The focus of our Greenhouse Perspective: the notion of entrepreneurship itself, the process whereby innovation plus capital plus some very smart ambitious people can generate significant returns not only for investors, employees and communities – but for future generations of entrepreneurs themselves.
This Greenhouse Perspective wasn’t supposed to be about entrepreneurship. Its original theme was to measure the tradeoff between raising debt versus equity, even at our own portfolio company level. With banks and venture debt funds awash in capital, you’d think they were handing out cash like candy, even to companies that are a good year or more away from profitability.
But that story will have to wait.
We at Greenhouse are constantly trying to refine our strategy around mission driven investing into healthy consumer products and technologies focused on sustainable living. Our small growth equity strategy offers a universe of opportunities for investible ideas and innovations.
Our investors have chosen to invest in us for lots of reasons – they like the space, they trust us as managers, it’s an alternative asset for diversification, they view our emerging track record with optimism and feel that as our current portfolio matures, more good things will happen. One investor, however, has a different take. For him, it’s about investing AND about supporting entrepreneurship and entrepreneurs.
To be sure, returns still matter and his commitment to us is by no means charity. Yet, as a successful entrepreneur, one who had to take out a second mortgage on his house years ago just to get his company off the ground, investing in new ideas and innovations holds a special purpose. (“There wasn’t much VC money around back then,” he says with a grin.) For him, entrepreneurship was a chance not only to build a company, but a culture. A brand that matters to multiple communities and constituents, a home that employees can count on. By example, his company not only held a job open for one employee military veteran who did a year-long tour in Iraq, it paid his salary the entire time he was abroad! For him, that’s entrepreneurship; that’s the difference between creating value versus merely maintaining it. It is as much about mission as it is about entrepreneurship itself.
This is no excuse, however, for substandard returns: execution still matters. Entrepreneurs don’t get to do good without first doing well. That remains our primary thesis today and going forward. Not only should investors not accept a discount to risk adjusted returns for investing in ‘mission driven’ entrepreneurship, they should see it as adding a premium to the value of companies. As we often mention, ‘Mission driven companies build socially and environmentally responsible products and services to create authentic brands and defensible technologies…[and] a meaningful mission empowers all stakeholders to make the right decisions, thereby producing higher productivity, a better use of resources and higher returns.’
If all of this sounds a bit too noble, high minded or soft, here’s some data: 82% of leaders in one research poll who said their companies had a strong sense of purpose expected their companies to significantly grow in 2014, compared to just 67% of leaders who didn’t feel that equal expectation for their companies with far less mission. Moreover, 91% of respondents in another survey who said their company had a strong sense of purpose also noted their companies had a history of strong financial performance.
Additionally, according to a Deloitte survey of 1,300 working adults, employees at companies with a strong sense of purpose were more than four times as likely to state that there was high employee satisfaction at their company. Why is this relevant? Because nearly all research shows that more employee engagement leads to all sorts of positive outcomes including, according to Gallup, higher customer ratings performance, high profitability rates, and higher levels of productivity.
But to get there entrepreneurs need not only the means to innovate but the belief and continuity of those who’ve done it before to ‘pay it forward’. That’s why this financial commitment was so significant – for us, and for the current and future entrepreneurs we support. It makes our vision larger than in the past, and takes it a step beyond just investing; allowing us to act as a link between those who’ve gone through the pain of starting something from scratch and watching it succeed, and those who are just now launching into that journey. It’s the best part of our day, and the best part of what we feel we can do.