Professor Haskell Murray offers thoughts on Ello, a Delaware public benefit corporation that owns and operates a trendy new social network. Ello was recently featured in the New York Times Dealbook blog. While the entire post is worth reading, the following in particular is noteworthy:
Fifth, even if traditional investors are (somewhat) warming up to social enterprises, social entrepreneurs still seem to be a bit skeptical of traditional investors. When raising money, Ello "drew the attention of the usual giants in the venture capital world. . . . But Mr. Budnitz said he instead turned to investors whom he could trust to back the start-up’s mission, including the Foundry Group, whom he came to know when he lived in the firm’s hometown, Boulder, Colo.” There are increasing sources of capital for social enterprises from investors who also have a stated social goal (See, e.g., JP Morgan’s May 2014 survey of impact investors).
We have previously posted on benefit corporations. For example, on June 10, 2013, we commented on the then-proposed Delaware benefit corporations statute as follows:
the proposal is still flawed because it fails to clearly define priorities for the directors (specifically, to prioritize between the directors' duty to maximize shareholder utility and their duty to advance the social benefit for which the corporation was intended).
This sort of uncertainty, as Murray notes, works both ways. Investors are wary of putting their money in enterprises where their profits may take second place in priority to nebulous and subjective notions of "benefit." Organizers of benefit corporations, likewise, are wary about bringing on investors they do not know and cannot trust to share their vision and prioritization of the benefit purpose.