VilCap/VentureWell - Louisville Agriculture & Cleantech Accelerator

The 2013 VilCap/VentureWell – Louisville Agriculture and Cleantech Accelerator is a program designed to equip entrepreneurs utilizing technology and innovative solutions to some of the worlds most pressing agriculture, energy and environmental concerns. The accelerator, Village Capital’s 18th program worldwide, is designed to provide opportunity to high-potential startups that deliver more than just an attractive bottom line. The experience, global networks, and capital resources of Village Capital and VentureWell, and other program partners: Blue Sky, Invested Development, Sustainable America, and Radicle Capital, will be utilized to prepare companies for investment and increase investor exposure.

The accelerator will consist of a cohort of 15 for-profit, commercially scalable companies operating in one (or more) of the following 2 verticals:

  • Agriculture
  • Clean technology / energy

The program consists of three skills-based workshops focused on training entrepreneurs to assume an “investor lens”, and culminates with $100,000 pre-committed investment, to be made with a twist: the investment decision is in the hands of the entrepreneurs. The first workshop starts on June 26 and end at the Idea Festival between 24 and 27 September. During this time, the program will provide infrastructure, business and investment related mentoring to the selected cohort of startups.

Throughout the program, participating enterprises engage in a constructive and fully transparent ranking process, designed to provide entrepreneurs with feedback and accountability systems designed to build investment ready businesses. After the final rank, the top two companies receive investment, and YES, the investment decision is solely placed in the hands of the entrepreneurs themselves!

The Road to Abundance: Identifying the Problems (Part II)

So what is abundance and how will we know when its been achieved?  Peter Diamandis explains that “abundance is not about providing everyone on this planet with a life of luxury…ultimately, abundance is about creating a world of possibility: a world where everyone’s days are spent dreaming and doing, not scrapping and scraping.” 

            Described as such, abundance doesn’t seem so unattainable, right?  After all, almost everyone in the developed world already enjoys a life of “abundance” as illustrated by Diamandis.  The fact is that many of our lives are filled with so much abundance that we’ve become so consumed with “dreaming” and “doing” it is difficult to understand the plight of those who must “scrap” and “scrape” their ways through life.  

            Diamandis says the developed world’s comfortable existence is a reflection of our ability to satisfy most or all of Abraham Maslow’s famed five level Hierarchy of Human Needs pyramid. Diamandis believes Maslow’s pyramid is central to the pursuit of abundance because it identifies our most basic needs and arranges them into a graduated system in which each level must be satisfied before one can achieve the next. 

            If you are reading this blog post then you have probably satisfied the first three or four levels of Maslow’s pyramid: (1) physiological needs, such as water, food, and shelter; (2) safety needs, such as personal protection and law and order; (3) love and belongingness as received through friendships and family; and (4) self-esteem needs attained through personal achievement and self confidence.  Reaching the pentacle of Maslow’s pyramid, self-actualization, is evidenced by “one’s devotion to a higher purpose and willingness to serve society.”

            Diamandis uses the pyramid’s building blocks as a guide for identifying hindrances to progress, assessing the scope and magnitude of such hindrances, and formulating a strategy to eliminate these barriers so as to empower everyone with the tools needed to improve their lives and help others along the way.

            As Diamandis acknowledges, global disparities in wealth and quality of life are quite staggering when viewed through the lens of Maslow’s pyramid.  One might be surprised to learn that nearly one billion people have failed to progress beyond the pyramid’s first tier. It is easy to understand how illusive progress might be for people who spend the majority of their time gathering necessities such as clean water and food.  Diamandis believes that abundance will remain a pipe dream until we can find solutions to our most pressing problems:

                                                           Water

The Problem: Water is body’s most critical input.  Unfortunately, access to clean drinking water is a significant problem for approximately one billion people worldwide.  Water-borne illnesses are so prevalent that they are responsible for half of the world’s hospitalizations.  It is easy to understand why social progress is slow or non-existent for people who are perpetually sick and spend their entire day looking for clean water.

Potential Impact: Clean water is critical to leading a productive life, combats hunger by increasing nutrient absorption, and has been correlated with reduced birth rates.

                                                        Healthcare

The Problem: Tragically, many people die every year from ailments that have been curable for decades.  For example, pneumonia is responsible for nearly 20% of all deaths for children five and under despite the existence of curable treatments developed nearly a century ago. While the availability of basic medicines remains a problem in many regions, the inability of local healthcare providers to properly diagnose illness and disease contributes significantly to many preventable deaths.

Potential Impact: Providing the means for underserved regions to identify, treat, and prevent disease outbreaks could save millions of lives each year.

                                                           Energy

The problem: Energy accessible factories during the industrial revolution allowed for increased productivity and division of labor, which allowed for creation of new wealth. Unfortunately, wealth is difficult to create for people like the average Nigerian, who lives in a single room dwelling with four other people and only 8.7 kWh of energy per day.  Today, 3.5 billion people generate light and heat for cooking by burning biomass, a practice responsible for “36% of acute upper respiratory infections, 22% of chronic instructive pulmonary, 1.5% of all cancers.” 

Potential Impact: providing a two-burner electric stove could reduce disease and illness caused by cooking practices import countries, which would produce global disease by 4%.

                                                           Education

The Problem: most education experts agree on two things: (1) literacy, mathematics, life skills, and critical thinking are the ingredients needed for self-improvement; and (2) that our education systems have failed to evolve along side advancements in technology and the skills needed to navigate 21st century life.

Potential Impact: Leveraging technology to educate children in the world’s most remote regions will give coming generations the tools needed to improve standards of living for themselves and their community.

                                                            Freedom

The Problem: The information age has increased the transparency of oppressive government and exposed human rights abuses that would have gone unnoticed one decade ago.  While international pressure has helped reduce such abuses, there are still many who are refused the right to attend school, access the Internet, or move freely across regional and international borders.

Potential Impact: The Swedish International Development Cooperation Agency insists, “Access to and the strategic use of [information and communications technologies] have been shown to have the potential to help bring about economic development, poverty reduction and democratization—including freedom of speech, the free flow of information in the promotion of human rights.”

            Diamandis insists that, while such problems seem daunting, they are not insurmountable. Diamandis believes the only thing standing between us and achieving global abundance is our hesitation to dream big.  Confidence in our ability to overcome seemingly impossible odds is so critical to creating change that Diamandis contributes a significant portion of Abundance to purging the reader’s mind of pessimism.

            Diamandis identifies three recent phenomena he believes will ultimately catapult us toward his vision of the future: (1) the confident, do-it-yourself attitude found in many of today’s young entrepreneurs; (2) a surge of twenty and thirty something tech moguls that have made enough money to support a small country who wish to use their wealth and talents to make a difference; and (3) empowerment of the world’s “bottom billion” to compete in the global economy using recent technological advancements.

Is Abundance Closer Than We Think? (Part 1)

If you are like most people, you probably think Earth’s future seems pretty bleak. Between wars, famine, disease, and pollution, today’s problems don’t seem to give us much to look forward to. But is our planet really heading toward destruction as quickly as popular opinion suggests?

Abundance, Peter Diamandis’ acclaimed (and controversial) 2012 collaboration with bestselling author Steven Kotler, is the MIT and Harvard educated brainiac’s attempt to inspire the next generation of innovators to tackle our planet’s most pressing problems in spite of seemingly insurmountable odds.  In support of his challenge, Diamandis offers a myriad of expert opinions and statistical data to mitigate the kind of pessimism that discourages the pursuit of solutions for seemingly unsolvable problems. Diamandis argues that solutions are not only possible, but that he and some of the world’s brightest minds believe that recent information and scientific advancements have made it possible to dramatically raise the quality of life for everyone on Earth…within the coming decades.

Diamandis defies popular opinion early by suggesting that life on earth isn’t as bad as most of us think. Diamandis points to statistical data, academic studies, and expert testimony that all seem to support his conclusion that, all in all, we humans are living a fairly cozy existence compared to our ancestors.  But is that true?  If life is so much better today, why do news sources like the New York Times and every grandparent to ever live suggest the world is heading to hell in a hand basket? 

Diamandis believes that limited access to information throughout human history is central to understanding why our perception is often skewed toward pessimism and colored by inaccuracies. Diamandis argues that our misconceptions are partly rooted in evolutionary survival traits that trick us into giving disproportionate weight to information related to environmental dangers. This phenomenon, known as negativity bias, has been confirmed by academic studies that show humans give more credence to negative information and experiences than positive ones. While it’s true most of us do not have to worry about lions hiding in the brush, our cautionary system is evidenced every time we pass on a restaurant based on a single negative review despite disproportionately more favorable ratings.

Diamandis also believes that limited access to information throughout history has contributed to our collective misperceptions about the world at large. From the beginning of time until the last decade or so, humans had access to very little knowledge from which to make daily decisions and form opinions. As such, humans made political decisions, opinions on racial and cultural differences, and when to harvest crops based on their limited understanding of the world and probability estimates from their life experiences.

Today, the Internet and mobile technologies have given us the ironic problem of having too muchinformation to consider when making decisions. While our relationship with information has changed, we still face the challenge of forming opinions based on the amount of information our brains can actually take into account when reaching an “informed” conclusion. What’s more, the information we doreceive comes from media outlets that are incentivized to push negative news stories that appeal to our evolutionary instinct to seek out information related to perceived dangers. When you factor in a handful of inherent biases at work in each of our minds (including: confirmation bias [“the tendency to search for or interpret information in a way that confirms one’s perception”]; predilection bias [relying too heavily on one piece of information when making a decision]; and in-group bias [giving preference really treatment to those in our 150 person interpersonal relationship pool, which includes politicians and TV personalities we don’t actually know]), as well as cognitive limitations that inhibit us from organizing and making sense of all relative information, it is easy to see how our brains can become a hotbed of irrationality and half-truths.

While its true that Abundance spends a great deal of time trying to create a sense of optimism to inspire the reader, the book does not seek to trivialize the plight of Earth’s “bottom billion” poorest citizens or discount the challenges still ahead. Diamandis discusses at length the grim reality of life for the world’s poorest citizens, including many from Mercy Njima’s native Kenya who are,

“Forced to rely on burning poor-grade wood, dung, or crop waste to cook, suffering the effects of the potentially fatal toxic fumes given off by this fuel. Imagine being desperately ill and turned away from a clinic because it has no electricity and can’t offer even the simplest treatment. Imagine your friends living under the shadow of life-threatening disease because there are no vital vaccines, due to a lack of refrigeration. Imagine if you or your partner were pregnant and went into labor at night and had no light, no pain relief and no way of saving you or the baby if there were complications…[women and children] spend hours every day searching for increasingly scarce energy resources. They are at risk from wild animals and sometimes rape. And once they start burning biomass, the acrid smoke causes serious lung disease and turns kitchens into deathtraps.”  

Ms. Njima’s account of life for many Kenyans is one of many narratives used by Diamandis to remind the reader that, while there is reason to be optimistic about the years ahead, many people will face a daily struggle for survival until solutions move from the whiteboards and laboratories into the regions that need them most.  

The good news, as Diamandis points out, is the solutions the world has been waiting for appear to be just beyond the horizon…

L3C vs. B-Corps: What is Best for Your Social Venture?

            Social entrepreneurs have the unenviable challenge of: 1) launching a sustainable business; 2) that solves or alleviates global afflictions; and 3) doing so while operating on a razor-thin profit margin. Severally, each of these elements create a difficult hurdle for all start-up to overcome; collectively, they yield what seems like insurmountable odds.  Fortunately, start-up social ventures can avoid some of the classic operational and financial obstacles that come with such entities by choosing a legal designation that best promotes their vision.

            Historically, federal and state statutes have viewed charitable and for-profit entities as mutually exclusive organizations whose mission statements rarely, if ever, overlapped. This legal distinction has been wholly rejected by a new class of up-and-coming entrepreneurs that believe companies can pursue profit while advancing social causes. In response to the need for a legal designation that straddles the line between for and non-profits, the US government and a growing number of states have recognized a new class of business entities that allows for the creations of such enterprises.  The two most popular are low profit limited liability companies (L3C) and Benefit Corporations (B-Corp).       

            L3C is a newly recognized business entity that allows companies to achieve modest profits while operating under a business model that emphasized impact over profits. L3Cs were specifically designed to help social entrepreneurs raise capital from a much broader range of investors than are typically attracted to traditional NPOs.

            L3Cs are structured under a “tranching” system that appeals to investors ranging from risk-averse entities like NGOs to aggressively managed hedge funds. Tranching allows a flexible ownership structure that allocates risk unevenly among its members based on their risk tolerance and ROI requirements. L3Cs will typically offer three levels of tranches designed to accommodate variations in investor needs. The lowest tranch is reserved for contributors like program related investments (PRI) that are willing to be junior claim holders and absorb below market rates. Investors placed in the lowest tranch provide the ability for L3Cs to attract the significant capital needed from larger, profit-driven investors placed in higher tiers. The middle tier, or “mezzanine” tier, provides L3Cs with access to socially conscious investors that consider the realization of social impact a component of their expected ROI and, as such, are willing to accept returns slightly below market rates. Lastly, offers an attractive investment opportunity for endowments and other contributors wishing to fund socially conscious projects while receiving market rate returns. Most importantly, the senior tier allows L3Cs to gather the substantial contributions that are typically unavailable to traditional NPOs.

            Under Treas. Reg. § 1.501(c)(3), L3C designated entities must: 1) significantly further the accomplishment of one or more charitable or educational purposes identified under 26 C.F.R. § 170(c)(2)(B); 2) have been formed for the purpose of furthering said charitable or educational purposes; 3) not strive for the attainment of revenues or property as their primary purpose; and 4) not be organized to further any legislative or political purposes.  Some states have passed legislation recognizing L3Cs and several more are considering following suit. Kentucky and Indiana’s state legislature failed to pass L3C bills introduced during each state’s 2011 legislative session.

            Lastly, it should be noted that L3Cs operate as a “pass through” entity for federal tax purposes, allowing the tax burden to be pass along to its members and paid as personal income tax.

            A popular alternative to L3Cs for companies wishing to operate under a standard of social accountability is the increasingly recognized Benefit Corporation. Benefit Corporations are distinct from L3Cs because they are required to operate under specific standards set forth by B-Lab, a non-profit organization founded by Benefit Corporation visionary Jay Gilbert. Benefit Corporations are required to draft or amend their articles of incorporation to include the following five provisions:

      Purpose — shall create general public benefit defined as the material positive impact on society and the environment, as measured by a third party standard shall have the right to name specific public benefit purposes the creation of public benefit is in the best interests of the Benefit Corporation.

      Accountability — directors duties are to make decisions in the best interests of the corporation directors and officers shall consider effect of decisions on shareholders and employees, suppliers, customers, community, environment (together the “Stakeholders”). Shall have an independent Benefit Director accountable for statement in annual Benefit Report whether Board acted consistent with obligation to create general and any specific public benefit purposes, and considered effects of decisions on stakeholders.

      Transparency — shall publish an annual Benefit Report in accordance with recognized third party standards for defining, reporting, assessing social and environmental performance, including assessment of successes and failures in achieving general and specific public benefit purpose and in considering effects of decisions on stakeholders. Benefit Report delivered to: 1) shareholders; 2) to public website with exclusion of proprietary data; and 3) Secretary of State with exclusion of proprietary data.

      Right of Action — only shareholders and directors have right of action. No third party right of action if Benefit Corporation is a subsidiary, >5% owners of parent have right of action. Right of Action can be for 1) violation of or failure to pursue general or specific public benefit; 2) violation of duty or standard of conduct.

      Change of Control/Purpose/Structure — shall require 2/3 majority vote.

Companies that operate under these standards are legally protected and obligated to pursue social benefits before profits. This obligation guarantees to investors that management will operate the business in a way that furthers their interest in social improvement.

            Until recently, Benefit Corporations were merely voluntary certifications that provided investors peace of mind and a set of standards for management to pursue. This changed in 2010 when the state of Maryland became the first to recognize Benefit Corporations as a designated legal structure, thus conferring legal protection for company officers to make decisions that seek to provide social benefits over profit.

           Today, Benefit Corporations are a recognized corporate structure in 10 states and the District of Columbia with an additional 16 states considering similar legislation.  Unfortunately, the Kentucky and Indiana legislatures do not have statutes recognizing B-Corp entities or proposals for enactment of such legislation.  Companies created in states like Kentucky that do not recognize Benefit Corporations are limited to voluntarily conforming their company to the standards set by B-Lab to receive Benefit Corporation Certification, which is periodically renewed contingent upon the company’s conformity with B-Lab standards.

           Conversely, businesses created in states that recognize Benefit Companies can register their company as such and must operate in accordance with the state’s applicable statute(s).  While such legal entities are not required to maintain “Benefit Corporation Certification” from B-Lab per se, nearly all require the Benefit Corporation to meet similar third party standards.

            While both L3Cs and B-Corps offer solutions important to emerging social entrepreneurs, both designations fail to address the challenges addressed by the other — L3Cs do not offer the transparency and legal protections of B-Corps, while B-Corps will not receive the broad capital market access enjoyed by L3Cs.  Ultimately, the decision must be made by weighing the importance of generating capital (L3C) or the legal obligation that demands management make every operating, financing, and investing decision based primarily on pursuit of a social cause (B-Corp).

Check out the links below for more information on L3Cs or B-Corps:

L3C:

http://www.intersectorl3c.com

http://www.americansforcommunitydevelopment.org

B-Corps:

http://www.benefitcorp.net

http://www.bcorporation.net

Sources:

Treas. Reg. § 1.501(c)(3)–1

http://www.socialenterprisetrust.org/pdf/legal-structure-and-social-enterprise.pdf

Practical Tax Strategies, THE L3C LOW-PROFIT LIMITED LIABILITY COMPANY: INVESTMENT OPTION FOR SOCIETAL IMPACT, 86 PRACTXST 66

http://www.bcorporation.net

http://www.benefitcorp.net