Nancy Rosenzweig hails from a rich background in social enterprise. Having been a member of SVC for 25 years, she was part of a special group that sought to bring values and business together early on. She launched her career in management consulting (self-described as a Robin Hood!), where her firm would earn revenue from multi-national clients and then use the proceeds to fund impact projects such as health care solutions for Rhode Island.
The first social enterprise she was involved with was Tom’s of Maine in the early nineties, and she hasn’t looked back since. For 20 years, she has worked as a marketer, CEO and board member, working with companies such as Stonyfield Farms, Bright Horizons, Zipcar and Mama Chia and Trillium asset Management- many of which are SVC companies. She has also developed a volunteer system for non-profits like KaBoom!, Root Capital, and VisionSpring.
Today, she identifies, structures and aligns financing, working as an investment banker through her own firm, Values Aligned Capital. SVC sat down with Nancy to learn more about her knowledge and experience in raising capital for mission-oriented companies, and to better understand why she believes that ‘not all money is created equal’:
Tell us about you and your company. What are your goals for growing your company and its impact?
Five years ago, I decided to come at social enterprise from a different angle, and work in the financial industry. As a former CEO, I was already doing a lot of finance, M&A work, buying, selling, and fundraising. I decided that finance and banking would add another useful tool to my tool kit for helping mission driven companies get to scale.
I worked with Big Path Capital as an investment banker for 4 years, where I did a combination of investment banking M&A and impact investing. Just this year, I started my own (woman-led!) firm, Values Aligned Capital. My interest is to continue working with these very cool social enterprises, and also do some advisory work with investors who want help getting up to speed in the impact investment world.
I help companies retain their mission throughout their entire finance cycle. It is often in the financial transactions when companies get separated from their missions. The trajectory of a company’s mission is set early on in the partnerships they make. I have a particular sensitivity to identifying the right relationships for companies with an emphasis on a values-alignment.
My personal mission is to help founders and CEOs find the right partners. Sometimes I say that I’m a glorified matchmaker- finding fit with investments and companies. Sometimes when we ready to raise money, we want to take something right away that makes us feel secure. There can be a lot of seductiveness in the courtship process with investors that distract us from thinking about long-term alliances and goals. Term sheets also dictate how the relationship can unfold; being mindful what to build into the legal agreements is critical.
What do you bring to your clients that is unique to your background?
In the world of Investment Banking, in addition to the mission orientation, I would say one of the key things I bring to my clients is a really strong operating background. Having been a CEO and CMO, I bring a full spectrum management, governance, leadership, finance, and marketing experience. I understand my clients’ perspective as I have solicited these services, I now provide, and been on their side of the table. That’s what makes my approach unique.
You’ve said in a video interview before that the greatest advice you never received is that “not all money is created equal”. What did you mean by that?
This is something I have lived myself as a CEO. I’ve made the mistake of taking money from the wrong people. They are not bad people, but just not the right people. Nor did they have the same investment thesis. In the beginning it works, but in the end, it separates you from where you want to go.
It really matters who you take money from. The minute you take money from someone else, it sets the trajectory of the fate of your company. You can take money from some people, and they’ll end up helping you get you to where you want to go. Others will part your company from the mission, and your board meetings will become events that you won’t want to attend. It will drain your energy if you have the wrong partners.
Some money can be wind at your back, and other money can create headwinds.
What characteristics are unique to social enterprises, and what options do they have for alternative sources of capital?
One of the unique things that happens in this world of mission-oriented companies is that many people don’t want to sell out; they don’t want to “flip” their companies just to realize a profit. They have a long-term orientation and purpose.
In my experience, I have seen several different situations:
A.) We had one client company where the founder never wanted to sell the company even though they were in retirement mode. The company was to be held in perpetual trust. But the company still needed growth capital and liquidity. So what we did was to create a liquid private market of their stock, where 25% of the company could trade in private hands and there would be a mechanism for liquidity. Ultimately, when many companies are managed and operated by founders and or teams they choose, they are the best stewards of the mission, and we want to keep them there as long as this is the case.
- Another client ultimately wanted to sell, but wanted a much longer runway before doing so. The trap that many of these companies fall into is that they take a vow of poverty for 10-20 years, and then have a big windfall. But that’s not a great dynamic for the founder. We facilitated multiple liquidity event over time so there wasn’t pressure for the company to sell. It takes a little risk off the table and the founding team can to stay in this longer.
Overall, for alternative capital, there are a lot of options, but the specific choices are best determined by the particular needs of each company.
You’ve been in the field for 20 years helping to scale social enterprises. I’m sure a lot has changed in 20 years. How has raising capital changed in the last few decades? What’s available now that wasn’t before? What trends do you see in the current landscape?
Ten to twenty years ago, impact investing was not an offer. Now there is a growing set of investors that think about values. It’s being driven by women and millennials who want their investments to do good. There are now more funds and more family offices that have dedicated their resources to impact investing.
About 7 years ago, I was on the board of Trillium Asset Management, they are among the first ESG managers in the country. They manage people’s money and actively put it in public equities with good practices. While I was there, I was frustrated at how difficult it was to get people to put their money where their mouth was. They thought about impact investment as a single, concessionary asset class.
Before the thinking was, “Let me make money, I don’t care about values, I want to grow it, then use it for philanthropy.”
But today the thinking is, “I’m an investor, I have money, I want to do good things.”
There have been more and more products coming onto the market, and there really was (in every asset class), good places for investors to put their money into to achieve a risk adjusted return for that asset class (whether public or private equity, debt, real assets etc.). I’d argue even better returns, steered by values and forward-looking vision.
I helped create a concept called Total Portfolio Activation, which shows investors how to invest with their vales across every asset classes and get market returns. Today, there are even groups and individuals that have committed to 100% impact in their portfolio. Both sides of the equation have matured. For both the companies and the investors, there are more choices. And that’s a good thing.
The Total Portfolio Activation is a framework for investors. How can this framework be helpful to social enterprises who are looking to grow capital?
Thanks to this framework, there are more people changing the mindset. Investing for values no longer means concessionary returns. People thought it wouldn’t be successful, but now there are a lot more dollars that understand that you don’t need to make a sacrifice to invest in alignment with your values.
If you’re a social enterprise offering concessionary returns, you need to find investors who are comfortable with that, and if not, make sure you are advertising your returns as well as your mission. Today, there is no need to be demure on the values.
What other changes have you seen that have made different sources of capital available?
With changing regulations there are now ways you can source smaller amounts of capital from a large number of non-investors. For example crowd funding sites have become very popular. Now you can also do a Reg A Plus filing to raise money. This is similar to a public offering in that many small investments can be raised from individual investors without having to the institutional markets. This is terrific for a company that may want to raise money from loyal customers or stakeholders for instance.
Another important regulatory change impacts the fiduciary rules for foundations. They can now incorporate values into their investment strategy. Fiduciaries used to say that we can’t invest the corpus of our foundation into impact investments because it would be irresponsible, but now foundations can do that.
This has opened up foundation money for impact; The Ford Foundation has famously declared they would earmark $1 billion for impact. MacArthur recently did a big push to get money into impact funds, particularly women and minority run funds. These are all benefits resulting from the regulatory world catching up with the way people want to invest now.
General market dynamics have also changed. Now there are more flexible mandates at many family offices. As this next generation inherits wealth, there is more desire for investing family office resources into portfolios that are impact oriented.
Further, more and more impact funds are forming every day. The key is to find the ones that match the investment theme, the growth stage, the amount needed, and the ideal time horizon for your company.
How has being involved in SVC influenced your journey?
It’s been absolutely central to my career. When I look back, I like to give SVC a lot of credit for all the wonderful things I’ve been able to do, the organizations I’ve become involved with, and the people I met through the network. At SVC, I found a group of people who are on a similar journey, and I have had a chance to work with some of the finest people. Over the years the conferences have come to feel like family reunions.
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