Kevin Jones

English

Research Papers in Economics

Mission Insurance:
How to Structure a Social Enterprise So Its Social  
and Environmental Goals Survive Into the Future
Kevin Jones
Good Capital
C
an a business’s social mission survive when a profitable social enterprise sells to 
a multinational? The twin stories of Ben & Jerry’s and Better World Books stand 
as bookends in the answer to this question. Ben & Jerry’s is the common story: 
selling means selling out. Better World Books has a different ending.
By linking its social mission to a lower cost of goods, deep brand value, and even capital-
ization and ownership structure, Better World Books may have built a business in which the 
mission can survive the exit. 
But first, the story with the traditional ending. Hidden inside four Ben & Jerry’s stores 
in San Francisco in the late 1990s was a secret social mission. The tourists buying a scoop 
of Chunky Monkey on the corner of Haight and Ashbury and the young hip investment 
bankers carrying early Blackberry’s in the Marina neighborhood had no idea their ice cream 
was being scooped by young men who had been on the edge of gangs from the Hunter’s 
Point ghetto. 
Sure  there  was  a  chance  that  customers  liked  the  fact  that  nearly  one-half  of  the 
employees were enrolled in a comprehensive social service program that included tutoring 
for their high school equivalency certificate and how to handle a savings account. However, 
there was a greater risk that if the customer thought the shop was bringing them into contact 
with ghetto kids with a past, they might go elsewhere, cutting into sales and jeopardizing 
the subsidized social service programs.
Ben & Jerry’s customers liked that the company had taken an ethical stand by saying no to 
using milk infused with bovine growth hormone. The company’s environmental virtue had 
created such brand value that it was highlighted on the ice cream cartons, along with its clever 
descriptions of the mix of flavors and syrups and cookie dough. That approach differentiated 
the company from other high-end competitors such as Häagen Dasz, creating financial value 
the company eventually realized when it sold to Unilever. However, the social virtue—the 
workforce development program that involved 40 percent of the employees in a shop and 30 
percent of those selling the ice cream at the 49’ers and Giants games—was kept hidden. 
Ben Cohen, in an act of private charity and good will, had allowed Juma Ventures and 
other high-performing nonprofits to pay a reduced franchise fee, essentially subsidizing 
the social mission. That reduced fee, the profits from the shop itself, along with grants from 
the few foundations that believed in a market-based approach to accomplishing a social 
mission, enabled Juma Ventures to provide more extensive social services than it could have 
by relying on philanthropy alone. 
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Community Development INVESTMENT REVIEW 2
School, saving, and work all combined to help the young people see a path out that 
they might otherwise have missed. More lives were changed by embedding a social service 
program within a business that could cover much of the program’s costs. 
Then Ben & Jerry’s sold to Unilever and things changed, as they always do when founders 
hand things over to a public company. Some important things were lost and some survived. 
Ours is not a story of villainy, but of profit and loss practicality. The multinational realized 
that,  thanks  to  clever  messaging,  affluent  consumers  were  buying  the  environmental 
mission of the company. It was a value that showed up on the bottom line; the ice cream 
gets a premium for its stance on environmental sustainability. 
Within months, however, the nonprofit franchise discovered that life had changed. They 
were vulnerable because keeping the social mission a secret was one key to its success. 
The social mission, unlike the environmental mission, created no brand value, no halo 
around the product. It made no financial sense for Unilever to continue to offer reduced fees 
and terms to the nonprofit franchise shops. It was a cost with no accompanying financial 
benefit. Under Ben Cohen’s leadership, Juma Ventures and other franchises had been called 
nonprofit partner shops. They were now discontinued.
Selling often means selling out and selling certain key piece of value the founder holds 
dear. That’s the typical story. It is not a new story, and that is part of the problem. We need 
a new story, and I think the market and consumer behavior and the realities of what value 
means to investors may allow a new story to be written. Maybe.
As one of the founders of a venture fund promising our investors a mix of financial and 
social return, I want to create a new narrative, one in which the social mission survives the 
sale to a big company, where the numbers rule all and there is no founder to decide to 
compromise some portion of the profits by either subsidizing a social mission or going after 
lower-income customers. 
After being involved in the social capital market for nearly nine years as a member of 
various industry and association boards, and as an investor and advisor to social enterprises, 
and having spent eight months doing a comprehensive survey of the landscape of social 
enterprise, I believed I had learned a few things when we launched Good Capital a couple 
of years ago, an investment firm that increases the flow of capital to innovative ventures 
creating market-based solutions to inequality and poverty. 
The first thing that became clear was that it was possible to build a large, profitable busi-
ness with a social mission at its core. It was also possible to use the market and its efficient 
allocation of human, financial and cultural resources to deliver greater social impact at 
greater scale than via philanthropy alone. 
Although the market alone does not produce the scalable social impact (it does it in 
concert with philanthropy and public resources), the market is an additive factor. Microfi-
nance, now a valid asset class with major investment banks selling its bond and derivative 
products, would not have become successful without visionary nonprofits. These nonprofits 
pioneered in lending to groups of women in rural villages when others scoffed at the idea that FEDERAL RESERVE BANK OF SAN FRANCISCO
Community Development INVESTMENT REVIEW 3
the poor could lift themselves out of poverty with anything other than a gift from “the haves.” 
It is the same with the new generation of for-profit and nonprofit social enterprises, busi-
nesses created to combat poverty and injustice via the market. Often these companies are 
partners with grant-funded nonprofit organizations that have paid for the infrastructure that 
enables the social impact, such as governments that build highways that enable privately 
owned trucks to haul freight. But the market is a mechanism that can bring things to scale, 
that can let an enterprise grow at low cost through an efficient use of resources. Philan-
thropy is not built to take a particular enterprise to scale, and public expenditures take far 
longer to deploy and are less flexible and responsive to on-the-ground conditions. 
The second thing that became clear when we launched the social enterprise expansion 
fund at Good Capital was that the social mission (unlike an environmental mission, which 
can often create additive brand value that results in higher margin) often gets stripped out 
after sale. Selling turns into selling out. No one in the new generation of social purpose busi-
nesses wants to replicate Ben & Jerry’s experience.
As a six-time successful serial entrepreneur with nothing left to prove and little left to 
win in traditional business, I believed I could help young businesses grow. I teamed with 
Tim Freundlich, my partner at Good Capital, who was one of the leading financial innova-
tors in social investing. Freundlich was the architect of the Calvert Community Investment 
Note, which grew from zero to $160 million in assets and enabled retail investors to put 
their money into a microfinance institution in Ecuador or a fair trade co-op in Africa. Our 
third partner, Joy Anderson, brought deep experience in nonprofits and a knack for working 
with large organizations around big issues. We saw a crying need for risk capital to help 
these social-purpose businesses take advantage of the market and social needs they were 
uniquely suited to fulfill. 
We have raised a few million dollars from some visionary investors who are capable of 
standing in that new middle ground between giving and investing, who can feel the right-
brain, heart-tugging need to have a big impact on the pressing problems of poverty and 
injustice. These investors are able to let that right brain converse with the rigorous, analyt-
ical left brain financial assessment that enables good investment decisions, and to choose a 
business on its financial merits.
We had no doubt we could find good businesses to invest in, businesses with solid social 
missions baked into their DNA. That had already been proved, sometimes by owners like 
Ben Cohen. What had not been proved, and what has yet to be proved, is whether one can 
build a business in which the social mission survives the exit. How do you sell and have some 
reasonable faith that you are not selling out? That is the question that Good Capital has set 
about trying to answer.
In the work we have done with our first portfolio company, Better World Books, we think 
we have come up with some innovations that may stand the test of time.1 An online book-
1   http://www.betterworldbooks.com/FEDERAL RESERVE BANK OF SAN FRANCISCO
Community Development INVESTMENT REVIEW 4
seller has grown from $18 million in revenue when we invested in late April 2008 to $30 
million in annual revenue by June 2009. It has been operating with positive cash flow every 
month in 2009. Better World also has a unique, philanthropically dependent supply chain.
People give the company its core product. Better World Books receives more than six 
million books a year from used textbook donation drives on campuses. These drives benefit 
nonprofit literacy groups such as Books for Africa and Room to Read. This source reduces 
the company’s cost of goods by around 7 percent on a gross profit basis. That is the amount 
it remits to the literacy nonprofits after selling the donated books online. In the first four 
years, the literacy nonprofits received more than $5 million in cash from sales of donated 
books. In addition, the company sells online hundreds of thousands of books and donates 
others to literacy groups, mostly from libraries clearing out their shelves.
The libraries win, too. In 2008, the Brooklyn Library received more than $90,000 in 
exchange for books that would have been trashed or recycled. The money was unrestricted 
income, the hardest money to come by. Unrestricted funds cover gaps in payroll or opera-
tions. In contrast, funders who think they know better than librarians how their money 
should be spent offer restricted funds that must be devoted to a particular program. Better 
World Books delivered another $40,000 to the Brooklyn Library, which the library gave to a 
local literacy group, Brooklyn Reads. 
The waste stream, books headed for the trash, are converted to revenue in more than 
1,000 libraries, which are now better able to keep their doors open and their reference 
desks staffed in the midst of budget cuts during the downturn. Along the way, Better World 
Books saves hundreds of thousands of pounds of books from the landfill every year. It also 
adds a small surcharge to buy carbon offsets so that its books ship to consumers as carbon 
neutral.
Better World Books is branding its environmental impact—that items destined for the 
trash are being reused. Every used book sold eliminates the environmental cost of chopping 
down trees and manufacturing a new book. Also core to the story is that the business was 
built as a method of funding literacy efforts at greater scale than philanthropy alone could 
manage. Like Ben & Jerry’s, it is branding its environmental value. Unlike Ben & Jerry’s, it is 
also branding its social value on campuses across the country. Students sell their books to 
Better World Books rather than to the bookstore because they trust the company and they 
want to help promote literacy. Its social mission is part of what people are “buying” when 
they give the company the books that Better World turns around and sells. 
That viral, scalable dynamic has created a fast-growing rocket ship of a business. Because 
the social value is creating brand value and affinity with students who also become more 
likely to buy books from Better World, it is more likely to survive a sale to a multinational after 
the company crosses $100 million. 
The social mission’s brand value, the trust that causes students to give the company its 
product, also results in a lower cost of goods That is another reason the mission is likely 
to survive an exit. A multinational that strips out the link to the literacy nonprofits could FEDERAL RESERVE BANK OF SAN FRANCISCO
Community Development INVESTMENT REVIEW 5
create higher costs of operation and gut the core brand value of the company with its key 
customer base. The social value is similar to Ben & Jerry’s continuing refusal to use milk 
infused with bovine growth hormone even after the sale to Unilever; it is a value that makes 
business sense.
Lower costs and higher margins are joined at the hip with high social impact just as they 
were at Ben & Jerry’s. However, Better World Books is avoiding the pitfall of hiding the social 
mission. Instead, it is creating brand value with its social mission. We’ve helped Better World 
build a business in which the mission is more likely to survive an exit. But we’ve also done 
something even more unusual. We’ve created a capitalization structure that will make the 
nonprofits key players at the table if and when an eventual sale occurs. That’s the real secret 
sauce inside Better World. We created a reverse poison pill that can keep the social mission 
intact at sale and then we swallowed it. 
Let me explain. When we were first negotiating our investment term sheet with Better 
World, the founders had no money from investors despite racing to $18 million in revenues 
in four years. They were so focused on their mission that they proposed giving one-half of 
their profits to the literacy nonprofits, which scared away other investors. We pointed out to 
them that such a plan would cut the valuation of the company in half, and result in only half 
the money they needed to grow. Instead, we suggested they put aside 5% of their founders’ 
stock into an option pool dedicated to their nonprofit partners. Let Books for Africa and 
Room to Read vest their options on two metrics; how they performed on their social mission 
and how many books they brought in. 
With vested stock options, the nonprofit would be a beneficial shareholder at the time 
of sale, and their interests would have to be accounted for. The company agreed, and we 
helped them change the capitalization table to incorporate the nonprofit literacy partner 
stock option plan. 
For Good Capital, we call this kind of structure “mission insurance,” and it is the kind of 
thing we look for or try to create. Our goal is not just to show that a social-purpose business 
can grow, but to prove that the social mission can survive the sale to a profit-driven multina-
tional. Together with Better World Books we have augmented its intrinsic mission insurance 
at three levels; cost reduction, brand value, and ownership.
By putting a price on literacy and measuring its growth, we have made the mission 
impact one of the assets of the company. It will be part of what an acquirer buys, not a 
hidden pocket of philanthropy tucked away in a portion of the company destined to be 
swept aside when the number crunching multinational send in its cost cutting teams. 
As it happens, literacy is particularly easy to measure; every good teacher does it for 
every student, judging how far the student has progressed on vocabulary, syntax, and so 
forth. Rather than derive our own cumbersome measure of social impact, we’ve simply 
incorporated the metrics that the nonprofits already report to their own foundation funders. 
The cost of measurement is already being born by the nonprofits, and the foundations and 
educational institutions have validated those metrics over the years.FEDERAL RESERVE BANK OF SAN FRANCISCO
Community Development INVESTMENT REVIEW 6
We have just set up a structure in which the literacy nonprofits can anticipate a big 
payday that can have a huge impact on their organizations if the company succeeds. If we 
have built in the right levers, Better World Books will not be yet another cash-out and a 
sellout. For Better World, the social and environmental mission is core to the brand and a 
key to a low-cost supply chain that in itself builds customer loyalty. That value will be clear 
to the right acquirer.
The mission is part of the brand, but the people in charge of delivering on the mission, 
the nonprofit literacy organizations, are also owners of the company, shareholders with 
rights. Having the nonprofits represented in a sale, or at least with their interests repre-
sented, will help ensure that message is not drowned out when the numbers get big and 
people start seeing dollar signs in the air. Increasing literacy is equated with an increasing 
value of stock options.
Like every other venture investor, we look for barriers to entry by competitors when eval-
uating a prospective investment. But our real goal is to link those competitive advantages 
with a parallel set of barriers to mission exit. 
We look for elements in the way the company operates, in the way it builds its brand, 
and sometimes in creative and transformed ownership structures that embed the mission so 
deeply into the company that it costs the acquirer money to run the business and damages 
customer relationships if the mission is removed. To make the point clear, at Better World, 
we created a seat at the table (the exit table) for those delivering the mission and established a 
structure in which the social impact becomes an asset of the company. Removing the mission 
results in higher operating costs, lower margin, brand erosion, and a complicated sale.
Will the mission survive the eventual exit at Better World Books if it sells at the $100 
million point? Time will tell. On the other hand, a sale is not the only option. If Better World 
Books decides not to sell, and decides to continue operating as a fast-growing, profitable 
business, we have installed a put option that will let the company buy out our interests and 
deliver our investors a return based on a valuation of 1.5 times revenue at a fixed point in the 
future. The company is on a trajectory that would give our investors a very solid double-digit 
return if it stays on track. It is doing well. It is doing good. And it is built to keep doing that, 
no matter what happens in the future. 
Kevin Jones is a serial entrepreneur, seven of whose eight businesses achieved market dominance. He has 
been a columnist for Forbes, and early in his career his reporting put a Mississippi sheriff in prison. He 
is excited to see the social capital market come together.

Mission insurance: how to structure a social enterprise so its social and environmental goals survive into the future

http://www.frbsf.org/publications/community/review/vol5_issue2/jones.pdf

Mission insurance: how to structure a social enterprise so its social and environmental goals survive into the future

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Research Papers in Economics