Team: Laura Goodman '03, Wing-See Leung '04, Ed Mannix '04, Kim Tuby '03
Areas: expansion strategy assessment, financial and risk analysis
Supervisor: Professor Cathy Clark, Social Entrepreneurship course
Investors' Circle is a leading social venture capital network, which invests in early-stage business ventures that address social and environmental issues. Its members and affiliates include individuals, venture capitalists, family offices, and foundations. In its first decade, its members invested over $90 million into 147 early-stage private companies and venture funds. Acting as an intermediary, Investors' Circle connects angel investors through venture fairs and regular mailings on companies seeking capital. The organization also operates a nonprofit foundation, which runs educational programs, publishing services, and research support.
For this project, Investors' Circle wanted to explore the possibility of creating a new national, manager-led active angel fund focused on sustainable businesses. With a specific target fund size in mind, this Investment Collaborative would achieve both financial and non-financial objectives. On the financial side, the fund would aim to achieve annual returns greater than 20%. Other objectives would include demonstrating that market returns are achievable with sustainable ventures, stimulating the level of private equity funding for this area, as well as increasing deal flow for the Investors' Circle network. Investors' Circle wanted to know whether their concept as envisioned is feasible, and if so, what would be the best implementation model.
As part of Professor Cathy Clark's social entrepreneurship course, the team helped Investors' Circle assess options to develop this pooled investment vehicle. This included defining a "theory of change", conducting market research into sustainable angel investing, analyzing operational and logistics issues, financial modeling to determine the returns of various options, and evaluating critical risks and assumptions.
Achieving market returns and impact
The team conducted research and gathered information from key individuals and groups in the Investors' Circle network. Recommendations were made on the optimal number of offices based on regional coverage and deal flow considerations, as well as the minimum fund size required to meet internal hurdle rates. In addition, the team also examined the relationship between financial and social/environmental returns and projected and evaluated alternative fund scenarios based on critical fund attributes.
Balancing real-world objectives
By defining the theory for change before analyzing various options for Investors' Circle, the team was able to make recommendations that balanced financial returns and social/environmental impact from this proposed Investment Collaborative. "This project really brought the course to life and was a tremendous opportunity to work with key practitioners in the field of social entrepreneurship and investing," says team member Ed Mannix '04. "I learned a lot about angel investing and early stage financing of companies and gained a deep understanding of the economics around running a venture fund of any kind - social or otherwise."