Social enterprise in Philadelphia: An oral history - Generocity Philly

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Jan. 27, 2016 11:45 am

Social enterprise in Philadelphia: An oral history

This is how Philadelphia's for-profit social impact scene was born from the like-minded misfits who launched an accelerator, a school and a network of local impact investors.

Garrett Melby (left), Sherryl Kuhlman and John Moore discuss the early stages of impact investing in Philadelphia with the Generocity staff.

(Photo by Chris Wink)

Social enterprise and impact investing didn’t come about naturally in Philadelphia: It was a very intentional movement driven by a handful of misfit players across sectors.

There were glimpses of what was to come as early as 2004, but it wasn’t until right before the Recession that Philadelphia’s social impact scene was officially born.

Between 2007 and 2009, Philadelphia landed a social enterprise accelerator in GoodCompany Ventures, a network of local impact investors in Investors’ Circle Philadelphia, an educational vehicle in Wharton Social Impact Initiative and the first impact investment in a social enterprise — online community service platform PublicStuff.

Yet, for all the hullabaloo that would come with this groundbreaking concept of making money while doing good, none of that could have happened without one of the city’s landmark nonprofits — Resources for Human Development.

This is the story of how impact investing came to Philadelphia, as told by those who were at the forefront. First up is Garrett Melby, co-founder of GoodCompany Ventures.

MELBY: I was an investor at Safeguard Scientifics for a number of years. In 2007 or so, I was trying to figure out this new space. I was working with a couple of individuals who were mostly working from a tech or venture background. We were actually sitting around meeting semi-regularly trying to invent social enterprises. This is a group that had assembled within the orbit of Bob Fishman at Resources for Human Development. They had a program where they would offer fiscal agency to a newbie nonprofit and you could work out of their offices and try to get your thing together. It was like an accelerator for nonprofits. We were all thinking about how we could create social businesses inside the RHD universe.

Melby said had met Fishman through lawyer Steve Goodman, known in the Philly tech community as the “dean” of venture capital law. Fishman, like Melby and others involved, wax nostalgic about those days.

FISHMAN: We did have dreams. And we did act on the dreams. The efforts led to successes and failures, as all of these efforts will. For us [at RHD], they did not make money, but that was not why we got into it. At that point, there were different people that came to my attention. We had the ability through grant funds to invest in businesses and look for new ways to distribute the wealth more equally. A number of people, Garrett Melby being one of the people, approached me with some ideas that we felt warranted exploration because he tied together the potential of giving wealthy people a tax benefit while giving funding or making funding available through their investment to startups and at-risk socially-oriented business enterprises. And we looked at it and decided it was certainly worth bringing to the attention of people who had wealth and were also looking for tax benefits.

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MELBY: Bob was really very interested in the Mondragon model, which is a model developed in this community Mondragon in the Basque Country in Spain.

The Mondragon Corporation is essentially one big co-operative that acts as a holding company for, develops and funds the smaller co-operatives within it.

MELBY: [Fishman] wanted RHD to be Mondragon. It had a certain amount of revenue, a certain amount of profits, you wanted to rest your profits in new social services in for-profit models that could be leveraged off the existing [capital] you have in this holding company. Could we do a data storage company for all the services, a laundry service for all the halfway houses, things like that.

FISHMAN: The kinds of things we were talking about — and in a variety of ways, trying — worked. They worked in terms of their small impact.

But there was one thing missing from all of this: the entrepreneurs themselves.

MELBY: I’m an ‘It all starts with the entrepreneur’ true believer. You can’t invent a business and then go hire an entrepreneur to do it. I don’t think that works. After a couple months, we said, “Why are we using all this brain power to invent fantasy businesses that aren’t driven by somebody? Why don’t we focus on finding those entrepreneurs and making them better?”

This was the premise for GoodCompany Ventures: to take entrepreneurs and give them the perspective of a social change agent and the tools they need to launch a business from that lens.

MELBY: These folks in social service sectors, they may not have the education and they may be uncomfortable with business strategies. They may be utterly unfamiliar with financing strategies and very intimidated by investor-types. I was skeptical of the value add of accelerators in a certain way, but I thought there was a real specific value add to take somebody with the DNA of entrepreneurship, the domain expertise and insight to know what needed fixing with great specificity, but they needed support in business model development and financing strategy. So, from the first cohort in 2009, we partnered with Wharton Social Impact Initiative.

Melby and the crew realized immediately that they needed a funding vehicle for the businesses coming out of the GoodCompany accelerator. That’s where Investors’ Circle Philadelphia comes in.

MOORE: The legend is that you guys were sitting around saying this is great, we have these companies, now we have to find some way to invest in them. [Investors’ Circle] existed nationally. It was very much just a convener and a matchmaker. They’d have sessions twice a year on thought leadership, panels and discussions, and they’d have entrepreneurs and investors meet at that event and go off and do their thing. The local chapter was more about let’s develop a way for investors to work together in a community and find companies in the community that work with this angel venture model and start to fund them. The first 10 to 12 people [former Investors’ Circle Philadelphia president] Tom Balderston and you guys recruited —

MELBY: [B Lab founder] Jay Coen Gilbert was involved.

MOORE: [WSII director] Jacob Gray [too].

Gray remembers those days fondly.

GRAY: That was a really fun time. Even though there were very, very few social investors at the time, I think there was still more capital than enterprises. That’s why GoodCompany sprang up.

More money than entrepreneurs? Gilbert responded directly to Gray’s claim over email — complete with an emoticon.

GILBERT: Investors always seem to think there is more capital than worthy deals and entrepreneurs always think there are lots of investors but no one making investments 🙂 Getting people interested in making money and making an impact is not hard.  Who wouldn’t want to do both if they could?  The hard part seems to be creating investment products that enable people to get started.  That’s why IC Philly was so important.

GRAY: We were saying what’s the most efficient tested model for training entrepreneurs? It’s not a typical educational model, it’s not a traditional university model or anything like that, it’s the incubators. The only one that has some kind of track record. We were saying where is the deal flow, particularly if you want to invest in your backyard? That was really vexing at the time. Bob Fishman was really interested in the local community. Times were good. Just about every time you ran across someone who had some discretionary money, who was an accredited investor, who was interested in the angel space, when we told them what we were up to their eyes would perk up. It was a pretty creative time.

Balderston, a partner at Radnor-based SustainVC, said he went to his very first Investors’ Circle gathering in either 2003 or 2004 – that’s where he first met Gilbert and other members located in the Philadelphia area.

BALDERSTON: There were a handful of other IC members who were around the region here. Angel investing really is a business activity that is based inherently on trusted network kind of stuff. Most angel investing is local. Most times the entrepreneurs and angels want to get together physically and meet and get to know each other and be involved together and so on. [Gilbert] was the person who said we really ought to focus on local.

Gilbert insists it was a team effort.

GILBERT: I remember it would not have happened without Tom’s leadership. Tom had the credibility as a professional investor to get 10 of us to put in 5K each so local entrepreneurs would know there was money on the table.

BALDERSTON: Gilbert, Gray, [Conservation Economics President] Cliff David and I gathered for coffee a few times and said, ‘How would we get this going here in the Philadelphia area?’ [Gray] suggested we get GoodCompany’s graduation to be sort of the time when we think about how to get some interest that we might rally to form a local network here. So, we agreed that that was a good idea. There was a gathering of the first cohort of GoodCompany Ventures entrepreneurs to do their quick pitches. By prior arrangement I stood up and said, ‘These are cool companies. We’re going to have a gathering to see if we can’t form a local investment group focused on impact investing as part of Investors’ Circle.’ We all raised our hands and I said, ‘See us if you’re interested.’ The next week … we started thinking about what it would take to get an angel group going. We went through some fits and starts, but within the first year we were seeing entrepreneur pitches, we made an investment, that investment turned out to be successful albeit small. It was a company called PublicStuff.

Moore remembers how eager that first impact investing network was to pump some capital into a business.

MOORE: Let’s find a company and invest. We don’t even care if it’s perfect, just put some cash into a company. Lucky for us, Garrett was like, ‘OK, how about this one?’ He served up PublicStuff. We put together $150,000 and gave it another year and a half of breath. Then eventually, it turned out to be a successful exit.

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Tony Abraham

Tony Abraham is Technically Media's special projects reporter, where he currently edits Technical.ly's Grow PA series. He reports for both Technical.ly and Generocity and was a Philly News Award winner for Community Reporting of the Year in 2016. A proud native of Allentown, Pa., the Temple University alumnus calls Fishtown home.

  • Dennis C. McGrath

    in this community Mondragon in the vast country in Spain

    Think you meant Basque, not vast

    • Tony Abraham

      Nice catch, Dennis — just fixed. Thanks for the heads up!

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