Diary of a Social Venture Start-up: Social Venture Capital Diary of a Social Venture Start-up: Social Venture Capital
Diary of a Social Venture Start-up: Social Venture Capital
While there are many different social venture firms, each with its own philosophy and process, leaders have begun to emerge within the nascent space. One of them is City Light Capital. I sat down with Managing Partner Josh Cohen to learn what they look for in a good idea, and how they operate.
GOOD: Briefly describe City Light Capital's mission.
Josh Cohen: We're trying to make the world safer, more knowledgeable, and more sustainable. That's what our three sectors of focus are designed to do. We're looking for the top entrepreneurs building U.S.-based high-growth companies dedicated to tackling some of society's toughest challenges.
GOOD: What differentiates City Light from traditional venture capital firms?
J.C.: We provide the same due diligence that exists within traditional venture funds. We provide the same focus on financials, the same focus on shareholder value, the same discipline in terms of investing. In fact, we're often co-investing with non-social VCs. However, there are a few things we do that are different.
The inclusion of social impact as criteria for investment is certainly unique. One of the things that we believe in as a fund is the notion of an "impact premium." Not only is there no tradeoff between making money and having measurable social impact, but we feel our companies will be worth more over time because of the data and the impact quotient.
GOOD: What sorts of companies do you look for to invest in? What are your typical terms?
J.C.: All of our companies have about a million dollars of revenue, but they're less than $25 million in pre-money valuation. They're all U.S. companies and they all fall within one of our three sectors of interest. We invest between one and two million dollars per round, hoping to invest between four and six million over the life of the company. Like traditional venture funds, our model is to look for ten times our money on every deal. On average, we own between five and 25 percent of the company.
GOOD: Talk about "skin in the game." How important is it that entrepreneurs invest in their idea?
J.C.: It's essential. The number is less important; the fact that it's meaningful to the entrepreneur is important. If you can't demonstrate you are completely committed and in love with your concept and the market and the opportunity, then it's very difficult to convince other people to feel that way.
GOOD: I often hear about the danger of overshopping an idea.
J.C.: I'm not sure I'm a big overshop guy. I do, however, think there is value in finding a perfect partner. I would recommend that entrepreneurs do their homework on the venture community and pick their dream dates by looking at previous investments we've made, the language that we're using on our website, the places that we show up. You need to understand what kind of business you have and what kind of partners to surround yourself with.
Additionally, nobody wants to be the last in line. If I'm the last guy seeing a deal, I know it. VCs typically co-invest with other VCs, so it's not uncommon to talk about deals. You also know based on where an entrepreneur is in the process. If a company's been raising money for nine months and you're just meeting them today, chances are you weren't one of their first picks
GOOD: Are there any things you'd tell the budding social entrepreneur to avoid?
J.C.: There are a lot of things that we see that are typical warning signs for us. People who believe they're going to change the world overnight without relevant experience or without a growth strategy typically never do. People without a business model or business assumptions that drive their growth typically don't get to see the next card. It's really about the plan, the assumptions, and the approach almost as much as it is about the endgame.
The Takeaway: If you're looking to implement major growth, social VCs are a fantastic opportunity for an infusion of capital. Evaluate your requirements, do your research, and determine if social venture capital is right for your business.
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