Year Founded 2009 Key People Rachael Chong (Founder & CEO) Team Size New York, NY $2.6 million Astia Angels Nonprofit organizations Source: Catchafire Catchafire measures its social impact by the savings generated for nonprofits which utilize the platform. For example, Resilience Advocacy Project saved $8,000 by finding a volunteer through Catchafire. Source: Catchafire 15

DonorsChoose.org is an online charity that runs an education crowdfunding platform that makes it easy for anyone to help a classroom in need.

org helps students, particularly those in high- poverty communities and those affected by natural disasters, access the books, art supplies, field trips, technology, instruments and other resources

Company Details Year Founded Key People Team Size 2000 Charles Best (Founder and CEO) Oliver Hurst- Hiller (CTO & Head of Product) César Bocanegra (COO) 78 staff and 176 volunteers New York, NY N/A

16 DonorsChoose.org is an online charity that runs an education crowdfunding platform that makes it easy for anyone to help a classroom in need. Teachers post projects, such as a request for supplies, and donors support them by making an online contribution. DonorsChoose.org helps students, particularly those in high- poverty communities and those affected by natural disasters, access the books, art supplies, field trips, technology, instruments and other resources they need. The nonprofit has attracted a prominent board of directors that includes Fred Wilson, Stephen Colbert, Jeff Weiner and Desirée Rogers. Company Details Year Founded Key People Team Size 2000 Charles Best (Founder and CEO) Oliver Hurst- Hiller (CTO & Head of Product) César Bocanegra (COO) 78 staff and 176 volunteers New York, NY N/A N/A Direct to consumer Source: DonorsChoose.org DonorsChoose.org online crowdfunding campaigns benefit students who mostly come from low- income communities in the US. Funds raised though the platform provide the tools and experiences students need for a better education. Donor schoose.org reports that so far 4,444,910 students have benefited from its fundraising work. DonorsChoose.org Projects by Resource Requested Source: DonorsChoose.org 16

Helping Students and Teachers Through Crowdfunding. April 19, 2016

Helping Students and Teachers Through Crowdfunding April 19, 2016 About Us Mission Engage the public in public schools by giving people a simple, accountable and personal way to address educational inequity