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About the Social Venture Advisory Network
The center's network of professionals, experts, and alumni drawn from all schools across Columbia University form a vital part of the ecosystem for social entrepreneurs. Referrals made by the center may also be to other social enterprise organizations in the impact investing and advisory fields. Professionals and experts share insights below on a variety of topics relevant to early-stage social and environmental venture startups.
Apply to be a part of the Advisory Network here.
Hiring the Right People: How to Reduce Hiring Bias
If you’ve ever had to hire for an open position, chances are you’re familiar with the feeling of wanting the role filled yesterday. However, there is a reason for the first part of that famous phrase “hire slow.” Hiring the wrong person can have disastrous effects.
Not only does turnover cost companies significant amounts of money with replacement estimates for senior hires costing employers up to 213% of salaries, but making a bad hire can have a negative impact on company morale that is long-lasting and far-reaching.
Have you ever hired someone because you had a “good gut feeling” or you just inexplicably “felt it was right”? If so, irrespective of if that specific hire worked out, you’re guilty of decision-making bias.
You’re in good company! Even trained interviewers are guilty of bias. In fact, a 2000 study from the University of Toledo confirmed that the first impressions made in the first 10 seconds of an interview could predict the hiring outcome.
As humans, we’re programmed to make quick judgments and decisions through a series of mental shortcuts known as heuristics or biases. The more complex the decision, the more we rely on these shortcuts. Making judgments on people, such as with hiring, is quite complex, and we often see these shortcuts arise.
Some of the most common ways that bias sneaks into hiring are below:
- Similarity attraction effect: When we find ourselves drawn to candidates with shared interests or experiences. Gravitating towards similar people is a common human tendency, but it does not translate to improved hiring.
- The halo effect: When we like one thing about a person (perhaps they are well-dressed or charming), we tend to overestimate his/her skills or abilities in other areas.
- Confirmation bias: I see this one the most with trained interviewers who often become enamored with candidates based on application materials. Confirmation bias will “lead you to hone in on information confirming that conclusion, which is why this bias often contributes to inconsistent and/or leading interview questions” (Loehrke, “3 common hiring biases and how to overcome them, ” The Business Journals, January 22, 2018).
Evidence shows that “trusting your gut” does not lead to better hiring results.
Luckily, it isn’t hard or expensive to incorporate evidence-based research into a few tweaks and hacks to create a structured, intentionally designed hiring process that is fair, objective, and more accurate.
Before you tackle hiring, you want to make sure your company has done the following pre-work:
- Is your executive team aligned on what diversity means to your organization? The definition of diversity can be broad, going far beyond obvious demographic representation, and 70% of companies have not defined it.
- Is your company inclusive? Reducing hiring bias can have a positive effect on increasing diversity, but hiring diverse employees is all for nothing if your culture isn’t inclusive enough to make them want to stay.
- Consider investing in an Applicant Tracking System (ATS) with strong data and analysis tools. Measure outcomes to ensure accountability.
- Ensure you have a strong hiring pipeline. Your selection process will only be as strong and diverse as the candidates in your recruitment process.
Ok, now we’re ready to improve your hiring process:
- Kick it off right: The more time you invest up front with all decision-makers, the more likely there will be alignment throughout. The hiring kickoff should include discussions of a) the job description that will be posted and how accurately it reflects the components needed to be successful in the role, and b) who will be involved in the hiring process and how (not only defining the roles, but determining who has decision-making authority).
- Consider “blinding” resumes: One of the best ways to reduce bias is removing personally identifiable information from the resumes of applicants including their name, gender, age.
- Create a score card: Reduce gut decisions and facilitate more objective discussions amongst disagreeing interviewers by creating a ratings score card. Use the job requirements listed in the job description and a numeric rating scale (for example 1- strongly disagree, 2-disagree, 3-agree, 4- strongly agree). Train interviewers to use ratings and note what they heard in the interview that led them to each assessment. When interviewers disagree, use the ratings to facilitate a discussion based on a shared understanding of the skills and competencies required to be successful in the role, not on gut feelings.
- Use a coordinator to move candidates through the process: Hiring managers may feel rushed to fill positions and have some of the common biases after meeting candidates. Utilize an objective coordinator (who doesn’t meet the candidates) to collate the ratings and input from various interviewers, and serve as a more objective partner for hiring managers.
- Leverage skills assessments: When it comes to the validity of job performance predictors, very few things prove to have correlation. One predictor with positive correlation is a skills assessment that mimics the type of work required in the role. Don’t be afraid to have candidates complete such assignments early in the process to remove unqualified candidates, or later on to differentiate between top choices.
- Only use structured interviews: Another valid job predictor is the structured interview. This requires employee education, but it is well worth the effort. First, decide on the goals of the interview – what you are trying to learn from different stages in the process. Then, pick an interview type to match – my favorites are screening calls early in the process and then top-grading and scenario-based interviews for semi-finalists. Make sure interviewers are trained on consistency for apples-to-apples comparisons, how to listen to what candidates are not saying, and how to use open-ended questions instead of leading ones.
- Ensure time for candidates’ questions: Finding the right fit means that a candidate has to be as excited about your organization as you are about him/her. And, that excitement has to endure long after he/she is hired as an employee. To ensure candidates don’t feel as if they’ve been sold a bill of goods, make sure to leave ample time at the end of interviews for the candidates’ questions, be open about organizational/team/role challenges, and do not oversell the role.
- Beware of reference checks: It comes as a surprise to most people, but there is actually a very low predictive correlation between a candidate’s reference checks and success on the job. Why is that? No one wants to give a bad reference. However, reference checks can still be useful. A few tips to get the most out of reference calls: first, listen to what is not said. I often ask former managers to rate the candidate on a scale of 1-10. If it’s not a 9 or a 10, I need to find out why (on occasion an 8 can be good, but a 7 or below is the kiss of death). Another tip is to share what a candidate has said, for example, “John mentioned that you once gave him constructive feedback on X, could you tell me more about that?” By giving the reference safe cover without the fear of revealing anything the candidate hasn’t already revealed, you can put the reference at ease.
Hiring doesn’t have to be stressful – and you don’t have to have a giant HR team, sophisticated systems, or a massive budget to ensure you’re using best practices. Incorporate the tweaks above into your existing process to create a positive experience for candidates and interviewers that effectively reduces hiring bias.
Director of Portfolio, Acumen
Director of Portfolio, Acumen
Innovative Financing Structures
Since the term “impact investing” was first coined almost a decade ago, the space has grown to become a $100 billion industry. As investors and entrepreneurs continue to explore the dynamics of their roles and relationships, one thing has become clear: traditional VC financing structures do not always fit social startups’ needs, nor do they always yield the expected results for these investors. As a result, entrepreneurs and investors must work together to create innovative financing solutions that better fit their goals.
Developed markets have a well-established cash continuum, which successfully finances startups from their creation, through angel investors, all the way to large cap private equity or IPOs. In many emerging or frontier markets, this constant flow of growth capital or secondary buyers simply doesn’t exist. In addition, certain social enterprises are not structured to reach scale or generate a liquidity event for their shareholders.
Take agriculture, for example. Agriculture entrepreneurs are desperately in need of capital but smallholder agriculture is a sector where traditional financing structures don’t fit. They might not only disillusion investors, which are unable to get their money back, but also undermine the farmers’ social impact. Most of the world’s poor are farmers and agriculture is their (or their communities’) livelihood. Many social enterprises are looking to partner with these farmers (or their associations) to help them better connect to global markets and, in the process, grow their margins, increase the quality of their crops, and improve their yields through better or more innovative farming techniques. These businesses need capital to grow and become sustainable to ultimately improve the living conditions of these farmer communities.
These companies are not, however, intended to reach massive scale or have strategic buyers take out their early stage investors; they are most impactful if they become livelihood businesses that can sustainably maintain their social missions and the communities they serve. Thus, forcing them to scale beyond their capabilities or regions can create tension in the operations and for the management teams, and can potentially compromise the mission and even lead to failure. Given the dynamics outlined above, most agriculture entrepreneurs have not been successful in finding sufficient pools of capital for their different stages of growth because even most impact investors need to complete their investment cycles, exit their capital, and generate acceptable financial returns.
Considering this challenge, investors like Acumen started experimenting with more innovative financing structures designed to align with these businesses’ growth and cash flow trajectories. These structures act similarly to debt or equity instruments in their risk/reward profiles and in the governance rights they offer, but with self-liquidating payout mechanisms over defined horizons and non-disruptive schedules to the companies’ cash flows and missions. What I mean by this is that these structures target the same returns as traditional debt or equity, but (particularly in the case of equity) do not need an external purchaser to facilitate the exit of the investors. They are structured in a way through which the company (with its cash flows) repays shareholders during a certain period of time until either the shareholder obtains an agreed upon return, or the schedule of repayments ends. They are not simple term loans because they grant governance and decision rights to the investors, and they do not have rigid repayment structures but rather flexible ones that are aligned with the companies’ cash flow generation. This gives the company more space to operate and only repay when they have generated cash.
We are seeing more and more examples of investors deploying capital via these structures out of both their equity and debt funds. In the case of equity instruments, mandatory redemptions or mandatory distributions based on revenues, profits, or cash flow generation have been the most common. In the case of debt, revenue-based straight or convertible loans and debt/mezzanine based on profits with flexible payments are being used more frequently. These are structures that use self-liquidating repayment schedules in more versatile ways but with the same rights as equity or mezzanine debt investments.
Thanks to the creativity and openness of both impact investors and entrepreneurs, these structures are allowing the sector to push forward and help all stakeholders succeed. However, as in everything, there are challenges. The primary one that startups are now facing with these structures is the preservation of their cash flow. Healthy cash flow is a rare commodity in the early stages of startups, and it must now be used to pay down investors. We are trying to solve for this with more flexible or longer-term structures, but I still encourage you – as entrepreneurs, investors, and advocates for impact investing – to always understand the needs of your companies and the goals of your investments. Continue to think outside the box, challenging the status quo through innovative ways of partnering that can allow capital to fill gaps, support businesses looking to change systems, and create new markets.
Andrea is the Co-founder at Plum Alley Investments; and Dara is the former Associate Director of Membership Engagement
Andrea is the Co-founder at Plum Alley Investments; and Dara is the former Associate Director of Membership Engagement
The Five Best Practices for Early-Stage Fundraising
1. Be clear on the right sources of funding
Do your diligence. Know which investors have experience and stated commitments that align with your mission. Take time to understand the landscape for capital raising from grants to debt to equity, and funder expectations on milestones. Looking at competition in the space to see who is funding similar work will help you target funders and differentiate your own organization. Most crucially, funding comes down to relationships. The more senior the relationship you can build within a grantmaking or capital-giving organization, the likelier you are to receive funding.
2. Demonstrate clear traction
Knowing what milestones investors will expect at certain points will help you plan your business and operational strategy, in addition to your funding timeline. Incubators, accelerators, awards and recognition, or competitions can be crucial launching pads, as can creating a minimum viable product (MVP) and demonstrating product-market fit.
3. Know your business model and social mission
Funding rounds can and should be tied to the growth of the company. When thinking about investors, it is critical to think about the financial capital you need and the support and partnerships that funders can provide at various stages. The financial and legal structure of your organization will also determine the kinds of investors you are going to attract and seek out. Structures ranging from B-corporations and LLCs to nonprofits and L3Cs should be determined at the very beginning of an organization’s life to avoid a costly legal shift later.
4. Articulate uses of proceeds
Come prepared to explain how you plan to allocate funding to accomplish your goals, both social and financial. Demonstrate a clear plan for the top categories of spending and how that will translate into achieving specific goals. Identify key performance indicators (KPIs) for the organization. It can be valuable to identify KPIs and engage funders to offer input and co-design KPIs that will enable more transparency and ensure alignment of goals.
5. Minimize risks for your investors
Most funder/organization relationships are multi-year partnerships. Strong relationships are based on shared vision, aligned expectations, and a commitment to transparency. Take steps to ensure expectations are clear up front in terms of pace of growth, impact targets, and remaining technical or business risks.
Plum Alley Investments is a membership designed for individuals and institutions looking to invest in a new way for financial and personal returns in private companies. They fund women entrepreneurs at the Series A-level.
Co-founder, Execution Labs
Co-founder, Execution Labs
Raising Seed Capital: When Social Entrepreneurs And Game Developers Are Doppelgangers
As I spend more time with social entrepreneurs, I’ve drawn a parallel I never thought I’d make: social entrepreneurs and game developers share a host of similarities. In fact, there is one instance in which these two seemingly dissimilar groups bear a striking resemblance, and that is when they are raising seed capital.
I have invested in two dozen seed stage game studios since 2012, and have myself been on the founder’s side of the table, hat and pitch deck in hand. Pitching investors is, for most people, not a fun or easy experience. But, what’s become clear to me is that more often than not, game developers looking for their first rounds of equity funding are often ill-equipped for the task. The reasons they struggle with fundraising are the same reasons many social entrepreneurs I’ve encountered have trouble in this area. It’s not because they’re not smart or passionate. In fact, it’s these very attributes that often get in the way.
Andrea Turner Moffitt and Dara Kagan offer a great primer on early stage funding strategies. What I’m referencing is a preface to those best practices. As a company founder, it’s critical to dramatically shift how you think about your business prior to pitching investors. Before examining how to make this cognitive transition, it’s important to understand why this shift is needed. Most independent game developers, for example, naturally think about their studio’s output as “art.” This isn’t surprising when you consider that most studio founders don’t have formal business training; rather, they are highly skilled and ardent functional experts in game design, programming, animation, or other relevant disciplines. By the same token, social entrepreneurs are typically passionate, scrappy do-ers who have fashioned a local solution to a broader problem, or perhaps they are scientists or engineers who have–just maybe–cracked the code on a potential answer to a persistent technological or health concern. Unfortunately, when someone has spent so much time focused on one goal or one narrow specialty required to reach that goal, and when passion (or compassion) is the motivation at the core of a business, very capable founders often have trouble taking a step back and 1) viewing their business holistically, and 2) understanding the perspective and goals of the early stage equity investors on the other side of the table.
For a founder, this can lead to frustration. Whether you’re building the world’s most innovative gaming platform or you’re on the cusp of solving one of the UN’s sustainable development goals, it might feel like you should walk into your pitch meetings and shout “Hey, do you see what we’re building here? What are you waiting for? Write that check!” It’s especially tempting to feel this way if you’ve already solved the problem on a small scale. However, pitching seed investors means you need to wear a different hat: that of the CEO. You’re not just a programmer or just a scientist or just an operator anymore. You must understand all of those aspects of your business, and more. You don’t have to be a domain expert in all of them, but you can’t pitch your vision as a business until you can identify all of the critical components of your venture and how you–or someone on your team–will own them and scale them.
Why? Because passion and ideas are not the things that make early stage investors lose sleep. What causes trepidation among investors is the tremendous executional risk that early stage ventures face. Further, investors worry about issues of scale. Seed investors want to invest in ventures that can scale exponentially. No matter how passionate you are, or how important the problem is that you’re solving, or how promising your early results may look, if you’re not thinking about succeeding on a large scale, you may want to reconsider talking to most early stage investors. Their business models highly discount the value of linear successes.
There are a host of ways these common mental incongruences manifest themselves, ranging from suboptimal team construction and poor pitch deck design to questionable financial projections and uninformed term sheet negotiations. The good news is that, whether you’re starting a game studio or a plant-based meat company, you can avoid many mistakes by understanding your own limitations and biases and by understanding the business model of the investors you are pitching. Find some seasoned advisors, read blogs, read books. You’re fighting the good fight, and people want to help.
Staff Attorney, Lawyers Alliance for New York
Staff Attorney, Lawyers Alliance for New York
Legal Issues in Structuring Relationships Between For-Profit and Nonprofit Entities
Historically, in the United States, a corporation or other legal entity could only be created as either a nonprofit—whose purpose is exclusively to create social value—or as a “regular” entity that exists to maximize economic profit. In recent years, some jurisdictions have created new vehicles (such as the low-profit limited liability company “L3C” and the benefit corporation) in attempts to make room under one roof for both goals. Although the new vehicles are useful, engineering a bespoke structure using the traditional nonprofit and for-profit corporate forms can often better suit an organization’s goals.
A nonprofit and a for-profit entity can relate to each other in three principal ways:
1. Ownership (i.e. a nonprofit entity can own a for-profit entity, although not the other way around)
2. Board composition (i.e. having corporate directors or trustees in common)
3. Contracts between them
All three methods can be deployed alone or in combination, and each has distinct advantages and disadvantages. The choice of methods will depend on your situation and goals, and you should confer with an attorney when (re)structuring your enterprise.
Ownership: A tax-exempt nonprofit endeavor may create and own a for-profit entity without necessarily jeopardizing the nonprofit’s tax-exempt status. For example, a nonprofit that sees an opportunity to engage in “commercial” activity to generate revenues to support the non-profit’s mission may elect to create a separate entity, which it (the nonprofit) will own, to pursue the commercial activity. The advantage of the ownership route is that it allows the sponsoring nonprofit to maintain a fairly high degree of control over the for-profit subsidiary. The disadvantages of the ownership route are, first, that it is only available when a nonprofit will own a for-profit: the reverse is not possible, as a nonprofit, by its nature, cannot be owned. Second, there can be unintended consequences for the nonprofit owner entity if plans are not reviewed in detail with an attorney prior to implementation.
Board Composition: In theory, there is no reason why a nonprofit and a for-profit entity, that will not do business together, could not have 100% of the same individuals on each of their respective Boards. If, however, the two entities will be entering into contracts with each other, there need to be Directors on the nonprofit Board who are not also on the for-profit Board. Those “non-conflicted” Directors will be crucial for approving transactions between the two entities and managing potential conflicts of interests that may arise for Directors who are on both Boards. The consequences for the nonprofit may differ depending on whether the “overlapping” Directors are in the majority or in the minority on the nonprofit Board. The prudent course for an entrepreneur considering “Board overlap” between a nonprofit and a for-profit would be to consult an attorney.
Contracts: Needless to say, nonprofits enter into contracts with for-profit companies all the time. There have been cases, however, where a court has held that a for-profit entity has restricted the activities of a nonprofit contracting partner so heavily that the for-profit entity actually controls the nonprofit, resulting in impermissible private benefit to the for-profit from the nonprofit’s activities. In a situation where the relationship between a nonprofit and a for-profit has other features of a close relationship—such as ownership or Board overlap, as discussed above—the goals and expected results of contracts between the two entities should be discussed with an attorney.
In conclusion, a social enterprise can make use of a separate nonprofit and for-profit entity by choosing a combination of ownership, board composition, and contractual relationships between the two entities to tailor a structure that will maximize the goals of the social enterprise to the extent possible. However, consultation with an attorney is essential if the benefits of the available choices are to be realized.
Lawyers Alliance for New York is the leading provider of business and transactional legal services for nonprofit organizations and social enterprises that are improving the quality of life in New York City neighborhoods. Their network of pro bono lawyers from law firms and corporations and staff of experienced attorneys collaborate to deliver expert corporate, tax, real estate, employment, intellectual property, and other legal services to community organizations.
Program Associate, B Lab
Program Associate, B Lab
What are B Corps?
B Corps are companies that aspire to use the power of markets to solve social and environmental problems. They meet the highest standards of verified social and environmental performance, public transparency, and legal accountability. The B Corp community contains 2,000+ certified B Corps spanning 50 countries and 130 industries.
Why Become a B Corp?
Measuring what matters helps you attract and retain the best talent. It demonstrates that your organization walks its talk about being a better company. It gives employees who care about this an opportunity to engage and to lead. It allows you to benchmark performance and gives you tools to set goals for improvement.
How Do I Start?
Check out the B Impact Assessment. It's a free and confidential tool to measure and manage the impact performance of your whole business. The Assessment can also help you learn how you can improve, even if you never get certified. For most companies, doing a rough cut assessment will take about an hour. From there, read through these guidelines to understand the performance and legal requirements to certify.
What is the Pending B Corp Status for Startups?
This is a one year program designed to help startups (< than 1 year ops) understand and improve their impact with the ultimate goal of creating a lifelong leader in using business as a force for good. It is a two-step process: protect your mission, and start measuring impact.
B Lab is a nonprofit organization that serves a global movement of people using business as a force for good. Its vision is that one day all companies compete not only to be the best in the world, but the best for the world and as a result society will enjoy a more shared and durable prosperity.