VC Investment in Benefit Corporations and SPCs

In recent years, social enterprises formed as benefit corporations (or other similar social purpose entities) have successfully secured VC funding. Investors in social enterprises include some of the top silicon valley VC firms.

The apparent growth in interest in impact investing in the VC community is part of a broader trend. According to a 2014 Global Sustainable Investment Review, in just two years, from 2012 to 2014 there was a 61% increase in managed assets that incorporate sustainable investing strategies, with the growth in the U.S. being the highest among countries included in the study.

Current Debate

In the VC community, there are widely different perspectives on the social enterprise space and the concept of impact investing. Skeptics claim that profits and purpose are usually incompatible objectives, and you ultimately have to prioritize one or the other. Investors with this mindset will probably not be comfortable with benefit corporations.

Investors who view benefit corporations favorably have many possible reasons for finding the concept appealing. First, investors will know at some level that the other investors in the company have values and interests that are all aligned. And it’s an all-around win if you are “doing good” while also “doing well.” Other business-minded considerations include the company’s potential advantages for attracting top talent and consumer marketing advantages, with data showing that many consumers and especially millennials, are willing to pay a premium for social consciousness and sustainability.

For companies that wish to keep doors open to as many funding sources as possible, incorporating as a benefit corporation could be a limiting factor since some investors will not be comfortable with that corporate structure and business model. On the other hand, companies who have a strong mission focus may not be comfortable with those investors, so committing to a legal form that codifies the company’s social purpose may be a helpful way to filter for investors who are a good fit.

Specific Entity Choices

We know that the Delaware PBC has been used by several funded companies in the tech space For example, certain Y-Combinator companies among others have used the Delaware PBC structure and have successfully secured funding from top VC firms. The Delaware PBC has the advantage of being perhaps an easier switch from the traditional Delaware C-Corp and more comfortable for VC’s who typically invest in Delaware C-Corporations and their attorneys, who will tend to have the most familiarity with Delaware corporate law.

However, the California entities are also viable possibilities and need not be ruled out. One of our clients successfully raised over $70 Million as a California SPC. So a California SPC or Benefit Corporation may also be a viable option for companies seeking venture capital.

VC List

Some examples of VC firms that invest in benefit corporations in the tech space are noted below (obviously, this is just a sampling and not an exhaustive list).

Foundry Group Obvious Ventures Andreesson Horowitz Learn Capital Prelude

Mindful Investors Freshtracks Capital Bullet Time Ventures First Round Capital Westly Group

Union Square Ventures Omidyar Network Acumen Fund DBL Investors Claremont Creek