$1 Million by 2020
Frequently Asked Questions
What is a “social business”?
Social businesses are businesses that have legally declared a social corporate purpose and require that their directors and officers continuously consider that purpose alongside of pursuing profit for owners.* In order to be eligible for a PRI under the “$1 Million by 2020” initiative, by the PRI closing, a recipient must meet this definition in at least one of the following ways:
By incorporating as a Public Benefit Corporation, Public Benefit LLC, or similar corporate form; OR
By achieving B-Corp certification through B-Lab; OR
By making basic adjustments to the governing documents of another corporate form for businesses.
* This definition of “social business” is the same as the one used by Social Enterprise Alliance - Twin Cities (SEA-TC) in their recent directory report. This definition is also supported for use in the “$1 Million by 2020” initiative by Impact Hub MSP and Bush Foundation. As SEA-TC explains, social businesses are one part of the broader “Social Enterprise” movement, which includes all organizations that sell products or services to achieve a social purpose, including both social businesses and nonprofits with earned revenue models.
We recognize that the concept of “social business” is relatively new, and we welcome any questions you might have about it as you consider whether or not this is the right fit for you and your venture.
Do I need to meet the ABOVE “social business” definition before I apply?
No. We accept applications from any type of business, regardless of its current corporate form. However, meeting the “social business” definition above would be a condition of closing on the PRI, so only apply if you are serious about exploring and considering this option. Again, please reach out to us with any questions you might have, and check out our complete list of eligibility guidelines.
How can Social Businesses make impact and profit for owners at the same time?
Social businesses pursue a double-bottom line in many different ways. Generally, however, most social business models fit into one of the following categories:
Social By Selling - The social business makes its impact through what is sold or to whom it is sold. The products or services themselves, when sold and deployed into the world, deliver the intended impact.
Social By Sourcing - The social business makes its impact through how it produces its products or services. Examples include only using environmentally sustainable materials or primarily employing a vulnerable population.
Social By Sharing - The social business makes its impact through sharing its profits or resources with charitable causes. This includes “buy one give one” models all the way to 100% profit sharing models
The way in which profit and impact interact is different for every social business. For some social businesses, especially those using a “Social by Selling” model, there is no tradeoff simply because the act of selling their product is what drives both revenue and impact. However, for others, especially those using the “Social by Sharing” model, there may be a direct tradeoff between impact and profit. Venn will consider any social business model for a PRI.
What are some examples of social businesses?
Nationally, there are many well-known social businesses including Kickstarter, Patagonia, and Method.
In Minnesota, the high profile examples include Sunrise Banks, Peace Coffee, and Finnegans Beer Co.
We also encourage learning more about the differences between benefit corporations and certified B-Corporations.
Does every social business automatically qualify for PRI financing?
No. Not every social business will be eligible for a PRI. The biggest reason is that in order to make a PRI, Venn needs to be able to justify its investment as significantly advancing its IRS charitable purpose. And not every declared impact or social business model will meet those criteria.
How do I know if my social business is advancing a charitable purpose?
Determining whether or not a social business is advancing a charitable purpose is something Venn specializes in. But because social businesses are not designated as charitable by the IRS at the organization level like nonprofits are, there is no one easy box to check for eligibility. Venn needs to assess each social business, and that is why we encourage all interested social businesses to apply. Venn also has several ways to make strong charitable purpose arguments, which we often consider collaboratively with applicants.
To help you get a general sense for what qualifies as charitable/exempt under IRS rules, check out this explanation provided by the IRS on its website. But there is additional legal nuance beneath this high-level explanation.
The exempt purposes set forth in Internal Revenue Code section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and the prevention of cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erection or maintenance of public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.
After I submit my online application, what does the process entail?
Venn Foundation intends to respond to every application within a month of submission. If we do not believe that we can legally make a PRI to your company, given the charitable purpose requirement or another major concern, we will let you know that right away. If we would like to explore the concept further, we will reach out for a phone call or coffee conversation. From there, the PRI process generally follows three phases: Design, Fundraising, and Execution.
During the design phase, we first work with you to create a high-level “PRI Outline,” which Venn and the company can socialize. Then we complete due diligence and finally end with a term sheet.
During the fundraising phase, Venn first accepts pledges from donors until the PRI minimum is met. Then the deal enters “open syndication” meaning any donor can recommend any amount from its Venn Account for the PRI. Venn can syndicate the PRI for a period of time, usually several months. Venn can also do multiple closings.
After closing, the company executes on its plan, provides the agreed upon reporting, and provides financial return to Venn based on the terms of the PRI.
Who is responsible for attracting donors to My PRI?
Venn and each social business must work collaboratively to fundraise for the PRI. Social businesses cannot simply rely on Venn to deliver the capital they desire. Social businesses must take an active leadership role in identifying, approaching, and persuading prospective donors to support their PRI. Venn announces every PRI opportunity to its network, and we proactively help our donors find opportunities that match their preferences. But we do not push any one opportunity over others to our donors.
During the fundraising process, as we engage prospective donors collaboratively, the entrepreneur is typically responsible for communicating “The Why” and Venn is responsible for communicating “The How.” Venn also has materials to help you communicate about the opportunity to people in your network.
What structure will the financing take?
As long as PRIs are made to advance Venn’s charitable purpose and on concessionary terms (i.e. favorable to the recipient), they are very flexible. Venn is open to considering many different structures, including debt, warrants, equity, and convertible notes. We will discuss this with you early in the design process.
Are there any requirements after I receive PRI financing from Venn?
Yes. PRIs carry some basic requirements of recipients after the PRI financing takes place. Generally these requirements relate to governance, bookkeeping, and reporting.
By closing, social businesses typically will need to have a governing board of at least three directors that meets quarterly.
By closing, social businesses must have and be using a double-entry accounting system like QuickBooks.
After closing, there are basic reports and representations the company will make to Venn. While any proceeds from the Venn PRI remain unspent, the reporting requirement is quarterly. Afterwards, the reporting requirement is annually up until the Venn PRI is concluded based on the financial terms. Venn has streamlined its reporting requirements, and focuses on items that a social business should be doing in the normal course of business anyway.
Which Companies will get the matching dollars from Bush Foundation’s Venn Account?
Venn Foundation is ultimately responsible for selecting up to 10 social businesses that will be awarded a 3:1 match from Bush Foundation’s Venn Account. Offered match amounts will be between $15,000 and $50,000, dependent on the capital needs of each social business. These decisions will be made on a rolling basis.
If My Company is not Selected for matching dollars from Bush Foundation’s Venn Account, can we still raise a PRI through Venn?
Yes. Absolutely. We are always talking with social businesses interested in PRI financing, and if your company is eligible and interested, we would be happy to move forward without matching funds from Bush Foundation’s Venn Account. We still will consider your social business as part of Venn’s “$1 Million by 2020” initiative.
Are there any fees for syndicating a PRI with Venn Foundation?
As a nonprofit public charity, Venn does not seek to make a profit, but it does seek to cover the costs of its operations through earned revenue so that it can sustain itself. For PRI recipients, Venn charges a one-time closing fee equal to the greater of $5,000 or 3-5% of the closing amount. Venn also charges a $500 fee for each additional closing on the PRI. These fees are withheld from the total proceeds of the PRI at the time of closing. Venn earns no fee from recipients until the PRI is successfully closed.
Venn does not charge donors any fees to open an account or to support a new PRI. If a donor contributes $10,000 to a Venn Account, she can recommend that all $10,000 go to support the PRI. Venn also does not charge administrative fees on the total account balance, as traditional donor-advised funds do. Venn only charges donors a fee if and when the PRI(s) they support are successful, allowing donors to actually reuse their charitable dollars. This fee is usually 0.5% - 1% of a PRI loan principal annually, or 20% of a PRI’s equity or warrant return. All other PRI returns go back to donor accounts pro-rata based on their initial participation for donors to recommend redeployment as new PRIs or grants to nonprofits.