These solar panels and some carefully choreographed washing and cooking patterns allow Woody Tasch to live entirely off the power grid.
There are two basic ideas behind Investors' Circle: 1) If the world's environmental problems are going to be solved, many more sustainable businesses must be launched, but 2) the very things that make a business attractive from an environmental standpoint make it unattractive to conventional funding sources. Traditional venture capital comes through large managed funds and goes to later-stage companies that are following tried-and-true paths. Angels are individual investors who must find their own deals (which is why they form networks like Investors' Circle) and who invest their own money, typically in companies at the earliest stage of development. The risks are enormous, as the vast majority of startup companies fail, even if they have an excellent product and a solid business plan. And unlike a stock purchase, angel investments are illiquid—the investor can't sell his stake to someone else if things start to look shaky. If the company goes under, the investment is lost. But the rewards are also significant. When a company does succeed, returns of 20 percent or more are possible.
The typical angel investor, despite the altruistic-sounding name, is concerned only about profit, not the environment, and chooses companies that are most likely to have a big payoff. For that kind of angel, a company like Farmers Diner, which hopes to establish a chain of theme restaurants based on organic food bought from small local farmers, would have all the appeal of a prostate exam. But Farmers Diner is a flagship business for Investors' Circle.
"Most venture capital deals are measured by the internal rate of return, or IRR," Tasch says. "We're more interested in the ERR, or external rate of return." In the case of Farmers Diner, the ERR would include things like the continued existence of family farms that sell their goods to the restaurant and the benefits for both diners and the land that come from encouraging organic farming. Tasch refers to this approach as double-bottom-line investing.
He is the first one to acknowledge what a long shot angel investing is, even under the best of circumstances: "If someone came to me and said, 'Hey, I've got a million dollars and I don't know what to do with it. I think it would be fun to do venture capital, and I hear you can make 20 percent returns,' I would say that that person would be better off investing in the stock market than in venture capital. It's a risky, difficult business. It's probably the least quantitative of the investment options, meaning there's a lot of qualitative judgment that goes into it. It's a whole bunch of interrelated things, and if you do venture capital for 10 or 20 years, you start to develop a gut sense of how it all fits together. Even then, you're wrong most of the time."
Even so, Investors' Circle is doing well, by any standard. Two years ago, the Harvard Business School and McKinsey & Company did a comprehensive study of all 110 Investors' Circle deals. They created a model portfolio and found, depending on the holding patterns and other assumptions, an average return of between 5 and 14 percent.
To get a sense of what kinds of companies the organization supports, I went to the annual Investors' Circle conference and venture fair in Cambridge, Mass. in October. The venture fair is something of a cross between a beauty pageant and a cattle auction. Each company that is looking for investors gets seven minutes to make a Power Point presentation explaining its product, market, business plan and management team, as well as the cause that the company hopes to address through its business. And the company needs to present the case with enough savvy and charm to convince a roomful of highly skeptical millionaires that they should risk their millions on this pipedream.
There were companies selling organic foods and organic pet supplies; businesses offering solar roofing shingles, solar streetlights and solar trash compactors; and entrepreneurs working with wind energy, biodiesel and ethanol production from corn.
One presenter had a drug to treat a deadly intestinal microorganism that kills hundreds of thousands of children in developing countries; another was sure she was going to become the next Bill Gates by selling bottled water packaged expressly for women (and by supporting programs for abused women).
One particularly innovative company had developed a method of treating sewage sludge through a carefully balanced system of microorganisms living in ponds filled with water hyacinths and wetlands filled with reeds. The system, the presenter claimed, was more effective and less expensive than conventional waste-water treatment systems and created wildlife habitat in the bargain.
Another innovative company, called United Villages, would use rural buses carrying high-tech transmitters and receivers to bring inexpensive wireless e-mail and phone service (and, as a consequence, economic, political and health opportunities) to isolated villages in Asia, India and Africa.
The practicality of such seemingly outlandish endeavors was underscored by Gary Hirshberg, the CEO of Stonyfield Farm, who participated in a panel discussion at the conference. His dairy-product company, he said, had replaced the foil lid on its yogurt containers, and as a result was able to use 16 percent less energy and 13 percent less water, while producing 6 percent less solid waste and saving 100 tons of packaging material. The change also reduced the company's expenses by $1 million annually. Another panelist, Tom Chappell, the president of Tom's of Maine, reported similar results, including a project in which the personal-care products company donated dentist chairs to local dental offices as part of its corporate policy. He said that people were so impressed by the company's generosity that sales in stores that announced the project went up by 350 percent.
For both companies, however, the environmental policies were adopted not with savings in mind, but rather because social and environmental responsibility are the very foundation of their business. Chappell says that one of the fundamental principles of his company is to give 10 percent of its profits and 5 percent of its employees' time to the community each year. "Even when we aren't making our numbers and we're not getting bonuses," he says, "we're still volunteering 5 percent of our time in the community. We don't stop giving grants to people because we're having a difficult year. Those are things you just have to keep on doing, because they're part of who you are, and you can't stop being who you are just to satisfy numbers."
Photo: Cheri Whitted