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Social Investors Mix Passion, Money

When Andrew Horowitz sold his telecommunications company in 1995, he turned to investing in startups.

Then he said the terrorist attacks of 2001 prompted him to rethink his investing. More than financial returns, Horowitz said he wanted his money to help society in some way.

By 2005, Horowitz was investing in nothing but social enterprises—businesses that seek to solve a social problem.

Since then, he has invested in eight social enterprises, he said. He has seven other investments, as well.

Horowitz is what’s known as a social investor.

Like any investor, he seeks a return when a company sells or goes public.

And social investing comes with all the pitfalls of traditional investing.

“The key thing you want is a viable, growing, profitable company,” Horowitz said. “Then the exit takes care of itself.”

Unlike a traditional startup where an entrepreneur may be looking to grow fast and cash out, social enterprise entrepreneurs have a broader mission. Social investors often share their convictions.

Working with any kind of startups is hard, said social investor Raulee Marcus.

So “why not work on something that matters?” she said.

Social enterprises run the gamut, from companies that sell products made in a socially and environmentally responsible way to those that sell products or services that benefit society. Others sell products for profits and use the proceeds to benefit causes.

Examples of social enterprises include San Francisco-based Method Products Inc., which makes cleaning products free of synthetic chemicals, and Westport, Conn.-based Newman’s Own Inc., which donates profits from the sale of sauces, cookies and other foods to nonprofits.

County’s Biggest

The county’s biggest social investor is Newport Beach’s David Gelbaum. He made his fortune as a hedge fund manager and now heads up the Quercus Trust, a Newport Beach-based fund that invests in clean technology and alternative energy companies.

Drops in his investments’ values prompted Gelbaum to halt donations last year to the American Civil Liberties Union and other groups.

“My investments in alternative, clean energy companies have placed me in a highly illiquid position as a result of the general credit crisis in the American and world financial systems,” he said in a statement late last year.

Social investors say that they’re not sacrificing bigger returns.

“The power of lucrative exits should be at least as good if not better,” said Marcus, who also works as a consultant.

Even when social investors lose money, there’s an upside, Horowitz said.

“I’m feeling as though I’m doing something better for the world,” he said.

Horowitz is a member of the Orange County chapter of the Tech Coast Angels, a group of angel investors who invest in startups.

Most of Tech Coast Angels’ investments still are typical startups. But social investing is becoming more common, said Richard Sudek, chairman of the 300-member Tech Coast Angels.

“Twenty years ago, people didn’t know what a social entrepreneur was,” said Sudek.

Tech Coast Angels is looking to step up investments this year, according to Sudek.

Last year, the group invested $4.7 million in 24 ventures, seven of them new.

Horowitz said he finds investments through Tech Coast Angels and San Francisco-based Investors’ Circle, which funds social enterprises.

Investments aren’t easy to find, he said.

“I’m actually out recruiting social entrepreneurs who are looking for capital,” he said.

Bikestation

One of his recent investments was Long Beach-based Bikestation A Mobis Transportation Alternatives Inc., which started in 1996 as a nonprofit and went for-profit last year so it could expand nationally.

The company runs centers where commuting cyclists can leave their bikes. Many centers have showers, lockers and changing rooms. It also sells memberships and bike parts, rents bikes and does repairs.

In 2008, a group of 10 Tech Coast Angels invested $337,000 in Bikestation.

Angel investors typically invest with others in multiples of $25,000 to $50,000 in several rounds.

Bikestation has seven centers—in California, Washington, D.C., and Seattle. Its five-year plan is to build about 150 to 200 of them.

“There is definitely an element of build it and they will come,” said Andréa White-Kjoss, chief executive of Bikestation.

Marcus put together a team to vet the business and gathered other investors.

She was drawn to Bikestation because she said it is unique and is in line with the trend toward lower polluting transportation.

White-Kjoss has business expertise, according to Horowitz. Strong entrepreneurs are crucial to any investment, he said.

Social entrepreneurs can be more pleasant to work with, Marcus said. They typically have less ego, she said.

Horowitz said he predicts Bikestation will be more fruitful than his traditional investments, which, at best, have broken even.

Marcus’ investment in Monrovia-based Green Dot Corp. is set to earn her 60 times the money she put in, she said.

The company, which sells prepaid, reloadable Visa and MasterCards at Wal-Mart, CVS and other stores, recently filed plans to go public.

She has taken about 10% of her investment out of the company, already beating her original investment.

Green Dot fits a broad definition of a social enterprise, as it’s geared toward people without bank accounts, many of them immigrants.

“If people in America don’t have the ability to have plastic, they are second-class citizens,” Marcus said.

Some businesses start up with the sole intention of solving a social problem—the usual definition of a social entrepreneur.

Others use social causes to enhance their marketing—to be on the right side of public perception.

A group has popped up to certify social enterprises.

San Francisco’s B Lab Inc. goes through an extensive process to designate companies as B Corps or “beneficial corporations,” as opposed to “greenwashed,” a term used to describe companies that use environmental speak primarily for marketing. B Lab charges a nominal fee.

Bikestation is certified as a B Corp.

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