Social Entrepreneurship: Can “Lawyers Without Borders” help with funding?

About 18 months ago after winding up activities with a technology venture capital fund, I had that “AH-HA!” moment that so many of my friends and colleagues have described, but I had yet to experience. What was it? I met the SiG@MaRS team and a number of the passionate and talented social entrepreneurs they support. I learned about the challenges entrepreneurs in this field face and was intrigued by fact that while most social ventures require less capital than technology businesses and generally have a lower risk profile, capital is in very short supply. This is particularly true in Canada where most of us, including me before I was enlightened, assume that the government or charitable donors provide adequate funding for this sector.

In other markets like the US and UK, there is much better access to capital to support social entrepreneurs who are building “blended-value” organizations (those who deliver both financial and social or environmental impact returns). A number of organizations, including SiG@MaRS, have studied why this is so. One of the contributing factors is the lack of a legal organization structure that would make it easier for investors and funders to provide capital. It also doesn’t hurt that the UK has Sir Ronald Cohen, a very successful venture capitalist, as a leading advocate for the social finance sector and the US has Jed Emerson, a former social worker and current partner at Uhuru Capital in New York leading the charge on “blended value investment”..

My ah-hah moment was inspired by Cohen, Emerson and other leaders in this field. I, too, could try to leverage my venture experience to become an advocate for social entrepreneurs in Canada. And I could do that by working hands-on with the social entrepreneurs that SiG@MaRS supports but also trying to tackle larger projects that may help make it easier for entrepreneurs “doing good” for the benefit of Canadians.

Specific to the legal structure challenge, we assembled a small, blended team including Allyson Hewitt, Director, SiG@MaRS, with deep experience in the charitable sector and two out-of-the-box thinking lawyers from Ogilvy Renault, Mark Convery and William Chung. Our goal was to explore what might be possible for social entrepreneurs. We reviewed and based our recommendations on work done by early pioneers in this field. I personally drew upon the many different and often complex financial transactions I’d help complete as a VC. I was often humbled by what I did not know about the intricacies of charitable and co-operative law and discouraged about how much more complex it was for a social entrepreneur to launch a start-up than in a traditional for-profit setting.

The result of our work is a whitepaper entitled “Social Entrepreneurship: Legislative innovations” which you can download from the MaRS website. We hope that this whitepaper becomes a useful tool for social entrepreneurs and their advisors looking at legal structure challenges and options. SiG@MaRS is using this paper as the basis for dialogue with representatives from the Ontario and Federal governments regarding change.

In the meantime, we continue to think about how to help social entrepreneurs get set-up under existing legal frameworks while maximizing their ability to raise capital. We’d love to hear about other solutions that are working in practice.