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Venture Funding With a Twist: Founders Have to Give Back

Anne Field | December 13, 2016

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Social entrepreneurship and venture capital are often an uneasy fit. The emphasis on fast growth and outsize returns can push founder to stray from their mission. Now, a new venture fund is marrying social impact and Millennial values with early stage investing—and redefining the term sheet in the process.

The fund, Aera VC, is a network of family funds seeking to boost social entrepreneurship by backing startups with the potential for high growth and VC-level profits. The twist: founders that receive funding from Aera are required to also give back in some way.

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Derek Handley (Photo credit: Aera VC)

Aera, in part, is tapping the rapidly increasing interest among young, wealthy investors for their family offices to become more focused on impact, according to founder and serial entrepreneur Derek Handley. “Were trying to build a global community for the next generation of family offices,” says Handley.

Plus it has an unusual mandate. Founders must do more than try to build a social enterprise; they also have to “pay it forward,” to quote the firm’s term sheet.

That idiosyncratic feature is included in what Handley describes as a social term sheet, requiring that founders define their company’s social purpose, lay out measurable metrics for both impact and traditional financial goals and agree to link “personal financial success with social impact.”

Specially, the term sheet requires:

Every venture’s social mission has to be carefully articulated and “embodied in its life blood.” That can include becoming a certified B-Corp, integrating mission or social-purpose language in founding documents, becoming a Benefit Corporation, or another legal, mutually agreed-upon method ensuring there’s a profound social purpose.

Companies identify, integrate and assess a key metric that drives the most substantial social impact.  That means one crucial social outcome, metric or target tied to the overall mission.

Pay it forward. Founders commit to allot direct or indirect equity from their personal holdings or contribute cash from a future liquidity event towards social goals. That can be done by forming a vehicle to invest cash into impact investments, creating a charitable foundation, or other steps.

Aera, with offices in New York and around the globe, says it backs “diverse founders with scalable technology and early traction targeting large markets in developed countries.”

The fund has already invested in six social enterprises, including Kinvolved, a New York City startup with an app that helps teachers track and communicate with parents about students’ attendance, Eat My Lunch, an Auckland, New Zealand, service that, for every lunch delivered, provides a meal for a child in need, and Maths Pathway, a Melbourne, Australia, company with a computer-driven teaching process tailored to individual student needs.

Over the next two years, Handley plans to invest in 15 more startups, with $100,000 to $500,000 seed stage and Series A funding rounds.

Handley was founding CEO of The B Team, a group of global leadership heavyweights, spearheaded by Sir Richard Branson, interested in triple bottom line companies. The founding team of 16 included micro finance pioneer Muhammad Yunis and other luminaries.

Ultimately, of course, it all means that social enterprise tech startups with high-growth potential have a new early stage VC fund to tap.

Anne Field is a New York-based journalist who writes about social enterprise and impact investing. A version of this article originally appeared on her Not Only For Profit blog on Forbes.com.

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