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Do-Gooder Finance
Published February 2008
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BUY A REPRINTTraditional VCs often pressure entrepreneurs to jettison their do-gooder roots, but social investors take the opposite approach. Berge, Freundlich, and other social investors want to make sure that their portfolio companies maintain their social missions as they grow. Underdog Ventures, for example, required all the companies in its first fund to donate a portion of their equity to a nonprofit. And if a company wants to change its social mission, it needs Underdog's approval first.
That's one reason Charlie Crystle sought out Underdog when he started his second company. His first one, a software firm called Chili!Soft, was backed by VC giant Draper Fisher Jurvetson. The company was acquired for $70 million, in 2000, but Crystle was pushed out before the sale and felt that some stockholders, including many employees, didn't get a fair share of the proceeds. "I felt like we built a transaction rather than a company that would have a lasting positive impact," he says. With his next try, he wanted to do things differently.
In 2001, Crystle co-founded Lancaster, Pennsylvania-based Mission Research, which sells fundraising software to nonprofits. Organizations with annual budgets under $25,000 can get the product for free. Despite Crystle's track record, traditional investors didn't much care for the idea of giving away the product. Nor did they like Crystle's plan to give a 20 percent stake in the company to charity. They didn't even like the idea of targeting nonprofits in the first place. So Crystle turned to Underdog, which in 2006 led his first round of outside financing, investing $300,000 for a 5 percent stake. Crystle says revenue increased 60 percent in 2007, and he expects it to grow another 200 percent this year.
Underdog provides more than patient capital. "If I go to Underdog and say, 'I want to make a donation of software to Third World countries, and I need that to be in Spanish, French, and Chinese,' David gets to work and thinks about it instead of saying, 'Why are you wasting your time?' " says Crystle. That help is crucial for Crystle. "I focus on building my business and building revenue," he says. "But it's not the reason I get up every morning and go to work."
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