Businesses that aim to tackle social ills and turn a profit are getting attention from mainstream investors. Our third annual roundup profiles 25 ventures
When Jonathan Jackson started Dimagi, a software firm that makes open-source tools to improve health care in underserved communities and developing countries, he wanted to help people in need and create a sustainable, profitable company. Last year, the 20-employee Charlestown (Mass.) business got certified by B Lab, a nonprofit that promotes socially responsible business to show fellow entrepreneurs that businesses can tackle social ills. "Growing up, I thought the way you did that was go get rich and then donate your own money," says Jackson, 30. "I didn't realize there was this industry behind it." Dimagi is one of 25 ventures that Businessweek.com selected from reader suggestions to profile in our third annual roundup of America's most promising social entrepreneurs. The companies make products ranging from software to compost, and sell everything from baby food and brownies to insurance and financial services. They're innovating, too: Promethean Power Systems helps developing-world dairy farmers keep milk cold long enough to reach markets, while Mia Consulting created a new model for housing low-income senior citizens. Together these 25 companies employ more than 600 people and generated $165 million in revenue last year. The median company in the group has a staff of 19 and sales of $1.7 million. The size and sophistication of such companies reflect how social enterprises are maturing and growing beyond niche markets, says Jay Coen Gilbert, co-founder of B Lab, based in Berwyn, Pa. B Lab has certified 422 companies like Dimagi as "B corporations" committed to broader social impact. The group has also promoted legislation to legally recognize benefit corporations, for-profit companies that commit to creating social or environmental benefits alongside profits. Maryland became the first state to pass such a law last year, followed by Vermont, Virginia, and New Jersey. A bill in New York is on its way to the governor's office.
Socially minded entrepreneurs and investors are still building the infrastructure to start and expand companies that exist between the purely for-profit and the purely philanthropic. In January a program called Hub Ventures launched as an accelerator for social entrepreneurs, akin to programs such as TechStars that aim to develop early-stage startups and connect them with investors. "There's this real lack of funding and support for early-stage [social] ventures to get off the ground," says Wes Selke, founding director of the program and investment manager at social venture fund Good Capital. The program takes 16 social entrepreneurs through a 12-week mentoring boot camp in San Francisco. Investors are beginning to consider social ventures more seriously. "There's never been more interest from a more diverse group of investors in impact investing than there is now," says Gilbert. In November, a JPMorgan (JPM) research report labeled impact investments as an "emerging asset class" with potential investing profits in the hundreds of billions over the next decade. (The report was produced with the Rockefeller Foundation and the Global Impact Investing Network.) The bank distinguished impact investments, intended to create social and environmental benefits, from socially responsible investments designed to minimize the harm of business operations. "The impact investment market," the JPMorgan report notes, "is now at a significant turning point as it enters the mainstream." To meet the entrepreneurs behind the 25 ventures, flip through this slide show.