Among the first of its kind, the student-led Social Venture Fund at University of Michigan’s Ross School of Business recently announced an investment in Mytonomy, a social network for college and career advising. It’s the third investment the fund has made since its launch at the end of 2010.

While the amount of the investment was not disclosed, the fund invests up to only $100,000 at a time, and Mytonomy seems to feel there is other value in this kind of support.

“We’re particularly excited to engage directly with the Social Venture Fund to tap Ross’s cross-disciplinary business students as well as those from the School of Education and College of Engineering to further our mission,” Mytonomy’s chief executive and co-founder, Vinay Bhargava, said in a statement that was published on AnnArbor.com.

The Mytonomy investment was part of a seed round for the company that included funding from two other social venture funds, NewSchools and Kapor Capital.

The Social Venture Fund invests only in companies that make a positive social or environmental impact, says Owen Henkel, a second-year MBA student and co-director of the fund, which is part of the Zell-Lurie Institute for Entrepreneurial Studies.

Being part of a student-led fund forces you to think about the fundamentals of business, how each idea will make money, and how it can be sustainable, says Henkel. “It’s real life. You’re talking with real entrepreneurs from day one,” he says. “You have to put your money where your mouth is.” Most importantly, he adds, you get “into the messiness of business.”

More than 100 students typically apply for the 10 to 15 associate positions at the fund each year. The chosen few spend 15 to 20 hours per week on deal sourcing, deal management, and portfolio management. In screening investments, the students focus on four sectors: education, food systems and environment, urban revitalization in Detroit, and health, says Daniel Rosen, a second-year MBA student and a co-director of the fund. Students focus on one of the sectors based on previous experience. For example, Henkel, having been part of Teach for America, was in the “education circle.”

In spring 2012, the fund, which was born of a class gift, made its first investment in LearnZillion, an online service that gives students, teachers, and parents access to a video library of lessons taught by the nation’s top teachers. A few months later, the fund announced its second investment in Jack & Jake’s, a sustainable food provider in Louisiana. Mytonomy’s mission and creators impressed the students in the fund to make it the third beneficiary of funding from the group.

“We look for some traction in the marketplace,” says Rosen. “We like to fund a company at a time when our investment can make a difference and when the university’s resources can make a difference.”

By Francesca Di Meglio

May 09, 2013

Among the first of its kind, the student-led Social Venture Fund at University of Michigan’s Ross School of Business recently announced an investment in Mytonomy, a social network for college and career advising. It’s the third investment the fund has made since its launch at the end of 2010.

While the amount of the investment was not disclosed, the fund invests up to only $100,000 at a time, and Mytonomy seems to feel there is other value in this kind of support.

“We’re particularly excited to engage directly with the Social Venture Fund to tap Ross’s cross-disciplinary business students as well as those from the School of Education and College of Engineering to further our mission,” Mytonomy’s chief executive and co-founder, Vinay Bhargava, said in a statement that was published on AnnArbor.com.

The Mytonomy investment was part of a seed round for the company that included funding from two other social venture funds, NewSchools and Kapor Capital.

The Social Venture Fund invests only in companies that make a positive social or environmental impact, says Owen Henkel, a second-year MBA student and co-director of the fund, which is part of the Zell-Lurie Institute for Entrepreneurial Studies.

Being part of a student-led fund forces you to think about the fundamentals of business, how each idea will make money, and how it can be sustainable, says Henkel. “It’s real life. You’re talking with real entrepreneurs from day one,” he says. “You have to put your money where your mouth is.” Most importantly, he adds, you get “into the messiness of business.”

More than 100 students typically apply for the 10 to 15 associate positions at the fund each year. The chosen few spend 15 to 20 hours per week on deal sourcing, deal management, and portfolio management. In screening investments, the students focus on four sectors: education, food systems and environment, urban revitalization in Detroit, and health, says Daniel Rosen, a second-year MBA student and a co-director of the fund. Students focus on one of the sectors based on previous experience. For example, Henkel, having been part of Teach for America, was in the “education circle.”

In spring 2012, the fund, which was born of a class gift, made its first investment in LearnZillion, an online service that gives students, teachers, and parents access to a video library of lessons taught by the nation’s top teachers. A few months later, the fund announced its second investment in Jack & Jake’s, a sustainable food provider in Louisiana. Mytonomy’s mission and creators impressed the students in the fund to make it the third beneficiary of funding from the group.

“We look for some traction in the marketplace,” says Rosen. “We like to fund a company at a time when our investment can make a difference and when the university’s resources can make a difference.”

To date, the Social Venture Fund is the only university impact investing fund with active investments. Along with the Wolverine Venture Fund and Frankel Commercialization Fund, the Social Venture Fund completes the Ross’ trifecta of student-led venture funds, managed by the Zell Lurie Institute and which effectively immerses students in experiencing all aspects of venture capital investing.

A team of eight students led by Aamer Ali, MBA ’14, and Dan Rosen, MBA ‘14, sourced the deal and conducted in-depth due diligence on the company. “Mytonomy addresses a key need in the education market and has social impact embedded into its business model, making it an ideal company for the Social Venture Fund to consider,” said Rosen. “In analyzing the opportunity more closely, we were impressed with Mytonomy’s initial traction and customer satisfaction, as well as the notable team, advisors and other investors. We are pleased to participate in this round with well-established players and deepen the Fund’s portfolio of promising edtech startups.”

Mytonomy aims to address the disparity in high school guidance counseling services through a video-based social network, with a special focus on First Generation college students and students studying STEM (Science, Technology, Engineering and Math) fields. With an average caseload of 470:1, college guidance counselors are stretched beyond optimal capacity. Mytonomy helps bridge gaps in capacity by delivering complementary “video support” at scale and at low cost. The company’s video library, which already contains more than 2600 testimonials in both English and Spanish, enables high school and college students to watch videos from near-peers, getting advice on topics related to succeeding in high school, the college application process, and specific colleges, majors, and careers, all with their always-free student accounts.

In addition to the financial investment from the Social Venture Fund, Mytonomy will engage directly with the Fund and Ross on capacity building initiatives, such as high-impact consulting projects, research on the efficacy of its intervention, or development of curriculum related to STEM careers. The Fund will also have the option to participate in future rounds.

“We are pleased to partner with a respected roster of investors to deliver much-needed college knowledge, and to expose students to the careers of the future, especially those communities that are under-represented in the tech industry,” said Vinay Bhargava, Mytonomy CEO and co-founder. “We’re particularly excited to engage directly with the Social Venture Fund to tap Ross’ cross-disciplinary business students as well as those from the School of Education and College of Engineering to further our mission.”

A changing landscape
An increasing number of social entrepreneurs are choosing to launch for-profit businesses rather than non-profit organizations to attain their desired social impact. For-profit models allow these entrepreneurs to avoid dependencies on sometimes unpredictable grant funding and open up additional revenue and investment channels. For ventures whose social impact is baked into their for-profit business models as a fundamental aspect of how they generate revenue, making more money results in greater social impact.

This model appeals to many social entrepreneurs who want to focus on implementation rather than forever divide their attention between implementation and raising grant money to fund that implementation. Social enterprises also require initial capital, but capital raising is not usually an on-going activity throughout the life of a business as it is for a non-profit.

Non-profits spend a lot of time and money to raise funds and Charity Watch, a research group through the American Institute for Philanthropy, considers spending $35 or less to raise $100 reasonable for most non-profits. The for-profit option – which allows you to generate funds while already implementing and increasing your social impact – is quite appealing. But obtaining the financing to start such for-profit social enterprises is more difficult than many imagine.

An impact investor’s dilemma
As an impact investor, the University of Michigan Social Venture Fund (SvF) cares about social impact and financial returns. As an Associate on the Fund who previously worked for non-profit organizations, I’m excited by the development of the social enterprise space. Yet I am also beginning to understand the difficulty social enterprises face in raising capital from an investor’s perspective.

As SvF values both social and financial returns and looks to build a balanced portfolio, we often receive plans for businesses that have substantial social impact but won’t have large financial returns – regardless how patient our capital is. For instance, some companies are hyper local and make a concentrated effort within a small geographic area without plans to scale. Other companies are satisfied with being sustainable and don’t seek to be highly profitable.

Even as an individual who is excited by these new models and as an investor who values social impact strongly, I find it difficult to decide to invest in many of these businesses because there are so few possibilities to exit and such low returns.

Your solutions
How do you think impact investment funds should view these localized or low-profit businesses? In the changing landscape of capital raising (including micro capital such as Kickstarter, micro-equity, etc.), where do you see the strongest possibilities for these social enterprises?

We would love to hear our readers’ opinions. To share your thoughts please email us at info@umsocialventure.com or check us out on Twitter (@umsocialventure) and on Facebook.

http://www.greenbiz.com/blog/2013/03/29/why-impact-investing-beyond-venture-capital

UM Social Venture Fund’s interest in Detroit stems from a strong belief in the value of supporting the local economy, particularly in alignment with the continuously growing socially entrepreneurial ecosystem in the city. Detroit has attracted a large share of national and international media attention over the past few years. Some of that attention has arguably been misplaced, showcasing “ruin porn,” drawing out the same story of the auto sector’s failure and the inability of local and state government to create solutions. But, more recently, the Detroit narrative has shifted to one focused on Detroit’s unique entrepreneurial environment. Rather than being seen as a corporate graveyard, the confluence of a resurgent auto industry and a vision for change has led to a sprouting of innovative social ventures.

Social entrepreneurship blurs the line between corporate structures. Mixing for-profit and non-profit structures is not entirely new, but effective social enterprises use this dynamic in a more central way to achieve their vision. The for-profit and non-profit arms entwine to create sustainable impact and are flexible enough to deal with changing regulatory environments, take advantage of tax benefits, and find paths to create deep and lasting impact.

The emergence of Detroit’s new breed of social innovators is not because the city is a blank slate but precisely because of the city’s history. Detroit has always been an innovation hub. These businesses build upon past successes and failures to create something new. People may initially be attracted to the idea of Detroit because of a false sense of an empty canvass. But, it only takes a few moments to realize that Detroit’s history and people are what provide the opportunity for new innovation and change.

Whether it’s fully developed and at the forefront of your mind or vaguely defined and rarely considered, everyone has a slightly different concept of social impact. There are broad areas of overlap – most of us agree that better education, access to healthcare, and improved local economies provide inherent social impact. Divergence of opinion often begins with questions like “how much?” and “for whom?” And it’s a little bit of a tougher sell to convince a room that environmental health is inherently social.

There are various reasons for this disagreement: environmental health is one step removed from human health, environmental suffering is less apparent and less heart-wrenching than human suffering, etc. But I’d like to make the argument that, from a longer term perspective (which, as a slow money fund, is where we focus), environmental health is human health – and it’s one of the biggest levers we can hope to pull. This isn’t coming from some hippie worshipping Mother Gaia, either – here are 3 big, pragmatic reasons why.

1. Environmental justice. It’s not new or surprising news that low income and disadvantaged communities are disproportionately affected by poor environmental quality. This is just as true in the U.S. as it is abroad. In the short term, think higher incidences of diabetes, asthma, absences from work – all factors that can trap people in the poverty cycle. In the long term, think food and water scarcity, displacement, war – all because of….

2. Climate change. A couple of years ago, we considered climate change to be a problem for future generations. It’s becoming increasingly clear that we were wrong, that climate change is a problem already affecting our generation and likely to be worse than previously estimated. And guess what – low income and disadvantaged communities are and will be disproportionately affected here, too.

3. Systems. Environmental issues are inextricably linked to every problem we’re trying to solve. To illustrate this, here’s a systems map courtesy of Ross’s McGraw Professor of Sustainable Enterprise Tom Gladwin:

As evidenced in the diagram, when ecosystem health decreases, poverty prevalence increases. As climate change increases, water availability decreases, and poverty prevalence increases. Of course, if you want to add more nodes to it, it gets messier:

But the point is that environmental problems affect and exacerbate virtually all other problems. And because we are degrading environmental systems to the point where they can no longer support us, these effects will continue to intensify.

The triple bottom line is a myth; it’s a double bottom line: environmental is social. There are plenty of supporting arguments beyond those I’ve listed here, but the takeaway is clear: investing in environmental well-being is investing in positive, measurable human impact.

How innovative can a startup incubator possibly be? I had no idea – until I visited Detroit’s Green Garage with SvF’s Urban Revitalization Circle. In the course of our afternoon with Green Garage’s management, its entrepreneurs and many other members of the community, we learned much about how deep the roots of innovation really lie at this particular organization.

The Green Garage is one of the most well known incubation spaces in the region, along with institutions such as Ponyride, TechTown and the M@dison Building. It has already been profiled by the New York Times, and the beautifully renovated former Ford Model T showroom in which it is housed is arguable one of the best hidden architectural gems of the city.

Three ways in which Green Garage conducts its business particularly stand out:

1. Commitment inspires commitment

This organization is not just a project for the management team. Supporting entrepreneurs and Detroit is their mission. From talking to any member of the staff, it quickly becomes clear that they see the Green Garage as contributing to a much wider revitalization of the city and region, and that no corners will be cut to maintain the integrity of that objective.

For example, much of the furniture in the building was salvaged and refurbished. The team even remodeled and an entire alley running along Green Garage’s side. They host weekly lunches open to anyone, and the building’s main meeting room was renovated to open out into the street – when it is warm enough – so passers-by can engage without even entering.

That has given the incubator deep respect among social entrepreneurs. After all, they are also striving to improve all of the community and do so with just as much integrity.

2. To truly innovate, you have to go beyond the boundaries of your field

While the team that advises entrepreneurs at the Green Garage contains former entrepreneurs and venture capitalists with decades of success, they do not only depend on received business wisdom alone. Instead, they go beyond the boundaries of business to inspire entrepreneurs even more deeply.

For instance, one learning module that Green Garage companies can complete relies on systems theory and deep sustainability thinking. It adapts approaches from thinkers in the humanities to engage entrepreneurs on a personal level. From speaking to the entrepreneurs and seeing the materials they produce during this module, you can see how true unconventionality can really energize and clarify a business’ purpose.

3. Community means everyone

Green Garage is not just available for those who happen to be entrepreneurs. Instead, it actively seeks to engage a much wider community of social change agents. Green Garage understands that everyone needs to be brought into the process of social change, and that an incubator can be a part of the community rather than merely a community unto itself.

So apart from the many different entrepreneurs we talked to that afternoon, I met a young fiction writer who has just moved to Detroit from New York, a digital marketing executive who is also a well-followed blogger about Detroit’s continuing rise, and several retirees who had simply popped in for an architectural tour of the site.

When our visit came to an end, I realized how many relationships we in the Urban Revitalization Circle have been able to form that day. As a circle, this is one of our most important priorities, because it enables us to identify, fund and otherwise support the up-and-coming entrepreneurs that will accelerate Detroit’s rise even more. I would not be at all surprised if the ideas of some of those entrepreneurs first began to sprout their strongest shoots at the Green Garage.

“All you need to know is that finance is love.” Gautam smiles, adding, “And compounding.”

If only impact investing were that simple. In the burgeoning field, the University of Michigan’s Social Venture Fund has helped pave the way, in large part due to the unwavering support and leadership of the John C. and Sally S. Morley Professor of Finance, Gautam Kaul. Or, as many of the students on the fund prefer to call him: G.

Becoming a member of the Social Venture Fund is perhaps the most authentic opportunity for “action-based learning” at the Ross School of Business. Fund associates source business plans, evaluate the most promising among them through a meticulous due diligence process, and provide capacity building support for portfolio companies. To be eligible to participate in the investing process, each Fund member must enroll in Gautam’s Impact Investing course. The course is the product of three years of collaboration among Gautam and Fund members, who tweak and improve the content and delivery each year. The SvF leadership team members rotate in throughout the semester as guest TAs and JP Asta, SvF Co-Director of Operations, wrote a case study of a 2011 SvF investment decision that was used as a teaching tool.

The co-creation of the course provides an excellent example of action-based learning. Moreover, Fund members are afforded the opportunity to learn from classmates who are not tied to SvF and enroll in the course individually. It is refreshing to hear new perspectives and opinions on the subject that we, as Fund members, focus so much of our time. Discussion often covers how to best measure social impact, and the debates often carry over into Fund meetings where we try to compare the value of a health-focused firm with one that reduces carbon emissions. How do you compare apples to oranges? Is it even appropriate to? These are some of the questions Fund members tackle with over the course of two years and it helps to have outside perspectives from our classmates.

Gautam waxes poetic on finance and love in every session of the course. The passion he brings to the subject is contagious. Finance 636: Impact Investing provides a foundation from which all Fund members are able to develop an understanding of the field. It is also a right of passage by which we all fall under Gautam’s spell and begin to think of finance as love.

Negotiations are some of the most challenging business conversations to have because the two parties at the table often act as adversaries looking to get the largest “share of the pie.” In our first semester’s Management and Organizations class, we were taught to expand the pie, involve multiple issues in the negotiation, and in the end, create value through the exchange. Business strategy and decision-making is all about value capture among two negotiating parties (business and consumer) and value is not necessarily defined as monetary. So why then are most business decisions (and therefore, negotiations) in the “real-world” hinged upon the single issue of money?

Within my four years of experience at a top-consulting firm, it is impossibly hard for me to remember a business conversation that did not hinge upon the flow of dollars related to a particular decision. Even as an undergraduate at one of the top business schools, I cannot remember a significant discussion that went beyond business ethics and focused on something other than the amount of dollars generated or saved. While I wholeheartedly agree with the merits of capitalism, I feared from my past experience that the scope of business decision-making was limited to the money that was created or retained by an organization.

After joining the Social Venture Fund at the University of Michigan Ross School of Business, I’ve come to realize that it is possible to look beyond the greenback. Having gained exposure to social entrepreneurs focused on solving some of societies greatest issues using self-sustaining business models that concurrently generate profits and social good, I’ve begun to ask myself why larger corporations have not started to adopt this framework of thinking to increase the value of the pie, instead of merely distributing it. For example, Google, a company I greatly admire, states in its classic “10 Things”, “you can make money without doing evil”; what if instead, Google had stated “you can make money by doing good?” While the literal meaning has changed only subtly, the implications of the change are far greater. If Google began to approach its business with a focus on making money by doing good, its decision-making framework would have to expand beyond dollars, establishing a second issue for negotiations with its customers. Based on negotiation strategies taught in business school, would this not be preferable to a distributive negotiation in which each party fights for their own “share of the pie”?

Something to think about, but that’s just my two copper Abraham Lincoln’s…