In the 1950s, a 14-year-old named Yvon Chouinard fell in love with rock climbing after going on a trip with the Southern California Falconry Club. But he and his friends soon discovered that the relatively soft pitons used to climb rocks and cliffs were inadequate at large sites like Yosemite. So Chouinard taught himself how to blacksmith and began forging pitons out of iron and selling them to other climbers.
Chouinard soon found himself needing to create his first production line to keep up with rising demand, and found a partner, Tom Frost, to focus on selling the products. Then, in the 1970s, the partners discovered that there was a market for colorful or interesting sportswear for men. They decided to open a side business to support their main business and named it Patagonia--signifying an exotic, faraway locale.
That side business eventually became much larger than the "main" climbing-equipment business. But a large part of Patagonia’s success comes from its founder's passion for sports, efficiency and environmentalism--and his refusal to compromise his beliefs for short-term gain. In fact, if you look at how the company’s product lines have evolved over the decades--innovating new and more environmentally-friendly materials and processes--you see its mission woven through every part of the organization. Every time Chouinard discovered something new about the effect that sporting products had on the environment, he brought it back to his company and found a way to improve his products and their impact. Purpose led product; not the other way around.
Patagonia is far from the only business to do this. It was founded with high standards of social and environmental responsibility, and today there's a specific credential that companies with similar values can earn and advertise--it's called a "benefit corporation,” or "B-corp". Today, there are a whole cluster of B-corps, including Patagonia, that are dedicated to social and environmental responsibility, and must adhere to standards that support these values. These corporations are mission-driven businesses and dedicated to causes their founders are passionate about.
The nonprofit B-Labs performs Triple Bottom Line (TBL) accounting on all of them, assessing their social and environmental bottom lines as well as their financial bottom line, and if the accounting doesn’t meet proper criteria, the company loses its B-Corp status. These companies are about more than profit alone; they are building a better world.
B-Corp Better World Books is an online bookstore that collects unwanted books from libraries and college campuses and either sells them to raise funds for literacy organizations or gives them directly to nonprofits that support literacy efforts. Another example is Sustainability Television, which creates, produces and distributes television online that educates people about important social issues. Members can join for free to upload content or can pay for advanced posting privileges, and many corporations also sponsor initiatives.
Today, there are over 1,000 B-corps, and the benefit corporation sector is rapidly growing. Between 2008 and 2012, the number of B-corps grew from less than 100 to over 600 while the cumulative revenue of all B-corps grew from less than $750 million to nearly $3.5 billion.
Funding the Growth of B-Corps
Growing companies need capital, and B-Corps are no exception. While there has long been talk about 'impact investing' and the growth of a new asset class that marries purpose and profit, what is most interesting for me, as an entrepreneur myself, is the capital flowing to these companies from profit-motivated investors.
Union Square Ventures, Benchmark Capital, Good Capital, Kleiner Perkins, Equilibrium Capital Group and Collaborative Fund are just a few of the venture capital funds that count B-Corps as investments. These funds all have LPs and fiduciary obligations to their investors. They seek out investments that they believe can provide outsized returns to their investors. Etsy and Warby Parker, both B-Corps, provide examples of high-growth, high-impact companies that are scaling quickly.
Since launching our online investment platform, CircleUp, in 2012, we’ve helped ten certified B-Corps raise more than $10 million in equity funding from accredited investors. One company, Peeled Snacks, raised $2.38 million--the most of any single B-Corp on our platform so far. We recently announced a B-Corp Fund--the first ever dedicated fund that exclusively invests in B-Corps. It’s a vehicle that can provide investors diversified exposure to early stage growth B-Corporations--and mission-driven companies the growth capital they need.
While making investors aware of the certification, we intentionally have not led with the social and environmental impact story of these ten companies. Our view is that they are interesting companies for all investors, not just 'impact' investors. For many companies, there does not need to be a trade-off between returns and impact--like Patagonia, the impact can be core to the financial return thesis.